Business Irish

Sunday 18 August 2019

US snack giant sues Aryzta for supply failure

Kevin Toland, CEO of Aryzta. Photo: INM
Kevin Toland, CEO of Aryzta. Photo: INM
John Mulligan

John Mulligan

Embattled Swiss-Irish food group Aryzta has been slapped with a major lawsuit in the United States that exposes the impact its manufacturing difficulties in America have had on customers.

Tennessee firm McKee Foods - which owns the high-profile Little Debbie brand in the US and has annual sales of about $1.5bn (€1.27bn) - claims that it will lose millions of dollars in profits because Aryzta couldn't fulfil its orders properly.

Family-owned McKee is one of biggest cake snack makers in the United States.

In a complaint filed in Tennessee, it says that it initially engaged a company called Cloverhill Pastry-Vend in 2010 to undertake outsourced manufacturing for McKee Foods.

Cloverhill was acquired by Aryzta in 2014, and Aryzta continued to be engaged to produce Little Debbie products.

In its complaint, McKee claims that in late May this year, Aryzta notified McKee that it was experiencing a "labour issue" and warned that it might encounter problems manufacturing and supplying the McKee products under the terms of their agreement.

McKee claims that three weeks later, Aryzta began having problems filling the Tennessee company's orders.

McKee alleges that Aryzta recognised it did not have enough employees to manufacture all the products under their agreement.

"Aryzta requested that McKee 'prioritise' certain products for manufacture", claims the Tennessee firm.

It adds in its complaint that it complied with the request "despite the fact that this arrangement caused certain products to be pulled from the market".

McKee claims that Aryzta assured it last June and July that its supply issues would soon be resolved and that it would be able to supply all McKee's products.

But McKee has alleged that Aryzta's performance did not improve.

"Aryzta continued missing shipments, shipping incomplete orders, shipping the wrong orders, and shipping orders late," it claimed.

McKee argues that under the terms of its agreement with Aryzta, it has a right to inspect Aryzta's manufacturing facilities. In June, it tried to schedule inspections but claims that Aryzta "repeatedly postponed" them.

McKee terminated its agreement with Aryzta in August, despite the fact that it would result in a number of its products being unavailable to consumers as a result.

"McKee determined that significant damage would occur to the market for the products if McKee's customers continued to submit orders which were not filled, and McKee decided that to minimise damages the products should be removed from the market until another source of supply could be located or McKee could begin self-manufacturing the products," it says in its complaint.

"McKee has already lost a significant amount of sales, the consequences of which will ultimately result in millions of dollars in lost net profits," it told the court.

Aryzta declined to comment.

Aryzta has hired a new chief executive, Kevin Toland, to turn around the company.

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