Coles expands milk processing capabilities with latest acquisition

Coles Group has entered into a binding agreement to acquire two automated milk processing facilities from Saputo Dairy Australia (SDA) for consideration of approximately $105 million. 

The processing capacity of each facility is approximately 225 million litres per annum, with a primary focus on the production of Coles’ Own Brand 2L and 3L milk. These facilities are situated in Laverton North (VIC) and Erskine Park (NSW), in proximity to Coles’ distribution centres. 

“These facilities are state-of-the-art, delivering exceptional production efficiency and quality through highly automated processes,” Coles CEO Steven Cain said. 

“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.” 

Cain expressed that the acquisition would further enhance the company’s established relationships with dairy farmers, which commenced with the direct sourcing model’s introduction in 2019.  

“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,” he said. 

SDA site-based employees at both facilities will be offered employment contracts with Coles, while the two companies will also enter into customary transitional services arrangements to ensure a smooth handover. 

Coles will continue its direct sourcing model and relationships with existing dairy farmers, with no expected impact on current arrangements. 

Coles has undertaken various initiatives to bring manufacturing in-house. In 2015, the company constructed an automated retail-ready meat and poultry manufacturing facility in Erskine Park. 

The company then acquired the ready-made meals facility of Jewel Fine Foods (now Chef Fresh) in 2020 and utilised automation to help expand the range of convenience meals available to its customers. 

Coles has also committed a $3 million investment in March through the Coles Sustainable Dairy Development Group to provide dairy farmers with the opportunity to apply for grants of up to $50,000 per annum to finance projects aimed at improving their farms’ sustainability.  

This initiative complements the $2.2 million previously granted by the Coles Sustainable Dairy Development Group, which was allocated to various projects, such as research on heat stress and guidance on foot-and-mouth disease, as well as the installation of defibrillators on farms. 

Coles plans to finance its latest acquisition through its current debt facilities, with expectations to surpass its investment return benchmarks in three years.  

The purchase is contingent upon standard closing conditions and Australian Competition and Consumer Commission (ACCC) authorization, with completion predicted to occur in the first half of FY24.