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ACCC outlines PFD Food Services acquisition concerns

Watchdog has continuing worries over Woolies’ and Coles’ market muscle

 

The likelihood of too much power over suppliers is at the heart of the Australian Competition and Consumer Commission’s (ACCC’s) concerns about Woolworths’ takeover of PFD Food Services.

The nation’s competition watchdog worries that the market weight of both Woolworths and Coles mean any increase in their control over the supply chain will reduce the ability of competitors to emerge or compete.

PFD is a wholesale food distributor, buying a wide range of food products from manufacturers and taking them to food service businesses, such as restaurants and cafés, fast food franchises, hotels and clubs.

The ACCC began examining Woolworths’ proposal to acquire 65 per cent of PFD Food Services not long after it was announced in August.

And the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell stated she was opposed to the takeover not long after that.


Read more on why the ASBFEO is resisting the PFD purchase, here


“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 says.

It notes 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,” Sims says.

“The dominance of Coles and Woolworths in food retail means that wholesale food distribution is an important alternative customer channel for manufacturers.”

The ACCC is also considering whether the proposed acquisition could affect downstream competition.

“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,” Sims says.

And it continues 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 Woolworths at Work and AGW 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 Monday, February 1.

Details of the probe can be found here.

 

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