Northern suffers as doorstep milk vanishes

NIGEL COPE

The continued decline of doorstep milk sales combined with increasing pressure from the supermarket groups has dented half-year profits at Northern Foods, Britain's largest dairy group.

Pre-tax profits for the six months to September fell marginally to pounds 53m though dairy profits were down sharply. The company blamed intense price competition among high street retailers, combined with rising raw material costs, for the disappointing group performance.

The hot summer weather hit sales of convenience foods such as ready-made meals and hot pies. Biscuit sales were also lower due to the weather and rising ingredient prices.

Doorstep sales of milk continued to decline with volumes down by 12 per cent. Northern Foods now sells more than half of its milk to supermarkets and just 27 per cent via doorstep delivery. Christopher Haskins, chairman, says doorstep sales will fall to around 20 per centover the next few years. The company says it is managing the decline of the doorstep pinta better than the industry average.

However, the dairy division saw profits fall sharply from pounds 35m to pounds 29m. Selling prices to supermarkets were badly affected by intense retail competition while packaging profits have increased.

The company is reducing its milk bottling capacity by 40 per cent through a series of dairy closures and the planned cost saving are starting to come though. The group's South-west and North Wales dairies were closed at the beginning of the year and the Hull and Middlesbrough dairies will close early next year. The group is also swapping assets with Associated Co-operative Creameries to concentrate on the East Midlands.

Profits in the prepared foods division fell by pounds 1.7m to pounds 34.7m. Sandwich sales were strong, though the mild early autumn weather affected sales of ready-made meals.

The Pork Farms and Bowyers subsidiaries performed well. Fox's Biscuits struggled to maintain brand share in the face of supermarket pressure, the weather and rising costs of ingredients such as butter, sugar and flour. However, price increases to retailers were implemented in April and October.

Green Isle, the Irish frozen foods group which Northern Foods took control of in June, is performing well and is establishing its Goodfellas' pizza brand in the UK.

Mr Haskins said that he did not anticipate an improvement in market conditions but the company would continue to drive down costs.

He said that Northern was still on the lookout for other acquisitions in the UK food market, as well as Continental Europe. These would be in existing product areas such as dairy products and added-value foods. "We are expecting a big shake-up in the food market in the next two to three years," Mr Haskins added.