Oliver's Real Food Reshapes Supply Chain with New Distributor and Ends EG Partnership
OLIVER'S REAL FOOD LIMITED (OLI) Share Update October 2024 Tuesday 22nd
Oliver's Real Food Announces New Distribution Agreement and Ends Partnership with European Garages
Oliver's Real Food Limited (ASX: OLI) has announced significant changes to its supply chain and distribution agreements, aiming to improve financial outcomes and reduce costs.
Instant Summary:
- New distribution agreement with a foodservice distributor starts November 11.
- Termination of 'Oliver's Food to Go' supply agreement with European Garages by January 2025.
- Targeting annual cost reductions between $1.2m to $1.4m.
- No financial penalties from the termination of the EG agreement.
New Distribution Agreement
Oliver's Real Food Limited has secured a new agreement with a foodservice distributor to enhance the distribution of its products across its store network. This strategic move is expected to deliver better financial outcomes through improved prices and trading terms. The new distributor will begin operations on November 11, 2024.
This change is part of Oliver's ongoing efforts to manage rising supply chain costs that have adversely affected its gross margins and overall financial performance. By securing more favorable terms, the company aims to stabilize its financial standing and enhance profitability.
Ending Partnership with European Garages
In a separate announcement, Oliver's revealed the mutual termination of its 'Oliver's Food to Go' supply agreement with European Garages (EG). This agreement, initially launched in May 2020, will conclude by the end of January 2025. While this will result in the loss of royalty revenue from sales at EG service stations, Oliver's will not incur any financial penalties due to the termination.
The company expressed gratitude towards EG for the collaboration over the past four and a half years, highlighting the strategic shift in focus towards optimizing its core operations and partnerships.
Cost Reduction Initiatives
Since June 2024, Oliver's has been implementing several initiatives to cut costs and improve financial performance. These measures include a senior management restructure, store closures, and a reduction in interest costs. The company aims to achieve annualized cost reductions between $1.2 million and $1.4 million through these efforts.
These strategic changes are part of Oliver's broader plan to streamline operations and focus on sustainable growth in a challenging economic environment.
The new distribution agreement is likely to have a positive impact on Oliver's financial performance by reducing supply chain costs and improving margins. However, the termination of the EG agreement may offset some of these gains due to the loss of royalty revenue. Overall, these changes reflect a strategic shift towards optimizing core operations and partnerships, which could enhance long-term stability and profitability.
Investor Reaction:
Analysts may view the new distribution agreement as a positive step towards improving financial performance. However, there may be concerns about the impact of lost revenue from the EG agreement. Investors will likely watch closely for the actual financial outcomes of these strategic changes.
Conclusion:
Oliver's Real Food is making strategic moves to improve its financial health through a new distribution agreement and cost-cutting initiatives. Investors should monitor the company's progress in achieving its cost reduction targets and the impact of these changes on overall profitability.