First Milk has insisted the future of the Lake District Dairy Company in the Cheddar category is safe, despite having handed the commercial development and marketing to Adams Foods.
The two dairy companies announced last week they had struck a strategic partnership, under which the hard cheese produced by First Milk’s creameries will be packed, sold and marketed by Adams, which will also take charge of any commercial negotiations with retailers.
As part of the 10-year agreement, Adams – which is owned by the Irish Dairy Board – has committed to buying a minimum of 50,000 tonnes of First Milk-produced cheese a year, which it will sell as own label as well as under the Lake District brand.
Adams already owns the Pilgrims Choice Cheddar brand and neither company would be drawn on how much of the 50,000 tonnes Adams would be committed to selling as Lake District. However, First Milk CEO Kate Allum stressed there was a “defined commitment” to support the brand written into the contract with Adams, meaning Adams would not be at liberty to drop Lake District in favour of its own brand or own-label lines.
“It’s very, very early days. What we do have is great marketing and consumer insight teams, and those guys will figure out the right plan, in conjunction with some help from First Milk”
Ian Toal, Adams Foods
“We would sit there completely confidently today and think that our brand, in terms of how it’s going to be put through the sales and marketing [team at] Adams, is in the safest and best hands,” she told The Grocer at First Milk’s AGM on 31 November.
Adams CEO Ian Toal added Pilgrims Choice, which is used largely by the IDB to market Irish Cheddar in the UK, had a different “provenance positioning” to the UK-produced Lake District, and there was room in the Cheddar category to support and develop both. “We have proved with Mu that we can find a way of making other brands work if they have a different proposition,” he said.
Adams was likely to keep Lake District’s positioning the same in the immediate future, but would review and possibly tweak it in the medium term, Toal added, though he declined to give further details. “It’s very, very early days. What we do have is great marketing and consumer insight teams, and those guys will figure out the right plan, in conjunction with some help from First Milk.”
First Milk will retain ownership of the Lake District intellectual property and has licensed it to Adams for hard cheese only; it will continue to be in charge of the brand’s development in other categories.
Twelve-week data from Kantar Worldpanel to 15 September showed an 85.9% decline in Lake District volumes, but First Milk said this was not representative of the brand’s performance, as sales during the period declined because the brand had come out of Morrisons. It has since been relisted.
Price mechanism
Both companies have been tight-lipped on the financial details of their partnership, saying only that First Milk would be paid a “competitive price” by Adams for its cheese, which would generate a profit for the farmer co-operative.
News of the Adams/First Milk deal has prompted suggestions the deal could expose First Milk’s British farmers to volatile Irish cheese prices, but Garyth Stone, managing director of corporate finance firm McQueen – which acted as advisor to both sides in the deal – said there was no link to Irish cheese prices or volumes in the Adams/First Milk pricing mechanism. “It’s purely a UK mechanism,” he said.
This week, First Milk announced it would increase its standard-litre manufacturing and liquid pool prices to 32.5 pence per litre from 1 December, having increased both prices by 1ppl on 1 November.
Asda contract
First Milk recently lost a major Cheddar contract with Asda to Arla, which has prompted it to launch a consultation regarding the closure of its packing plant in Maelor, in Wales. However, Allum insisted the loss of the Asda contract had no bearing on talks with Adams, which had been in the making long before the Asda deal came up, she said. “It absolutely didn’t change what we were trying to get to. The timescale wasn’t accelerated, slowed or changed in any way.”
Negotiations began in earnest on 5 October 2012, but the two companies had informal conversations about a possible partnership prior to that. Toal added it was Adams Foods that had initiated talks with First Milk.
“We’re run by Irish farmers and the reality is we’ll always have an Irish agenda in the UK, but we’re also the biggest buyer of British cheese”
Ian Toal
Prior to the deal, Adams had been buying a lot of British Cheddar on the open market but it wanted to create a more sustainable, consistent supply of British cheese for its business and its own-label customers, which The First Milk partnership delivered. “We’re run by Irish farmers and the reality is we’ll always have an Irish agenda in the UK, but we’re also the biggest buyer of British cheese and to be in the own-label market, and to be relevant to retailers in the long term, we will need a sustainable long term of British supply.”
While the deal was clearly a good outcome for Adams, it also delivered important, tangible benefits to First Milk farmers, particularly in securing the long-term future of First Milk’s creameries, said Allum. Toal added: “It is a good deal for us, but it is also a good deal for First Milk and its farmers. This is a win-win. If I’m honest, if I was out for a short-term buck, I probably could have done this for less. The consideration in this has been the long term throughout.”
Job implications
With Adams taking charge of the commercial development of Lake District in hard cheese, resources will be freed up within First Milk, but Allum insisted the partnership would not result in job losses. “Actually we will increase our marketing team, and what we will do is not about scaling back our commercial team it will be about reallocating people to different areas,” she said.
Asked specifically about whether there would be job losses at First Milk, Allum said: “At the moment, no, I don’t think there will, because there will be a reallocation of roles, there will be some different roles and some of our people might be with Adams.”
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