Geest streamlines Asda fruit business
criticised, not least for the apparently detrimental effect it has
on suppliers. But the relationship between the retailers and their
suppliers is not always one of squeezed margins, delayed payments
and unreasonable demands - as a new venture by fresh produce group
Geest clearly shows.
Geest is one of the leading suppliers of fresh produce to Asda, the Wal-Mart subsidiary which is the second largest supermarket group in the UK, and back in December 2003 announced plans to combine its business with another supplier of the retail chain to maximise the synergies between the two groups.
Those plans have been seven months in the making but the company has finally unveiled the exact structure of its new business venture, called International Produce.
Geest is to merge the current import activity of its English Village Salads (EVS) - which is dedicated to Asda - with the business of Thames Fruit - an exclusive importer of citrus fruits and melons for the giant retailer.
Geest said that International Produce would not limit itself to the current Asda-focused product ranges of its two constituent companies, and would expand its product portfolio to handle other types of imported produce in the longer term - although its focus would remain on Asda.
EVS will also continue to supply Asda separately with produce grown in the UK.
While the International Produce deal will undoubtedly streamline the supply of fruit and vegetables to Asda, it will not have any major impact on Geest's financial performance, with the company saying it expected International Produce to make a profit of £1.7 million for the year, although this would be offset by a reduction in profits from EVS because of the transfer of assets, leaving Geest with just a small rise in earnings.
"As a result of the revised supply contract with Asda, Geest will now account for both International Produce and EVS - for the supply of produce - as if they were agents," the company said in a statement.
"In the second half of 2004, Geest expects to record aggregate sales of about £18.5 million for EVS and International Produce under this new accounting treatment. Had Geest reported EVS's sales in this way in 2003, they would have been reduced from approximately £127 million to £16 million."
Maintaining a continuous supply of quality products is clearly of vital importance for Asda, and the company has been granted an option over Geest's shares in International Produce should it decide that closer control over its supply chain is the best way of ensuring this level of consistency.
The chain has five years to exercise this option at the price of £5.3 million, after which time the shares would be valued at net asset value.
Paula Cooper, communications manager at Geest, told FoodandDrinkEurope.com that the decision to streamline the supply chain was part of its ongoing collaboration with Asda, which consolidated almost all of its UK produce supplies through Geest back in 2002.
"We have traditionally had a strong relationship with Asda when it comes to supplying fresh produce, and we see this as a very 'grown-up' way of doing business with one of our most important customers."
Although Geest was historically a fresh produce trader, this part of its business today accounts for just 20 per cent of sales - which is why it is likely to have little in the way of financial impact on the company's core business of fresh prepared foods.
But what it will do is strengthen the links between supplier and retailer, with both partners working together to their mutual benefit. A better relationship with Asda, and a willingness to work with its main customer to improve supply chain efficiency, even if it is only in one relatively small part of its business, should stand Geest in good stead when it comes to clinching further deals for its own label fresh prepared foods business - a much more profitable and important part of the business going forward.
