The site, which makes chilled Chinese ready meals for Sainsbury, was losing money, one source close to the firm told FoodManufacture.co.uk. “I think both sides recognised that more investment was needed in the site, but they couldn’t agree over price and volumes going forward. Northern had said to Sainsbury, we’ll invest in the site if we can agree a three-year business plan covering prices, volumes and returns, but they couldn’t reach a deal.”
Corporate communications boss Andrew Hanson said: “We are entering consultations with staff representatives and obviously will consider all options, but the site as it is, is not viable.”
Jeff Beck, regional organiser for the GMB union, told FoodManufacture.co.uk that staff had been "shocked and disappointed" by the announcement.
He added: "I don't think everyone knew it was losing money, certainly not a guy I spoke to this morning that had just come off a nightshift to discover that his job was going. They also don't recognise unions at the site so they are negotiating directly with employees.
"This is one of the risks of putting all of your eggs in one basket and tying yourself down to one major customer."
In a statement issued to the stock exchange this morning, the company said: “We have been in discussions with the anchor customer for our Ethnic Cuisine ready meals facility in Swansea to seek commercially viable terms for the products supplied by this factory. Mutually agreeable terms could not be reached and as a result, we have reluctantly decided to terminate the existing supply business.”
Northern Foods acquired the Swansea factory in November 2007 and has “continued to invest in the site to improve its infrastructure and capabilities” ever since, said the firm. “However, recent negotiations could not secure a viable return for current and anticipated future investment.”
The site is expected to close by August.
Exiting unprofitable contracts
This is not the first time Northern Foods’ boss Stefan Barden (pictured, above) has taken the decision to close a site after failing to agree terms with the major supermarkets.
In 2008, the firm mothballed its Fenland Foods Italian ready meals plant in Grantham because it was unable to secure a price increase from Marks & Spencer.
In May last year, Northern also announced plans to close its Hull factory after losing a contract to supply chilled ready meals to Morrisons, at the cost of 349 jobs.
Shore Capital analyst Clive Black said: “For Northern Foods, this is a clear disappointment. However, the outcome also contributes to a growing concern on our part that business is being off-loaded and not replaced elsewhere across the group. We do not criticise management for each specific decision, such matters may be very rational, such as the closure of the Hull ready meals plant supplying Morrisons. However, the principle of ‘ever decreasing circles’ and potential negative operational gearing increasingly worries us.
“So, such business losses put greater pressure on management to find new sources of revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) and we increasingly look for evidence of this coming through.”
He added: “Beyond Northern Foods, the closure of Swansea will remove further capacity from a rationalising UK ready meals market. All of the major players have closed capacity, but particularly Northern. Hence, ethnic cuisine may be a modicum of good news for the remaining players such as Bakkavor, Greencore, Kerry Foods UK and Premier Foods.”