ACCC clears Woolworths to take 65pc stake in PFD

The watchdog backflips on past concerns and says Woolworths’ purchase of 65pc of food distributor PFD won’t hurt competition.

Kerry Smith, CEO of PFD and her father and founder Richard Smith.

The competition regulator has triggered a wave of criticism from an alliance of small business, convenience stores, independent food distributors and grocery industry bodies after it chose not oppose Woolworths’ acquisition of 65 per cent in wholesale food distributor PFD Food Services.

Following a detailed seven-month investigation by the Australian Competition and Consumer Commission it found the deal is not likely to substantially lessen competition, with Woolworths to now enter the $18 billion food service and distribution industry through the control of PFD.

ACCC chairman Rod Sims told The Australian the regulator conducted extensive market inquiries across the industry, and undertook detailed analysis of supplier and competitor data, and internal documents of key interested parties.

But ultimately he couldn’t convince himself it would be harmful to competition if Woolworths controlled PFD which has around a 15 per cent market share.

“That wholesale segment is an important one for them (suppliers) and the fact that Woolworths will be part of that wholesale segment we knew was going to be a concern, and market feedback, unprompted by us, was that was a concern.

“Issue we had from an early stage was impact on suppliers.

“Now, that was our concern, but we realised early on that for us to be able to determine whether or not that was a real concern you needed very strong evidence because obviously PFD is fairly small in the scheme of things, and so we thought we would get much more stronger evidence than we did but in the end we got more mixed evidence that we expected.

“So we just found we couldn’t substantiate a substantial lessening of competition and so we have approved it.”

Some in the food industry fear Woolworths will use the stake in PFD to aggressively expend into food distribution. Picture: Getty Images

Woolworths initially struck a deal to pay $552m for a 65 per cent stake in PFD plus $249m for its property portfolio, but later as PFD sold some of its property holdings the price of the stake was reduced to $302m.

PFD is a wholesale food distributor, purchasing a wide range of food products from suppliers and distributing them to businesses such as restaurants, cafes, hotels and clubs, petrol and convenience stores and institutions such as hospitals.

The ACCC found that although Woolworths and PFD both supply food products, they do not compete to a significant extent for customers.

A grouping of small and independent grocery and food business immediately leapt on the ACCC decision, claiming that hundreds of small businesses operating in the food distribution industry would now be under threat.

In a joint statement groups including the Australian Association of Convenience Stores, Small Business Organisations Australia, MGA Independent Retailers and Independent Food Distributors Australia said the proposed acquisition has caused significant concern within the food distribution sector which typically involves small to medium businesses, many of which are family-owned and based in regional areas around Australia.

The five industry organisations who opposed Woolworths’ acquisition of PFD – the Australasian Association of Convenience Stores; the Australasian Convenience and Petroleum Marketers Association; COSBOA; IFDA; and the Master Grocers Association – said they will continue to fight for members by highlighting any anti-competitive behaviour from Woolworths.

“Every time another small business in our sector is forced to close; jobs have to be cut; suppliers have fewer distribution choices; or prices go up because of Woolworths’ strong arm tactics, we will highlight it to the ACCC and other interested parties such as local members of parliament,” said MGA CEO Jos de Bruin.

Originally published as ACCC clears Woolworths to take 65pc stake in PFD