Lion says it has yet to work through the implications of the loss of a private label contract in Victoria and Western Australia with Woolworths to rival Fonterra.
Fonterra will supply Woolworths Own Brand milk in Victoria for the next 10 years in a recent deal, and the company said it would invest more than $30 million into a state-of-the art milk processing plant at its Cobden site in South West Victoria as a result of the deal.
In contrast, the decision will impact volumes at Lion’s milk processing plants in Chelsea, Victoria and Bentley, WA, according to Lion.
“We will work through the detailed implications of this with our teams over the coming weeks,” the Japan-owned dairy and beverage giant said.
It's the second big blow in as many years to Lion, which processes the Dairy Farmers brand of milk. Last year, Murray Goulburn and Norco won deals with Coles to supply private label milk from the middle of 2014, ousting Lion as the main supplier.
Parmalat has retained the Woolworths contract in NSW.
Though Lion will continue to supply Woolworths with private label milk in South Australia, Tasmania and the Northern Territory, Lion said it was disappointed with the outcome which will see it stop supplying Woolworths from February 2015 in Victoria and July 2014 in WA.
“We put forward our most competitive bid in each state, reflecting Lion’s commitment to grow the Australian dairy industry through fair pricing that ensures a sustainable future for the whole supply chain – including farmers and processors – and long term contract certainty that supports investment,” Lion said.
“However, we fully respect that this is a decision for Woolworths, which remains an important customer and partner for Lion.
“We will continue to work closely with all our customers to build value in white milk and other key categories, in line with our category and channel based strategy to grow value in our core segments.”
Woolworths managing director of Supermarkets, Tjeerd Jegen, said the new contract would be a win for farmers, Woolworths customers and Victoria.
“We want farmers and Fonterra to provide quality milk for our customers. Fonterra has told us that with the certainty of a long-term contract they and their farmers can invest and innovate.
“Changes like integrated seals for milk containers and new, state-of-the-art processing equipment would not be possible without the investment brought about by this certainty. It’s these innovations that will see better tasting, fresher milk available in Woolworths stores. We hope our customers will enjoy the difference.
“We don’t want to see milk shipped long distances which only adds cost and increases the time between the farm and the supermarket shelf. These new contracts mean local farmers will supply Victorian milk to Victorian families,” he said.
Fonterra Australia managing director Judith Swales said Fonterra was excited to partner with Woolworths in this initiative.
“This proposed arrangement will help us deliver on our strategy to provide healthy, nutritious dairy foods – in every dairy category – to Australians. It expands our current white milk portfolio complementing our Riverina Fresh milk business in New South Wales," she said.
Lion, which makes the Dairy Farmers brand of milk, has lost the deal to supply Woolworths's private label milk in Victoria and WA.
