Goyder warns Coles will dump inefficient suppliers

Wesfarmers chief Richard Goyder has issued a harsh warning to Coles’ supply base, warning inefficient businesses they will be dropped as the supermarket intends to pursue more direct supply deals.

Goyder said yesterday the supermarket has a “way to go”, but is attempting to improve relationships with producers.

“We are strengthening our engagement direct to producers so we are getting better, fresher and more innovative products,” Goyder said yesterday, after the company announced its third-quarter results.

The comments come just days after Coles announced a massive private-label milk supply deal with the milk industry to source product directly from suppliers. Woolworths has made a similar pledge.

The announcement was greeted with mixed reactions, with some in the industry hailing it as a win for farmers, but a loss for foreign-owned processors Lion and Parmalat which will see an end to their private-label contracts with Coles from next year.

Goyder said yesterday this new deal was “typical” of what the supermarket will be doing in the fresh food area, with longer-term agreements.

But while some farmers will benefit from direct supply deals, suppliers which do not meet current industry standards will no longer have a partnership with Coles.

“Suppliers who are inefficient and have out-dated facilities and have ripped cash out of their business may not have a future role in supplying us,” he said.

“Any business in this country has to be looking at how efficient it is. Our business is not to prop up inefficient suppliers but supply great products to our customers in the best way we can.”

Both Coles and its main competitor Woolworths have faced criticism since early 2011 from the dairy industry for engaging in milk price wars which saw the price of milk fall to $1 a litre.

The duopoly of the big supermarkets has also been criticised by smaller market players, sparking an investigation into the misuse of market power by the Australian Competition and Consumer Commission.

Goyder’s comments on Thursday coincide with the release of Wesfarmers third quarter results, which saw Coles record a sales boost.

A spokesperson for the Australian Food and Grocery Council said it remains committed to establishing a voluntary industry code.

“It’s in the interests of consumers, suppliers and retailers to have an efficient and viable supply chain in Australia. We want to get on with the job of building a competitive sector, both domestically and internationally, and will continue to pursue mechanisms for improving relationships across the supply chain – including the planned retailer and supplier roundtable,” the spokesperson says.