ACCC worried by Woolworths’ deal to buy 65pc of PFD Food Services

The ACCC is concerned that buying 65pc of PFD will give Woolworths too much power when dealing with food makers.

PFD driver Jimmy Kyriakopoulos delivers supplies to a home care service in Sydney. Picture: Dallas Kilponen

Woolworths chief executive Brad Banducci is defending its entry into the $18bn food services industry via its planned investment in leading player PFD Food Services, arguing the deal won’t lessen competition and that Woolworths will pledge itself to confidential trading terms and other behaviours to protect suppliers and customers.

In a strong and detailed defence of Woolworths’ recent $552m investment in PFD for a controlling 65 per cent stake, Mr Banducci said the supermarket group also had strong legal commitments it would adhere to that would further protect competition.

He was responding to the competition regulator, which on Tuesday expressed its concerns the purchase of the majority stake in PFD could hand Woolworths too much power when dealing with food manufacturers.

The Australian Competition and Consumer Commission said it has outlined preliminary competition concerns with Woolworths’ proposal to acquire 65 per cent of PFD.

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 cafes, fast food franchises, hotels and clubs.

Woolworths announced in August a deal to buy an initial 65 per cent stake in PFD for $552m. The founding Smith family will retain a 35 per cent stake.

“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.

“We are confident that with further engagement with the ACCC we will resolve any concerns.”

However, ACCC chairman Rod Sims said he is concerned that the proposed acquisition seems likely to increase Woolworths’ already substantial bargaining power in its dealings with food manufacturers.

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,” Mr Sims said.

In a highly fragmented market PFD Food Services is the No. 2 player, with around 11 per cent market share. It is a new space for Woolworths, although the supermarket group worked with the company to deliver food during the peak of the COVID-19 crisis in March, in particular serving other food businesses.

“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 said it 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 its B2B unit Woolworths at Work and Woolworths’ wholesale business 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 February 1. The ACCC’s final decision will be announced on April 22.

Woolworths believes the acquisition of the stake in PFD should not harm competition as PFD only has an 11 per cent share of the $18bn food services industry and it won’t reduce the choice customers have in who they source their food service products from, nor the number of food service players that suppliers can partner with.