November 19, 2019


Australia's Coles scales down strained ties with beef supply partner



Australian supermarket group Coles and its longtime northern beef supply chain partner Australian Country Choice are further decoupling their businesses, as both explore opportunities in export and brand development, Beef Central reported in mid-November.


After a close relationship stretching over 40 years, the ACC beef supply chain and Coles Supermarkets are moving rapidly away from their exclusive 'single customer' arrangement to focus on separate alternative business opportunities.


Part of this will include a temporary closure of ACC's case-ready factory (steaks and mince packed in retail-ready form) at its Cannon Hill facility in Brisbane, following Coles' decision to relocate its case-ready operations to its Sydney base. That will take place from early February.


ACC will now pursue new customers and markets for its retail-ready products, planning to re-open its modern, large-scale facility in 2021. In the meantime, around 120 retail ready factory staff have been put off.


The Coles/ACC business relationship has become increasing strained in recent years, culminating in legal challenges two years ago over rights to export beef products coming out of the ACC plant. For the past 20 years, ACC itself held the rights to market Coles product globally.


A dispute settlement was reached before the issue reached the Supreme Court, where both agreed to go their separate ways, but what appeared to many to be irreparable damage had been done to the Coles/ACC business relationship.


Last year, Coles started to shift some of its northern beef kill out of the ACC plant, to new small trial sites at Teys Beenleigh and Oakey. From its peak around 6,100 head per week, ACC currently slaughters around 4,300 per week for Coles, supplemented by about 1,800 each week for Woolworths under a deal struck last year, following the sudden closure of the Churchill abattoir.


Most of the Coles' slaughters now removed from ACC appears to have been relocated south to Coles' southern contractors, JBS Scone and JBS Brooklyn, where seasonal conditions are better.


Under current contractual arrangements, Coles will slaughter some beef cattle at ACC until July 2021, but it is clearly evident the company has plans elsewhere.


While the retail-ready facility at ACC is expected to stay closed for the next 12 months, ACC is confident new customers will be found to relaunch the facility, which produces a range of VSP and MAP-packed cuts ready for stacking directly from the box onto supermarket shelves. ACC's separate value-added manufacturing business (sausages, corned silverside, rissoles, crumbed product, etc) will continue to operate as normal, but will now be sold to other customers.


The current fragmentation of retailing that's occurring in Australia, with new players like German giant Kaufland, plus rapidly growing entrants like Aldi and IGA, suggests there are good prospects to utilise retail-ready facilities like ACC's. Other growth sectors for red meat, like the home meal replacement market, also utilise retail-ready packaging.


With the exclusivity conditions lifted, ACC said it now "had the opportunity and every intention" to rebuild its further processing business, and was well progressed in discussions with a number of high profile brand owners and customers, both in Australia and internationally.


As part of the decoupling between ACC and Coles, ACC is now developing its own beef brand and its place in producing, processing and packaging animal protein for new customers in Australia and overseas. The range will extend from fresh cuts, both vacuum-packed primals and retail-ready items, and value-added items like corned meat and sausages.


"With these exciting opportunities comes the determination that the business will increase its market share to the point where its further processing division is operating at built capacity," the company said.


The transitions happening over the next few months would not affect any other part of the business, it said. Primary processing, ACC Properties and Feedlots and the Australian Cattle and Beef Holdings cattle division would continue to operate as they are.


"All are well-equipped to meet the new opportunities associated with our vertically integrated businesses," ACC said.


- Beef Central