The ACCC raised competition concerns with Woolworths’ $302 million proposed acquisition of 65% of PFD Food Services.
In a statement to the ASX yesterday the ACCC indicated it thought Woolies’ purchase of a controlling stake in PFD would give it too much clout for food manufacturers.
PFD is a wholesale food distributor, purchasing a wide range of food products from manufacturers and distributing them to foodservice businesses such as restaurants and cafés, fast food franchises, hotels and clubs.
While Woolies is the biggest supermarket and food retailer in Australia, it has businesses which go head to head with PFD.
The Commission said that Woolworths also operates the online business Woolworths at Work, which supplies to commercial customers and Woolworths AGW which provides wholesale food distribution to a petrol and convenience chain.
“The ACCC is concerned that the proposed acquisition seems likely to increase Woolworths’ already substantial bargaining power in its dealings with food manufacturers,” ACCC Chair Rod Sims said in the statement.
Woolies shares shrugged off the statement and the shares eased 0.2% to $39.07.
But the range of concersn raised by the Commission means the deal will have a hard time getting up in its present form.
Woolworths and PFD both acquire food and groceries from suppliers such as frozen food manufacturers, dairy processors and manufacturers of pasta and sauces, the ACCC pointed out in Tuesday’s statement.
“The ACCC is concerned that the proposed acquisition would remove PFD as an important alternative customer in the food sector, reducing the number of buyers and increasing Woolworths’ relative size as a customer of food manufacturers and suppliers,” Mr Sims said.
“The dominance of Coles and Woolworths in food retail means that wholesale food distribution is an important alternative customer channel for manufacturers.”
The ACCC is also considering whether the proposed acquisition could affect downstream competition.
“If Woolworths was able to use its existing bargaining power as a retail buyer to gain better supply prices for PFD than PFD could obtain on its own, in the medium term this could have serious consequences for the structure of the wholesale food distribution sector, such as reduced range, choice, and service levels,” Mr Sims said.
The ACCC is also continuing to consider other issues, including whether Woolworths acquiring a company which supplies its competitors will lead to risks of foreclosure, and the extent to which Woolworths at Work and AGW compete with PFD at the moment or are likely to compete with PFD in future.
Feedback on the ACCC’s statement of issues is due by Monday, February 1 next year and the Commission said its final decision will be announced on April 22.
