ACCC green lights Woolworths buying majority stake in family-owned food distributor despite ‘strong concerns’

The supermarket giant is being allowed to buy a majority stake in a 78-year-old family business despite ‘strong concerns’ among competitors.

Supermarket giant Woolworths has been given the green light to proceed with a contentious $552m acquisition.

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

The Australian Competition and Consumer Commission had preliminary concerns, with chair Rod Sims saying it seemed likely to increase Woolworths’ already substantial bargaining power in its dealings with food manufacturers.

“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 in December.

Many outside the industry wouldn’t know much about PFD Food Services, but would recognise the logo of the 78-year-old company. Picture: David Barwell / Balonne Beacon

Australian Small Business and Family Enterprise ombudsman Kate Carnell was staunchly opposed, saying the deal would lead to significant job losses among smaller suppliers and distributors, which would have a battle on their hands to compete with a Woolworths-controlled PFD.

She said the timing was opportunistic, as independent food distributors had struggled during the pandemic, and said allowing the deal to go ahead would be “a real kick in the guts”.

But on Thursday, the ACCC announced it would not stand in Woolworths’ way, saying a detailed investigation had found the transaction would not likely substantially lessen competition.

Although Woolworths and PFD both supply food products, they do not compete to a significant extent for customers, the regulator found.

PFD primarily sells and distributes food products that are not suitable for direct retail sale, such as bulk products.

PFD founder Rick Smith arrived in Australia from Scotland in the 1950s with 12 quid in his pocket. He will remain involved with the company after the Woolies deal.

Woolworths, however, only distributes products suitable for direct retail sale through Woolworths at Work, which sells to organisations, and Australian Grocery Wholesalers, which mainly supplies Ampol service stations.

The ACCC said many of PFD’s competitors had expressed “very strong” concerns, the strongest relating to the potential for Woolworths to aggressively expand in food distribution and leverage its buying power.

It may sell private-label products through PFD and try to expand PFD’s share of the wholesale segment by bringing down prices for restaurants, cafes and other businesses, the ACCC said.

“The ACCC acknowledges that the acquisition will likely lead to changes in the way the wholesale food distribution industry operates,” Mr Sims said.

“Despite these potential changes, we concluded that there are several competitors in the wholesale segment with similar market share to PFD and non-price aspects of competition, such as range, quality and service levels are likely to remain an important part of the competitive dynamics.

The deal will lead to changes in the wholesale food distribution industry, the ACCC acknowledges. Picture: Joel Carrett / NCA NewsWire

“Consequently there is not likely to be a substantial lessening of competition.”

Woolworths Group chief executive Brad Banducci said the approval was pleasing and the retail giant would work alongside the founding Smith family.

“They are a great Australian success story and a well-respected business with both suppliers and customers in the food service industry,” Mr Banducci said.

“This investment is a logical adjacency for Woolworths Group and further supports the evolution of the group into a food and everyday needs ecosystem.”

PFD will continue to operate independently under chief executive Kerry Smith, and a separate board and governance structure will be implemented, Woolworths said.

The deal includes the 100 per cent purchase of PFD’s freehold properties, mainly comprising 26 distribution centres.