The Australian Competition & Consumer Commission (ACCC) will not oppose Woolworths’ acquisition of 65 per cent of the shares in wholesale food distributor PFD Food Services, following a detailed investigation that found the transaction is not likely to substantially lessen competition.
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PFD is a wholesale food distributor, purchasing a wide range of food products from suppliers and distributing them to businesses such as restaurants, cafes, hotels and clubs, petrol and convenience stores and institutions such as hospitals. PFD has about 15 per cent of the wholesale food distribution segment.
Although Woolworths and PFD both supply food products, they do not compete to a significant extent for customers. PFD primarily sells and distributes food products that are not suitable for direct retail sale. Woolworths only supplies businesses to a limited extent, distributing products suitable for direct retail sale through Woolworths at Work and Australian Grocery Wholesalers (which primarily supplies Ampol service stations).
The ACCC closely investigated potential flow-on effects across the wholesale food sector and looked at specific segments of the market where supply through PFD and other wholesalers is a greater proportion of demand.
“There are very few suppliers for whom both PFD and Woolworths make up a significant proportion of their channels to market. The entire wholesale channel generally purchases less than either of the major supermarket chains,†ACCC Chair Rod Sims said.
“We consulted with suppliers of all sizes and found that many suppliers also have additional alternative channels, such as supply to manufacturing, direct supply or negotiation with institutional and restaurant chain customers, and exports.â€
Many of PFD’s competitors expressed very strong concerns to the ACCC about the potential effects of the acquisition. The strongest concerns related to the potential for Woolworths to aggressively expand in food distribution and leverage its buyer power in supermarkets into food distribution, including through selling private-label products through PFD.
Market feedback indicated that Woolworths will likely be a strong competitor in food distribution. It may try to expand PFD’s share of the wholesale segment by bringing down prices for restaurants, cafes and other businesses.
“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. Consequently there is not likely to be a substantial lessening of competition.†■