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Woolworths’ takeover undertakings a ‘smokescreen’: independents

Undertakings made by Woolworths to win a green light for its $552 million acquisition of a controlling stake in PFD Food Services are a “smokescreen,” say five food service and retail industry organisations opposed to the deal.

The Australian Convenience and Petroleum Marketers Association, Small Business Organisations Australia (COSBOA), the Master Grocers Association (MGA), the Australasian Association of Convenience Stores and Independent Food Distributors Australia (IFDA) joined forces last month to urge the competition regulator to block the acquisition, which would make Woolworths one of the top two food service distributors as well as Australia’s largest retailer.

Under proposed enforceable undertakings submitted to the Australian Competition and Consumer Commission last week, Woolworths and PFD committed to keeping supplier and customer information confidential and proposed a charter under which PFD would operate in its dealings with suppliers.

The PFD Food Services acquisition would make Woolworths the largest or second largest food service player in Australia.

Charter provisions include good faith dealings with suppliers, no retrospective changes to commercial trading terms, and confidentiality assurances.

The five organisations said the undertakings were designed to distract the regulator and the small business community from the “real” issue of Woolworths’ market dominance and did nothing to address the major concerns of small suppliers and independent food distributors.

“Woolworths’ latest undertakings to the ACCC to keep supplier and customer information confidential, as part of its bid to acquire PFD Foods, are yet another smokescreen to steamroll both small business and the ACCC,” said COSBOA chief executive Peter Strong.

“We remain extremely concerned about the inevitable negative impact of this proposed merger on businesses in the food supply chain, from growers, to manufacturers, distributors, food service retailers and independent grocers and, ultimately Australian consumers.

“Giving even more market power to one of the biggest and most influential companies in Australia will not benefit anyone other than their own shareholders.”

Mr Strong said the undertakings did not address the concerns of the five industry peak bodies. They fear the acquisition will dramatically reduce choice and increase costs for food service operators, many of whom have been decimated by COVID-19 restrictions, and reduce distribution choice and trading terms for suppliers.

IFDA chairman Richard Hinson said Woolworths’ ability to reduce prices by cross-subsidising key products or ranges to gain market share would be detrimental to most food service operators and lead to increased market concentration.

“Keeping supplier information confidential is fine, however the small suppliers who are not their route to market will be severely impacted by this acquisition,” Mr Hinson said.

“There is no doubt in the minds of industry peak bodies that Woolworths has a clear strategy to further pressure suppliers, cross-subsidise operational and technology investment, commercialise customer data and savagely reduce costs in order to streamline PFD’s existing supply chain,” said MGA Independent Retailers chief executive Jos de Bruin.

They also questioned why the ACCC would accept the undertakings, as chairman Rod Sims has previously said behavioural undertakings are too difficult to monitor on a daily basis. Any undertakings should be structural, they say.

Woolworths is Australia’s largest food and grocery retailer and has a growing B2B/wholesale business supplying small businesses such as schools and childcare centres, while PFD is Australia’s second-largest food service distributor.

Woolworths had previously committed to ensuring there is no sharing of information on trading terms between PFD and supermarket buyers and to retain existing trading terms for the two separate businesses.

Despite these assurances, the ACCC raised preliminary concerns about the deal in mid-December and is seeking more information from market participants before it makes a final decision on or before April 22.

Sue Mitchell, Senior Reporter
Source: Australian Financial Review. 23 Mar, 2021