Woolworths Limited (ASX: WOW) has dropped Coca-Cola Amatil Ltd's (ASX: CCL) SPC Ardmona as the supplier for its private label brand tomatoes.
According to media reports, Woolworths has signed a supply deal with a new Australian provider with tomatoes being sourced from the Murray Valley region in Victoria.
Despite the new deal, Woolworths' head of buying Stephen Donohue has told Fairfax that the supermarket retailer remains committed to the 'spirit' of its five-year partnership with SPC Ardmona to supply Woolies for its private label lines – including all its canned peaches, pears and apricots.
Mr Donohue added, "We, however, continue to support SPC Ardmona by offering customers the Ardmona brand of tinned tomatoes throughout our stores."
The two companies are in the process of discussions covering prices and volumes, and Mr Donohue expects it to end 'positively' this week.
Woolworths came to the rescue of SPC Ardmona in 2013, agreeing to buy more products but agreed to a $70 million five-year deal to buy its fruit from the Shepparton, Victoria processor in 2014.
SPC Ardmona also inked a separate deal with Coles – owned by Wesfarmers Ltd (ASX: WES) – in late 2013 to supply it with canned fruit, replacing previously imported products.
Woolworths move to replace SPC Ardmona as tomato supplier could have dire consequences for the fruit producer. Especially if Woolworths decides to stop taking more produce from SPC. An estimated 2,000 jobs in the Goulburn Valley depend on SPC Ardmona from farmers to fruit pickers and truck drivers, according to The Herald Sun.
Coca-Cola Amatil had already indicated it will review its investment in SPC Ardmona in 2017, when a three-year co-funding agreement with the Victorian government came to an end. It's possible that SPC could be demerged or offered up in a trade sale. Given the level of interest in Australian food products from Asia, it's possible SPC could be sold off to an Asian buyer.
