Infant formula will take up the slack from Bega’s lost Coles deal

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Bega Cheese, which is losing about $130 million in revenue from the end of its deal supplying own brand cheese to Coles, has its eye on higher margin products than just supplying supermarkets.

The loss of Coles will see Bega Cheese redirect milk supply from the high volume, low return business to other more value added dairy products and markets including the rapidly growing infant formula.

Blackmores, with Tatura, a subsidiary of Bega Cheese, last month launched its infant formula into an eager market driven by strong demand in China for clean and safe products.

Today, Bega shares clawed back some the 10% in value lost yesterday when the Coles loss was announced. A short time ago, the shares were up more than 3% to $6.51.

“We have been very encouraged and very pleased with the level of uptake … in fact we even had to reprogram parts of our production at Tatura to cope with the increase in demand,” Bega CEO Aidan Coleman told the Australian Financial review.

This week Coles told Bega Cheese it wasn’t renewing the five year contract when it comes due in January next year.

“We unquestionably drive our business towards higher value-added products,” said Coleman.

Bega says the focus on higher value product mix and markets is consistent with the strategy of the business.

“Those nutritional products, by nature with the technology behind them, generate substantially higher margins and value-add, so we can see those compensating for other things we might lose in the meantime,” Coleman told Fairfax Media.