Coles offers $50 million carrot to farmers and grocery manufacturers

Article from The Financial Review, Apr 23 2015

Coles says “the last thing it wants” is to control the food chain from paddock to plate, despite its latest attempt to woo farmers and grocery manufacturers.

Coles has announced a “nurture fund” that will offer $50 million in interest-free loans and grants over five years to start-ups, farmers, manufacturers, and food and grocery producers.

Recipients must have revenue of no more than $25 million and 50 or fewer full-time employees, and will not be required to sell exclusively to Coles.

Coles managing director John Durkan said he hadn’t seen a similar fund here or abroad.

“As far as we can see, this is new and groundbreaking,” he said.

“This builds on our intent to absolutely nurture small suppliers and get innovative products out of them.

“The idea of this is if we can help them on that, it will benefit us and it will benefit our consumers.”

Supplier dealings with the big supermarkets have been under the spotlight as supplier margins decline due to the intense battle between rivals Woolworths and Coles. In December, Coles agreed to pay $10 million in penalties and to review contracts with suppliers after admitting to 15 instances of unconscionable conduct against eight suppliers.

One analyst suggested the fund was an attempt to repair Coles’s reputation in the eyes of suppliers. The supermarket chain’s healthy sales suggest the court battle with the competitor regulator has not materially damaged its reputation with the public.

Ag consultant David McKinna said the “unusual” fund was likely driven by a desire to extend growing season and to capitalise on consumer nostalgia for Australian-made products, which was ignited by the near-collapse of producer SPC.

The weaker Australian dollar driving up import costs and a desire to encourage the next tier of suppliers who struggle to get bank funding also probably played a role, he said.

In recent years, Coles has made a range of direct investments and supply deals with food companies. Mr Durkan last week flagged further investment in fruit and vegetables suppliers to help extend the growing seasons of popular produce, after the success of larger investments in strawberry and mango suppliers.

But Mr Durkan said on Thursday, “The last thing we actually really want is true vertical integration.

“We’re really not interested in being suppliers. We’re interested in being retailers and our customers actually want more and more great Australian products. This is one way to get them.”

The Australian food industry could overtake the resource industry in size over time, thanks in part to exports of fresh products to Asia, Mr Durkan has suggested.

“If a byproduct of this [Coles Nurture Fund] is these companies can supply Asia, fantastic,” he said.

Celebrity chef and Coles ambassador Curtis Stone will be part of a four-person panel assessing applications.

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