Woolworths’ deal with PFD Food Services comes under ACCC’s scanner

The Australian Competition and Consumer Commission (ACCC) said that retailing giant Woolworths Group’ proposal to acquire 65% stake in foodservice distributor PFD Food Services for AUD 552 million ($426 million) will raise competition concerns.

The competition regulator will now launch a detailed probe into the deal, that was announced in August 2020. It expects to announce a final decision regarding the deal on 22 April 2021, and till 1 February 2021, will be seeking feedback on its statement of issues.

As part of the deal, Woolworths Group will also acquire 100% of PFD Food Services’ freehold assets which mainly comprise 26 distribution centers.

According to the ACCC, PFD Food Services as a wholesale food distributor buys a large variety of food products from manufacturers and distributes them to food service businesses that include restaurants and cafés, fast food franchises, hotels and also clubs.

Rod Sims – ACCC Chair said: “The ACCC is concerned that the proposed acquisition seems likely to increase Woolworths’ already substantial bargaining power in its dealings with food manufacturers.”

The ACCC noted that both the parties purchase food and groceries from suppliers like frozen food manufacturers, dairy processors, and manufacturers of sauces and pasta.

Woolworths’ deal with PFD Food Services comes under ACCC’s scanner. Photo courtesy of Woolworths Group Limited.

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.”

The ACCC will also look into if the proposed deal could impact downstream competition.

Rod Sims said: “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.”

Additionally, the regulator will assess how Woolworths’ acquisition of company which supplies its competitors will result in foreclosure risks, and the extent to which the retailer’s food and essential products supplier Woolworths at Work and AGW compete with PFD Food Services currently or are likely to compete with it in future.