Woolies’ planned purchase of family-owned distributor concerns ACCC

Supermarket giant Woolworths faces a major hurdle in its bid to buy a controlling stake in a family-owned wholesale business.

Woolworths faces a major hurdle to get its planned purchase of a controlling stake in a family-owned food distributor over the line. Picture: David Crosling/AAP

Woolworths’ planned deal with a family-owned wholesale food distributor is a concern to the competition watchdog, which says it will likely increase the supermarket giant’s leverage with manufacturers.

The retailer announced in August a proposal to acquire 65 per cent of PFD Food Services, owned by the Smith family, which began in Melbourne in 1943 and distributes food to businesses such as restaurants and cafes, fast-food franchises, hotels and clubs.

Woolworths said the $552 million deal would involve the 100 per cent purchase of PFD’s freehold properties, mainly comprising 26 distribution centres, and PFD would continue to operate as a stand-alone business and retain its senior leadership team.

PFD described the deal at the time as a partnership that “not only allows us to continue to run our business and innovate in the food service industry” but also secured the ongoing employment of its roughly 3000 workers.

But the Australian Competition and Consumer Commission (ACCC) issued preliminary concerns about the deal on Tuesday.

Woolworths faces a major hurdle getting the deal over the line. Picture: NCA NewsWire/Andrew Henshaw

“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.

“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.

“The dominance of Coles and Woolworths in food retail means that wholesale food distribution is an important alternative customer channel for manufacturers.

“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.”

The ACCC said it was also considering other potential issues, including whether Woolworths acquiring a company that supplies its competitors “will lead to risks of foreclosure”.

PFD Food Services staff at its Tweed depot.

Woolworths Group chief executive Brad Banducci said the company did not see any reduction in competition, in any relevant markets, from the proposed deal.

“Since the proposed investment was announced we’ve been very clear about our commitments to suppliers and customers in maintaining the confidential trading terms that already exist within our respective businesses,” Mr Banducci said.

“This is much more than a behavioural obligation but a legal one and is in addition to Woolworths Group’s obligations under the Grocery Code of Conduct, which we take very seriously.

“It would not be in our commercial or reputational interest to neglect that – notwithstanding the very different characteristics of products and requirements for customers in the retail and food service sectors.”

In its statement of issues, the ACCC noted key differences between the two types of business including wholesale food services buying bulk goods packaged accordingly and priced differently to smaller-sized retail products.

Mr Banducci said Woolworths had been working closely and constructively with the ACCC on the matter, and was confident further engagement would resolve any concerns.

The ACCC’s final decision will be announced on April 22.

Australian Small Business and Family Enterprise ombudsman Kate Carnell has lodged her opposition to the planned deal.

Originally published as Woolies’ planned purchase of family-owned distributor concerns ACCC