Snow Brand Milk Products, Japan’s largest dairy firm, has revealed today (26 September) that it is forging an alliance with the local subsidiary of Swiss food giant Nestlé. Snow Brand announced that there are “various possibilities” for cooperation within fresh food, such as joint ventures, sales and licensing, and the details of these will be released by the end of this year. At the same time, Snow Brand revealed the measures necessary to make the company profitable, as huge losses are predicted following the recent food poisoning incidents.
Bacteria-tainted milk made about 14,800 consumers ill this summer, forcing the president’s resignation and deeply tarnishing Snow Brand’s image. The Osaka plant, blamed for the initial outbreak of staph bacteria, was closed down but it later emerged that the contamination may have originated at the Taiki plant and the factory on the Northern Island of Hokkaido. Police investigating the poisoning said that the company had not taken adequate sanitary measures, and Health and Welfare officials uncovered the practice of recycling milk returned from stores, including that which was beyond its freshness date. Large scale recalls prompted supermarkets to snub Snow Brand and the poor quality control and risk management systems at the company were highlighted.
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Huge losses in the pipeline
As a direct result of this scandal and failing consumer confidence, Snow Brand is expecting huge fiscal year losses, the first in its 50-year history. Pre-tax losses are estimated at Y53.8bn, group net losses at Y47.5bn, and consolidated sales are expected to fall 10% from the previous year to Y1.16 trillion. Extraordinary charges are anticipated to reach Y29bn, relating to the cost of product recall, compensating retailers and the disposal of infected products. Sales at the parent company are expected to fall 37% to Y170.2bn.
President Kouhei Nishi admitted that the damage from the poisoning incident was “larger than expected.” Losses of nearly Y10bn are expected to be made during the next financial year.
As well as moving to restore credibility, Snow Brand is also attempting to improve profitability by March 2003. Measures are being established to improve the quality control of products leaving the company’s 21 food plants, and Snow Brand will liquidate unprofitable and non-core subsidiaries to concentrate on its milk and dairy businesses. In addition, the company has put plans to expand further into pharmaceuticals on ice.
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By GlobalDataWorkforce to be trimmed
A projected 19% of the workforce will also be cut by March 2003, however the company has stressed that the 1300 jobs on the line will be scaled down through natural attrition rather than lay offs.
The announcement of tie-ups on items such as yoghurt and ice-cream with Nestlé Japan, a wholly owned subsidiary of the Swiss food giant, comes as no surprise. Analysts were predicting huge losses following weekend reports hat the company was in the red and this could be just the move that Snow Brand needs to increase consumer confidence. The share value rose 2.71% today, perhaps signifying the start of the necessary rise after shares shed around a third of their value during the food poisoning scandal.
But what’s in it for Nestlé?
For its part, Nestlé confirmed the signing of a letter of intent with Snow Brand in Japan, where it has a well established operation but remains far smaller than Snow Brand in the dairy sector. Nestlé said that the project was an opportunity to broaden its product base in Japan, where its coffee, confectionery and pet food ranges are already performing well, generating sales of SFr3.4bn in 1999. Hooking up with a weakened sector leader will give the Swiss giant the toehold it needs to expand its dairy holdings in Japan – and will also leave it in the gratifying position of appearing to “step in and help” a local player highly embarrassed by one of the country’s worst ever poisoning scandals.
