Coles denies adverse impacts on Australian suppliers
by Joe Lederman Australian Food News
At a breakfast presentation to the Rural Press Club of Victoria in Melbourne on 3 March 2011, John Durkan, the national merchandising director of Coles Supermarkets, stated that Coles “Down Down” campaign would not adversely impact the farm gate prices for milk to dairy farmers. However he conceded that Coles dealt only with the milk processors and was not in a position to dictate what processors pay their farmers.
Mr Durkan claimed that since 50 percent of Australian milk production was exported, and fresh milk represented no more than 25 percent of total milk production, the impact of the Coles offering of $2 per 2 litre milk container would be limited. He denied it would force milk producers out of business and acclaimed Coles’ decision to use a milk processing plant in Malanda, Queensland as an illustration of how the new milk campaign had saved a dairy plant from imminent closure. Similar moves had been made by Coles and saved many jobs in Western Australia as other major dairy processors had been closing or laying off staff. An audience member representing one of Coles’ competitors, Aussie Farmers Direct, pointed out that AFD had similarly acquired an under-utilised dairy processing plant in Camperdown, Western Victoria.
Mr Durkan pointed out that Coles’ “Down Down” campaign had begun in July 2010, which was well in advance of the campaign promoting cheaper milk. Prior to this, Coles had implemented in February 2010 a system that allowed State-based prices to be made uniform across all Coles stores within a State. Beef prices had been reduced by Coles before Christmas 2010 and from January 2011 apart from milk, there were significant price reduction promotions for cooking oils, Liptons tea and Sorbent toilet paper. He also said price reductions were being implemented by Coles in a transparent way so that customers could see the price discount against the previous weekly price.
Mr Durkan said that chicken was Coles’ biggest selling protein-based food notwithstanding that Coles also had annual sales of 350,000 head of beef and 375,000 pigs.
In responding to a question concerning Coles’ “hormone free beef” campaign, Mr Durkan stated that the purpose of the campaign was to meet a response from consumers. Coles was continuously being transformed into a very ‘customer-centric organisation’ that could respond more quickly to customer issues. He said that “hormone free beef” was more tender than meat from cattle that had been injected with bovine growth hormones – this was a scientific finding of the Australian meat industry itself through Meat & Livestock Australia’s own scientific research. Mr Durkan said that Coles had reintroduced butchers within the meat sections of its supermarkets as this gave Coles customers more authority over their purchases and allowed more reassurance to those customers. He said that while Coles would like to introduce more fresh baked bread sections into its supermarkets, this required more in-house bakers who could cater for such expansion. He said there were huge baking skills shortages, and alluded to the possibility of Coles developing its own training academy at least in the baking sphere.
New Suppliers Wanted
Mr Durkan claimed that there were logistical problems and shortages in sourcing Australian pork, fish and seafood, rice and tinned tomatoes. He said Coles would support additional competitive processors with long term purchasing commitments from Coles if new suppliers were willing to invest in processing plants for these products.
Home brand denial
Mr Durkan denied that home brands of Coles were expanding to the detriment of supplier branded products. He said that the current level of Coles home brand product equated to approximately 10 percent of total products on offer and he denied that there was an objective to increase this substantially. Responding to a question, he said a claim that Coles aimed to replace its suppliers with home-branded products taking 30 percent of shelf space was not true and that Coles home brands will only survive “if they stand on their own feet” on the basis of quality and price. While Coles does not own its own factories it would support new investment by processors with longer tenure supply contracts and would encourage greater local production all around Australia.
Fresh vegetable and fruit produce
In relation to expansion of fresh fruit and vegetable produce sections of supermarkets Mr Durkan pointed out that these were being improved dramatically with 100 out of 742 stores having already refitted in the past two years. He said that 96% of Coles fruit and vegetables were Australian-grown and that Coles would not support the importation of bananas. Currently, Coles sells 270,000 tonnes of Australian bananas each year, as well as 348,000 tonnes of oranges, 440,000 tonnes of tomatoes and 1,200,000 tonnes of potatoes. Coles was expanding new forged relationships with high-quality producers rather than sourcing through conventional wholesale markets. The Mildura Fruit Co. (MFC), a citrus packer in north-west Victoria, was cited as an example for others to follow. MFC represents more than 120 growers in the Mildura area producing 3.5 million cartons of fruit annually. The closer relationship with Coles had allowed MFC to invest $7 Million recently in new plant and equipment and Coles had co-developed a quality-control system for MFC which has 6 quality-control checkpoints. The MFC also had developed its own new Amour mandarins which was an innovative sweet miniature mandarin range.
Victoria and going local
Mr Durkan said Coles remains heavily dependent on Victoria as the source for more than 40 percent of all fresh produce but is looking to expand its sources of local supply in each state for each fresh produce category whenever possible if Coles’ quality and price requirements are met.
He pointed out that Coles produce is carried 1581 trucks on Australian roads every day of the year travelling a total of 52 million kilometers each year in moving product around its more than 740 Coles stores nationally and its major distribution centres. Of the 740 stores, 245 are located in NSW, 192 stores in Victoria, 148 in Queensland, 81 in Western Australia, 55 in South Australia, 14 in Tasmania and 7 in the Northern Territory. These currently employ more than 100,000 people who are also called ‘Coles team members’.