Earlier this month, Coles Group agreed to acquire two automated milk processing facilities from Saputo Dairy Australia (SDA) for consideration of approx. $105 million.
Each facility has the capacity to process around 225 million litres a year and they are predominantly used today to process Coles Own Brand 2L and 3L milk. The processing facilities are located in Laverton North (Victoria) and Erskine Park (New South Wales) close to Coles’ distribution centres.
“These facilities are state-of-the-art, delivering exceptional production efficiency and quality through highly automated processes,” said Coles CEO, Steven Cain.
“Whilst improving security of our milk supply and our supply chain resilience in the dairy sector, these facilities also have sufficient capacity to facilitate further growth opportunities through new product innovation.
“The acquisition will build on the strong relationships we have developed with our dairy farmers since launching our direct sourcing model in 2019. Around 90 dairy farmers supply milk direct to Coles, allowing these farmers to invest for the future and ensuring the long-term sustainability of their farms.
“These processing facilities will complement our existing investments in our Own and Exclusive brand portfolio and manufacturing capabilities in areas such as convenience meals and meat.”
SDA site-based employees at both facilities will be offered employment contracts with Coles.
Coles and SDA will also enter into customary transitional services arrangements to ensure a smooth handover to Coles.
Coles will continue its direct sourcing model and relationships with existing dairy farmers, with no expected impact on current arrangements.
Other examples of Coles bringing manufacturing in-house include:
the construction in 2015 of a highly automated retail-ready meat and poultry manufacturing facility in Erskine Park (NSW) to secure supply and improve shelf-life of meat products.
the acquisition in 2020 of the Jewel Fine Foods (now Chef Fresh) ready-made meals facility in Mascot (NSW) to expand the convenience meals range available to Coles’ customers. Additional automation has subsequently been added to this site.
To further its commitment to the dairy industry, in March, Coles announced a $3 million investment through the Coles Sustainable Dairy Development Group. Dairy farmers can apply for grants of up to $50,000 per year with funding to be used on projects which enhance the sustainability of farms.
This grant funding builds on $2.2 million already provided through the Coles Sustainable Dairy Development Group for projects including heat stress research and foot-and-mouth disease guidance, as well as a roll-out of defibrillators on farms.
The acquisition will be funded from Coles’ existing debt facilities and is expected to exceed our investment return hurdles within three years.
The acquisition of these sites is subject to Australian Competition and Consumer Commission (ACCC) approval and other customary closing conditions and is expected to be completed in 1H FY24.
According to financial results for 1H 2023, Coles Group reported total sales revenue growth from continuing operations of 3.9 per cent to $20.8 billion.
Meanwhile, Perth-based conglomerate, Wesfarmers, has sold all of its remaining interest in Coles Group.
Yesterday, Wesfarmers confirmed the sale of its remaining 2.8 per cent. It has gradually reduced its shareholding in Coles since the demerger in November 2018.
Wesfarmers and Coles will reportedly continue the Flybuys joint venture, with both groups retaining a 50 per cent interest in Flybuys.
In other news, a brand refresh and campaign for Toll will support brand awareness and repositioning as it expands across Australia, Asia and the US markets with $1.2 billion of investments planned over the next four years.