We commit to strong and respectful relationships with our suppliers.
Our relationship with our 15,000 suppliers across the Group is very important to us. We want to provide better value to our customers and sustainable growth for our suppliers and their employees. Striving for better efficiency in our consumer supply chains ensures 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. To achieve everyday low prices for customers, Coles has been increasing the efficiency and cost-competitiveness of its supply chain. This has been challenging for some individual food and grocery suppliers, but has enabled the purchase of significantly greater volumes of fresh food from Australian suppliers. Strengthening its relationship with its suppliers is a key focus for the Coles team.
Deeper relationships with suppliers for Coles
Coles is aiming to develop deeper and longer-term relationships, with suppliers. This gives greater certainty to suppliers to invest in their businesses and more opportunity for collaboration on efficiencies and product development.
One ground-breaking new example is a 10-year contract announced in December 2014 with Sundrop Tomatoes in South Australia for the supply of truss tomatoes. This contract will ensure year-round supply for customers, create 300 jobs in regional Australia and support investment in highly innovative technology including a 20 hectare greenhouse which will grow tomatoes using solar power and sea water.
This echoed Coles’ unprecedented long-term private label milk supply contracts with the dairy cooperatives Murray Goulburn and Norco, which commenced in mid-2014. The direct outcome of Murray Goulbourn's 10-year agreement was the opening of a new $80 million state-of-the-art milk plant in Melbourne in July 2014. In December 2014, Norco reported that its five-year supply agreement with Coles had enabled it to invest $6.4 million in its plant at Labrador in Queensland, employ 22 more people, sign 53 new milk suppliers and increase its price to suppliers.
Sales of its own branded milk had also increased by 27 per cent in less than six months as a result of the partnership, with Coles agreeing to sell its branded and flavoured milk in more stores.
In April 2015, Coles established the Coles Nurture Fund which will allocate $50 million over five years to help small Australian food and grocery producers, farmers and manufacturers to innovate and grow their businesses. Successful applicants will receive grants and interest-free loans to fund new market leading products, technologies, systems and processes.
Australia First at Coles
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. 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 fresh meat from the meat department.
Coles and dairy farmers
There has been continued discussion about 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.
These now include brands developed by Coles with the South Australian Dairyfarmers' Association (SADA Fresh) and the WA Farmers Federation (WA Farmers First)
which see 40 cents from every two litre container of milk directed to industry-benefitting projects.
Around two million litres of SADA Fresh-branded milk were sold in the 18 months after its launch in late 2013 and it ranked in the top three fresh white milk sales in South Australia (SA). In the eight months after its launch in November 2014, around 680,000 litres of Western Australia (WA) Farmers First-branded milk had been sold and it ranked in the top five fresh white milk brands in WA.
Food and Grocery Code of Conduct
Since 2013, Coles has been a leading voice in the development of a voluntary Food and Grocery Code of Conduct with the Australian Food and Grocery Council. The Code came into effect in June 2015 and Coles adopted it with effect from 1 July 2015. The voluntary Code governs certain conduct between grocery retailers and wholesalers in their dealings with suppliers including supply agreements, payments, termination of agreements and dispute resolution.
The ACCC regulates the Code which is prescribed under the Competition and Consumer Act. It is only voluntary in the sense that retailers can opt to join; once they do, the code applies to all the retailers’ suppliers and supply agreements. Coles is taking a phased approach to adopting the Code. In the first phase, the Code will apply to new suppliers and existing suppliers renegotiating Trading Terms and Terms and Conditions from 1 July 2015.
Coles and the ACCC
In December 2014, the Federal Court of Australia approved settlement of two proceedings between the Australian Competition and Consumer Commission (ACCC) and Coles alleging that Coles engaged in unconscionable conduct in dealings with suppliers. Coles admitted eight allegations of conduct in 2011 regarding its Active Retail Collaboration (ARC) program and five allegations regarding negotiations with suppliers over various matters such as profit gaps in 2010 and 2011. Coles unconditionally apologised, paid a $10 million fine and gave an enforceable undertaking to appoint an independent arbiter (the Honourable Jeff Kennett AC) to engage with suppliers over eligibility for refunds of payments to the ARC program and other disputed payments.
On 30 June 2015, Mr Kennett reported Coles agreed to repay more than $12 million to the ARC suppliers and $324,000 to other suppliers.
Coles has taken many steps to improve its relationships with suppliers including implementing a best practice compliance framework and the establishment of a Supplier Charter. It provides a strong, independent and confidential dispute resolution process underpinned by Mr Kennett, as an independent arbiter (in addition to his role under the enforceable undertaking).
GRI Reference: G4-DMA, G4-12, G4-56, G4-S07, G4-S08, G4-PR9