The ACCC has outlined preliminary competition concerns with Woolworths’ (ASX: WOW) proposal to acquire 65 per cent of PFD Food Services.
PFD is a wholesale food distributor, purchasing a wide range of food products from manufacturers and distributing them to food service businesses such as restaurants and cafés, fast food franchises, hotels and clubs.
“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.
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 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,” 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,” 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.
“We have been working closely and constructively with the ACCC on these issues,” said Woolworths’ CEO Brad Banducci. “We remain confident that we will address any outstanding potential concerns so that we can progress the proposed partnership. We see no reduction in competition, in any relevant markets, from our proposed partnership with PFD.”
Feedback on the ACCC’s statement of issues is due by Monday, 1 February 2021.
The ACCC’s final decision will be announced on 22 April 2021