We are committed to strong and respectful relationships with our suppliers.
We have more than 17,000 suppliers across the Group and our relationship with them is very important to us. We want to provide better value to our customers in a way that is sustainable for our suppliers and their employees and helps them to grow with us. We believe we must constantly strive for better efficiency in our consumer supply chains to ensure their continued competitiveness.
Coles is our largest consumer business and its relationship with food and grocery suppliers in Australia continues to be the focus of some attention. An essential element of the Coles turnaround since its acquisition by Wesfarmers in 2007 has been to rebuild trust with consumers through everyday lower prices and an essential part of delivering this has been increasing the efficiency and cost-competitiveness of its supply chain. This has been challenging for some individual food and grocery suppliers, however the strategy has contributed to double digit sales growth of fresh produce over the past five years and the consequent purchase of significantly greater volumes of fresh food from Australian suppliers.
Fewer suppliers, deeper relationships
Coles acknowledges that it is now working with fewer suppliers but it is aiming to have relationships that are deeper and longer-term, giving greater certainty to suppliers to invest in their businesses and more opportunity for collaboration on efficiencies and product development. One example of this is Coles’ new private label long-term milk supply contracts with the dairy cooperative Murray Goulburn and Norco, which commenced in mid-2014. The direct outcome of this included Murray Goulbourn's opening of a new $80 million state-of-the-art milk plant in Melbourne in July 2014. Click here to watch a video about another example of Coles' long-term supplier relationships.
Coles has an Australia First sourcing policy, which aims to support Australian farmers and manufacturers where possible when sourcing fresh produce and Coles Brand products. Recent examples of increased local sourcing include the decision in January 2014 to replace all frozen vegetables in the Coles Smart Buy range with 100 per cent Australian-grown vegetables through a five-year contract with Simplot. Late last year, Coles committed to sourcing 100 per cent of its private label canned peaches, pears and apricots from SPC Ardmona in the Goulburn Valley. Today, 96 per cent of fresh fruit and vegetables sourced for Coles customers are Australian grown, along with 100 per cent of fresh milk and 100 per cent of meat from the meat department.
Working with dairy farmers
There has been continued discussion on the effect of the retail price of Coles private label milk on Australian dairy farmers. Consumers want local, fresh milk and Coles continues to work with processors to ensure this can be offered at an affordable, competitive price over the long term. Coles continues to stock a range of other brands from large and small processors.
This now includes a brand developed by Coles with South Australian Dairyfarmers' Association, SADA Fresh, launched in late 2013, which directs 40 cents from every two litre container of milk to industry-benefitting projects. A similar arrangement was announced in August 2014 with WAFarmers. The new long-term agreements with Murray Goulburn and Norco to supply Coles brand milk in Victoria, NSW and Queensland have supported investment by both co-operatives in new and existing plants respectively.
Code of conduct
In November 2013, Coles, Woolworths and the Australian Food and Grocery Council (AFGC) concluded a draft voluntary code of conduct setting out principles covering the trading relationships between the major supermarket chains and their suppliers. The code is only voluntary in the sense that retailers can opt to join, but once they do, the code applies to all the retailers’ suppliers and supply agreements. This agreement was described as historic by the AFGC. It awaits approval from the federal government to be formally prescribed under the Competition and Consumer Act. The agreement was reached at the first meeting of the Retailer and Supplier Roundtable, another initiative in which Coles has been heavily involved to encourage and improve communication and collaboration on relevant issues between major retailers and their suppliers.
The Australian Competition and Consumer Commission (ACCC) commenced proceedings in the Federal Court of Australia against Coles, alleging that Coles engaged in unconscionable conduct in relation to its Active Retail Collaboration program. The ACCC is seeking from Coles pecuniary penalties, declarations, injunctions and costs. Coles has filed its defence and the trial is scheduled to commence in April 2015.