Countrywide sends suppliers its concerns over Woolworths taking stake in PFD

Letter to suppliers sent to ‘alert them to the potential competition implications’ of allowing Woolworths to take a stake in PFD.

Woolworths CEO Brad Banducci. Picture: John Feder/The Australian.

Countrywide, the nation’s largest group of independently-owned wholesale distributors in the food service industry, is marshalling food and grocery manufacturers that supply the $100bn supermarket sector to oppose Woolworths’ purchase of a controlling stake in PFD Food Services.

In a letter seen by The Australian, Countrywide chief executive Richard Hinson urges supermarket suppliers to make submissions to the Australian Competition & Consumer Commission, which is investigating the deal that will give Woolworths a 65 per cent stake in PFD at a cost of $552m.

Mr Hinson, on behalf of his 100-plus members who are a part of the Countrywide group and who deliver food to restaurants, cafes, prisons, aged-care homes, mining camps and Aboriginal communities, argues in his letter that suppliers will also be affected by a lessening in competition and profits if Woolworths is given the green light by the ACCC.

“If this acquisition goes forward we believe it will impact suppliers. It is highly likely that Woolworths will rationalise supply chains through the merger with PFD in the same way as it has rationalised its supermarket operations,” Mr Hinson writes.

“Less offerings, less costs, more profits. The cost will be borne by reduced choice to consumers, removal or reduction of suppliers, the reduction of food manufacturers and producers as the route to market is increasingly difficult, and eventually, as competition is removed, increased prices to consumers.

Richard Hinson. Picture: AAP

“It is a well-worn and successful path that delivers increased profits and control to Woolworths and reduces competition. Woolworths has deep pockets, good lawyers and can play a long game.”

Mr Hinson says Countrywide is concerned this merger would reduce choice and increase cost for consumers, reduce distribution choice for some suppliers, and for many, completely remove their route to market.

He warns there will be an increased cost for suppliers by leveraging both retail and wholesale trading terms to significantly reduce their market pricing and profitability.

“With less profitability the suppliers will be forced to reduce food manufacturing and production innovation, further eroding choice and variety for consumers.

“(It will) signal the end of a vibrant and diverse distribution ecosystem that services a vibrant and diverse production and manufacturing sector.

“The issue comes down to what sort of economy we want: one benefiting consumers and allowing small business to thrive, or one that allows the strong to grow stronger by whatever means.”

Last week, Woolworths chief executive Brad Banducci strongly defended its entry into the $18bn food services industry via its planned investment in leading player PFD, arguing the deal would not lessen competition and that Woolworths would pledge itself to confidential trading terms and other behaviours to protect suppliers and customers.

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 ACCC, which last week expressed its concerns the purchase of the majority stake in PFD could hand Woolworths too much power when dealing with food manufacturers.

The ACCC said it had outlined preliminary competition concerns with Woolworths’ proposal to acquire 65 per cent of PFD and would take submissions from industry participants.

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.

Woolworths is arguing the proposed transaction will not reduce the choice customers have in who they source their food service products from, that Woolworths does not participate in this sector at the moment and its proposed investment in PFD constitutes only a 65 per cent interest in PFD which itself only represents around 11 per cent of the sector.

Woolworths believes Countrywide, Bidfood, NAFDA, Superior Foods as well as myriad other regional and specialist food services distributors, will continue to be well resourced, vibrant and effective competitors to PFD.

Mr Hinson told The Australian the letter to suppliers was a response to the ACCC inquiries into the PFD deal and to alert them to the potential competition implications of allowing Woolworths to take a stake in the food distributor.

“We just wanted to highlight the need for those guys to be active if they felt that they need to be active in this particular case.

“We have been very clear all the way along on our position, along with the position of IFDA, the industry peak body for independent food distributors, which is against the acquisition.”

He said Woolworths would be able to put pressure upstream on suppliers and downstream on distributors.

The ACCC will announce its decision on April 22.