Supply Chain Solutions

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-By John Boley

Chances are that Costa Logistics brought to you many of the food items in your kitchen – or at least as far as the store where you bought them. Chances are also that some of those items will have been supplied by the company’s parent, Costa Group. What began as a fruit shop in Geelong as long ago as 1888 soon became a ‘Covent Garden’-style retail operation and has since grown into a vertically integrated grower, packer, seller and value adder of various categories of fresh produce, the largest fresh produce company in Australia with a turnover of around $700 million.

Costa Logistics accounts for around $100 million of that total, says Ross Walter, General Manager Business Development. The company represents a logical extension of the core business, which was a produce wholesaler.

“The logistics operation actually grew out of handling wholesale produce from our own distribution centres.” The operation handles fresh produce coming out of the markets and from the company’s own farms, then moves it to its own warehousing before distributing it to hundreds of clients on a day to day basis. The prestigious chain Coles approached the group to ask if it could operate some fresh produce distribution centres for its stores, which is how Costa Logistics was born as a standalone operation.

In its current form, Costa Logistics has existed for about 13 to 14 years, but up to about three and a half years ago the strategy was largely limited to maintaining the valued Coles fresh produce logistics contract. “We didn’t really have any other clients, but three years or so ago we began to invest in various strategies to grow our business outside of the operations we run for Coles.” Ross estimates this investment has grown the Costa Logistics business by around 20 per cent in two years, adding new clients without diluting the important concentration on Coles.

“The first rule of business development in logistics is to stay relatively focused – it’s the same in any business development task,” says Ross. It would be easy to get sidetracked into non-core activities but Costa Logistics resists the temptation to spread its resources too wide and too thin, choosing to concentrate on the Retail and FMCG. As far as FMCG is concerned the company sub-categorises into about five further categories under that. It currently has substantial operations in the fresh produce logistics sector,as well as some dairy. Another category Ross calls “prepared foods – generally anything that would be in the chiller in the supermarket.”

Costa has recently expanded into confectionery which in certain cases requires temperature controlled warehousing, and then “the next logical step we are probably going to take would be into wine logistics because certainly higher-end wines need temperature control and careful handling. Also, they are perishable and they need to be batch-code traced, or traced by vintage and year. The complexity, temperature management, batch management and careful handling requirements of wines mean they fit in with our business requirements so we are working on a couple of projects in that sector as well.”

Costa’s focus is on the storage and on-time distribution of products rather than its transportation. “We are basically a warehousing company. We run a few trucks, but only very few.” Costa prefers to selectively manage transport on behalf of its customers rather than run its own fleet, so that trucking is a value added service. “There are a small number of places around Australia where it makes sense and is cost-effective for the company to maintain its own trucks, but in the main we are not transport experts and we do not want to invest capital into ‘wheels’, so it makes sense for us to buy and sell it and that works for our clients as well.”

Costa Logistics considers itself “transport company neutral” and is thus able to choose the best transport company for the job that the client needs done, which differentiates the company somewhat from most of its competitors. Many of them have their own transport fleets and tend to ‘push’ customers towards it even if it does not ideally suit their requirements. That’s something Costa wants to keep away from. “We believe transport is a heavily commoditised sector, there is lots of competition in the market and the most important thing is that the price is always about the same for a certain job, so the important thing is making sure the service and the quality is right on behalf of our client.”

A transport contract is relatively easy to switch; it is less simple to change a warehouse. That’s why a sophisticated buyer of logistics in large FMCG and Retail companies will take a long and careful look at the plus-points of an operation before embarking on what is for both sides a relatively long-term commitment. Costa Logistics, says Ross, “does not aim to be the cheapest, but we do aim to be the best value for money in what we do.” It is not feasible to move warehousing week to week “and that tends to mean we do have longer term relationships with our clients. Indeed we want to support these longer term relationships with our clients through the investments we make in our warehousing.”

Costa Logistics covers every major state of the vastness of Australia where logistics and warehousing contracts tend to be state-based. Ross has worked in the far more compact UK, where it is a lot easier to have a single national distribution centre for a particular service. It is possible to distribute to practically anywhere in the UK overnight but in very general terms, contracts in Australia have to be arranged rather differently, especially for perishables such as food. The basis tends to be what is accessible within a day’s drive. So a facility in Brisbane, for example, will obviously serve southern Queensland but also serves the northernmost areas of New South Wales rather than stopping specifically at the state border.

Costa Logistics has warehousing facilities in all states except South Australia, where it is currently investigating, along with looking for suitable premises in spread-out and sparsely populated far north Queensland. Chief operating officer Geoff Norman and his team “are also developing a plan to put smaller distribution centres on the ground in some of the key growing regions around the country.”

The company’s retail clients tend to be state-based distributions so goods come in from all of their suppliers to Costa Logistics’ warehousing where they pick and pack for sending to the end user and to stores within the relevant state. The FMCG operations tend to be slightly more complex – or at least more long-distance. For example, one client is a producer of chilled foods mainly for supermarket sale which come from two production centres in Victoria. Products “come to our facility and we assemble orders that go to all corners of the country.” Another client is a major ice cream manufacturer, for which the company stores and distributes their product throughout the country, although this client uses its own fleet for the transport element. In general, “retail tends to be state-based and FMCG contracts tend to be national.”

Other valued big-name clients include National Foods (now LION), Parmalat, Spar and group sister company Costa Exchange; goods stored, handled and shipped include confectionery, chilled packaged foods, value added salads such as the containers of coleslaw in the chiller in the supermarket, chocolate biscuits, milk and “all shapes and sizes” of dairy products including cheese. It is important to know how to deal with each commodity – how to store, the right temperature zones, the right methodology. “We know how to rotate the products and pick the correct use-by date to suit the order. We have a range of business rules built into our systems which specify minimum life on receipt to retailers or minimum use-by date.”

Geoff Norman and the team have the ambition to grow the business fairly rapidly. “We are targeting another double-digit growth year, the third in a row. We aim to develop contracts with high quality clients who are large scale retailers and/or producers of perishable foods and I think what makes us different is the quality of our services, their consistency and the high-tech nature of what we provide in warehousing terms.”

For example, Ross believes Costa Logistics is well ahead of most of its competitors in terms of warehouse management systems, traceability, reporting and “being able to provide our clients with visibility into what their stock is doing, where it is moving and how much is left, what date it is and all the other answers they need.”

Overall, Ross states with some justification that “we consider ourselves a very high quality and high tech provider in terms of large scale warehousing solutions – in the top three or four in Australia. We have particular expertise in the perishable food and temperature-sensitive food sector and our distribution centres are geared up to moving very fast moving products.”

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November 21, 2018, 3:44 AM AEDT