Woolworths gains ACCC go-ahead on PFD control


Watchdog says ‘extensive’ probe fails to support competition fears

Woolworths gains ACCC go-ahead on PFD control
Rod Sims

 

Woolworths’ acquisition of 65 per cent of the shares in wholesale food distributor and fleet-owner PFD Food Services has vaulted its Australian Competition and Consumer Commission (ACCC) hurdle.

The ACCC will not oppose the move, making plain that a detailed investigation found the transaction is unlikely to substantially lessen competition.

"We conducted extensive market inquiries across the industry, and undertook detailed analysis of supplier and competitor data, and internal documents of key interested parties," ACCC chair Rod Sims says.

"Ultimately, the evidence before us did not indicate the transaction would be likely to substantially lessen competition."

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.

The ACCC points out that, though 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.

"Our investigation focused on the potential impact of the transaction on suppliers of food and grocery products," Sims says.

"Market feedback suggested that some suppliers see the wholesale food distribution channel as a competitive alternative to supermarkets in distributing their products.

"While there were concerns expressed by some suppliers, many suppliers did not raise competition concerns. PFD makes up about two per cent of the overall demand from food suppliers, which was a key factor in the lack of concern from some suppliers." 


Read how the move for control of PFD emerged, here


 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," Sims says.

"The entire wholesale channel generally purchases less than either of the major supermarket chains.

"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."

The watchdog notes that many of PFD’s competitors expressed "very strong concerns" about the potential effects of the acquisition.

The strongest related to the potential for Woolworths to expand aggressively 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," Sims says.

"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."

Details of the undertaking offered by Woolworths and PFD are available here.

 

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