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 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.
“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”.
Woolworths Group chief executive Brad Banducci said the company did not see any reduction in competition, in any relevant markets, from the proposed deal.
“We have been working closely and constructively with the ACCC on these issues,” Mr Banducci said in a statement to the ASX.
“We remain confident that we will address any outstanding potential concerns so that we can progress the proposed partnership.”
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.