Costcutter is set to announce a major new supply deal with Palmer&Harvey in the biggest shake-up in the convenience sector in years.

The Grocer understands Costcutter, which is owned by shipping giant Bibby Line Group, will take over the management of P&H’s Mace symbol operation, while P&H will handle distribution for Costcutter’s fascia stores and Mace.

Costcutter informed staff of the plans this week, while P&H had planned to tell staff and customers at meetings next Wednesday.

The move brings to an end one of the longestrunning sagas in grocery: whether Costcutter would split from buying group Nisa or not.

Costcutter’s current deal with Nisa runs to July 2014. It must give Nisa a year’s notice if it wants to end this.

However, The Grocer understands Costcutter has yet to serve this notice.

The relationship between Nisa and its largest member dates back more than 20 years, with Costcutter making up about 35% of Nisa’s £1.5bn business.

Nisa CEO Neil Turton said the news came as no surprise. “In a letter to Nisa’s chairman in August 2009, during attempts by Bibby Line Group to acquire Nisa, Sir Michael Bibby stated that ‘if we don’t take the opportunity for Nisa, Bibby and Costcutter to work together within one organisation ,then strategically we need to split them apart’. As such, we expected such developments and have planned robustly for them.”

“Under the stewardship of Colin Graves and Nick Ivel, negotiations with Costcutter had been progressing positively,” Turton said.

Since a change in management at Costcutter last summer, which saw CEO Nick Ivel replaced by former Starbucks and Clintons Cards boss Darcy Willson-Rymer, there had been “little appetite for a renewal of contract”, Turton added.

Despite the blow, Turton remained optimistic about the future. “Nisa is designed to make money for retailers, not a private owner or wholesaler,” he said. “We think independent retailers generally understand this and will choose this model as it seeks to make money for them and not out of them.”

A source close to P&H said the move fitted its plans to focus on distribution rather than managing its retail business. In November, The Grocer revealed that P&H was to make a raft of directors redundant. “The directors they kept included distribution and IT. It’s now clear what they were looking to do,” he said.

Neither Costcutter nor Palmer & Harvey would comment. 

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