Kingsmill owner Allied Bakeries has lost its contract to supply Tesco with own-label bread.
The loss of its largest own-label bread manufacturing contract has forced the business to make a £65m impairment charge against its income. The loss of the Tesco deal, which will end in 2020, followed pricing discussions with the retailer.
“We are proud of our recent work with Tesco to help develop their own-label bakery range,” said Allied Bakeries.
“Though, from 2020, we will no longer be supplying Tesco with own-label wrapped bread, our integrated network of bakeries and supporting distribution fleet will continue to service their stores with our branded portfolio.”
Tesco confirmed it was making changes as part of a review of its bakery supply chains, adding: “We remain absolutely committed to working in partnership with all our suppliers and will do all we can to support them during the transition process.”
Allied has been making a loss for some years, and although this had been forecast to fall this year, parent company Associated British Foods (ABF) said it aimed to continue reducing the cost base – with steps to do this planned for the second half of this year.
“We are focused on, and committed to, further reducing these losses and are developing options for measures to be taken as needed,” ABF stated in its interim results for the 24 weeks to 2 March.
The company said other customer discussions on pricing had brought “some success”, and had contributed to a 4% increase in revenue from ABF’s overall grocery business.
ABF reported that revenue from its ingredients division was up 5% year on year, with operating profit up 2% at constant currency.
ABF-owned AB Mauri delivered sales growth in all regions, with trading performance in Europe benefiting from the integration of Holgran and Fleming Howden, which were acquired last year.
Group revenue across ABF was £7.5bn in the first half, 1% ahead of last year, while adjusted operating profit of £639m was 1% lower at actual exchange rates.