Geest reorganises to aid Asda focus

- Last updated on GMT

Related tags: Geest, Retailing, Supermarket

The relationship between suppliers and retailers can frequently be
a difficult one, with the supermarkets traditionally being cast as
the villain, squeezing every penny of profit out of their put-upon
suppliers.

But while there are certainly plenty of cases of retailers using throwing their weight around, many companies are becoming increasingly reliant on their contracts with the multiple grocers, so much so that some will go out of their way to adapt their own business model to that of their biggest customers.

The latest company to go down this route is British salad maker Geest​, which last week announced that it was considering forming a separate company dedicated entirely to the Asda supermarket chain.

Asda is already one of Geest's most important customers - the import business of its English Village Salads (EVS) is dedicated entirely to the retailer - and it is hoping to strengthen this position through a merger of EVS' import arm with Thames Fruit, an independent company which is the exclusive importer of citrus fruits and melons for Asda.

Geest's proposal is to merge these two businesses into a new unit, for now simply called NewCo, in which it would take a 76 per cent stake. The remaining 24 per cent would be held by Emilio Teresa, the owner of Thames Fruit.

Although Geest would not transfer any assets to NewCo, the change of structure would affect around half of EVS' total turnover - some £65 million. Thames Fruit, on the other hand, would transfer around £1 million of assets to NewCo, with some £60 million in sales also being affected.

EVS would continue to supply Asda with produce sourced from the domestic market, and would not be affected by move, Geest said.

"Through a supply contract with Asda, NewCo would become its agent for imported produce and therefore the turnover definition would change,"​ Geest said in a statement. "Consequently, NewCo is expected to report an estimated annualised service income of some £29 million and an annualised profit before tax of £1.6 million in its first year of operation."

Geest said it expected the agreement to be finalised in January 2004 and NewCo to become operational in the second half of 2004.

"Should Asda wish to terminate the supply contract, it would give two years' notice to buy out NewCo at net asset value and assume all employee responsibilities,"​ the company said.

Back in September, Geest stressed the growing importance of its retail business, which it said had contributed strongly to a 10 per cent increase in first half sales to to £422.9 million. New contracts with retailers - and the diversification of the latter into different store formats such as convenience stores - have given a major impetus to innovation at the group, which launched some 450 new products during the first six months.

"Our customers [the major retail chains] continue to demonstrate their commitment to investing in convenience stores, a format which favours high quality, innovative, fresh prepared foods,"​ said Gareth Voyle, Geest chief executive, adding at the time that the company would continue to invest in this business to tap this potential.

Related topics: Retail & Shopper Insights