The contract, which St Ives said represents approximately 3.5% of annual revenue, will not be renewed and ends in December.
The group’s management said it will be “initiating actions to reduce the cost base of the segment to mitigate the impact of the non-renewal” with associated one-off cash restructuring costs of approximately £1m in the financial year ending 3 August 2018.
The group said it does not expect the non-renewal to have any impact on its trading outlook for year ending 3 August 2018 due to a stronger than expected performance by its Strategic Marketing businesses.
St Ives’ group revenue was £367.5m for the year ended 29 July 2016, the Sainsbury’s contract therefore representing nearly £12.9m of sales. Marketing Activation sales were £154.8m in the same period, the contract therefore making up around 8.3% of the division’s sales.
In March, St Ives chief executive Matt Armitage announced a strategic review that could involve the group selling its print operations. These plans were expected to be affected by the uncertainty over a number of its major contracts, including Sainsbury’s.
Nick Cole, group managing director of St Ives’ Marketing Activation division, told PrintWeek: “It’s clearly disappointing – the reality in the discussions that I’ve had with Sainsbury’s is that their acquisition of Argos required them to make very, very significant savings and the pricing that had been put in front of us is uneconomic for us to follow down.
“The volumes have more than halved in the last two years of that account anyway so a reasonable amount of the pain has already been taken. So with the lower volumes and them wanting further massive price reductions that are uneconomic, it makes no sense for us to continue to do it.”
He added: “We’ve replaced a lot of the lost volume already – we’ve secured over £15m worth of new business just in SP Group [part of the Marketing Activation arm] in the last 18 months, so we’ve actually been making fantastic progress.
“We’ve employed some great new business people and have won some substantive accounts that are of the same sort of size as what Sainsbury’s is now that the volume has halved.
“We’re particularly disappointed because of nine years of faultless service – we’ve been Supplier of the Year. It’s not a service-led decision, it’s purely price, which is disappointing.
“We’ve got an extension on the contract through to December but we’re in discussions with Sainsbury’s as to exact timings.”
Cole added there will be TUPE liabilities to be considered and that the group is currently “reviewing options” with regard to any potential job losses.
He did not want to speak on behalf of the group regarding the overall trading outlook and said he had nothing further to add on the ongoing strategic review. More is expected to be revealed when the firm’s full-year financial results for the year that ended in July are published on 3 October.
A separate source told PrintWeek: “The [Sainsbury’s] work was material in revenue terms, but it doesn't look like they made any money on it. Now that [the decision] is known they can start the process to sell Marketing Activation.”
At the time of writing, Sainsbury’s had not responded to requests asking who its new supplier would be or whether it would use a single supplier or a roster of companies. PrintWeek understands that names in the frame include Linney Group and Delta Group.
St Ives’ share price fell by 4.25p to 66.75p immediately after the announcement. It has since recovered to 70.42p.
The group’s share price reached a new all-time low of 37.3p in June but last month it put out its second positive trading update in as many months, which resulted in an upturn in the share price.
Last month it was announced that one of St Ives’ four non-executive directors, Ben Gordon, will stand down at the group’s forthcoming AGM on 30 November.
The group’s book printing firm, Clays, announced plans to cut approximately 17% of the workforce earlier this year. Clays’ contract to print for HarperCollins expired on 30 June.