ACCC Chairman, Mr Rod Sims recently provided a major address to the National Press Club in Canberra. The address, titled ‘Market power in the COVID-19 era’, highlighted the need for Australia to tackle the issue of market power as the economy emerged from the economic downturn created by the COVID 19 pandemic and the associated increase in digital commerce.
During the address, Mr Sims pointed to the fact that a strong recovery will require the nation to be especially vigilant in respect of post-pandemic mergers and acquisition (M&A) activity that has the potential to damage market competition in multiple markets, to the detriment of consumers and small businesses.
The delivery of Mr Sims’s address on 21 October 2020, is interesting to the fuel retail industry, in the context of a prior announcement by Woolworths of its intent to pay $552M to acquire 65% of PFD (see; https://acapmag.com.au/2020/09/accc-seeks-comments-on-the-planned-woolworths-acquisition-of-pfd-food-services/).
PFD, founded in 1943, provides fresh, frozen food and dry goods products to cafes, restaurants, fast food companies and convenience stores. With more than $2M in annual turnover and employing an estimated 2,800 employees, the company is the second largest operator in Australia’s food services and distribution market, with earnings of around $57M.
Woolworths’ proposed acquisition will build on an existing partnership between the two companies that was established in April, which allowed Woolworths’ existing business customers to purchase from PFD’s product range, after Woolworths became concerned about some potential vulnerabilities of its business model in the face of the COVID19 pandemic.
The deal has attracted the attention of the ACCC who are understood to be investigating the proposed move and expected to decide about the acquisition in mid-December 2020.
“On the face of it, this deal looks relatively benign as it does not necessarily change Woolworth’s already substantial share of the retail market for food and grocery – but the deal does present potential adverse competition consequences in other markets given the nature and significance of PFD’s operations”, said ACAPMA CEO Mark McKenzie.
“The acquisition involves a vertical integration (i.e. between a retailer and wholesaler) that poses a whole series of relatively complex questions about the potential impacts of this move on industries supported by PFD including hospitality, restaurants and even petrol-convenience”, added Mark.
Essentially, the deal involves a major and new entry of Woolworths into the Business to Business (B2B) space, where Woolworths will be providing products to other businesses. Given that PFD has relationships with manufacturers and suppliers for a reported 10,000 food products, the move raises questions about the potential for a narrowing of the range of food product offerings available to other businesses (and their consumers) over the longer term and the potential for economic marginalisation of food supply businesses that are not aligned with Woolworths.
Apart from attracting the attention of the ACCC, the merger has prompted the formation of a new industry body that has united three of Australia’s largest independent food suppliers and distributors. The stated mission of the new Independent Food Distributors of Australia (IFDA) is to “counter the aggressive and opportunistic behaviour of the large supermarkets”.
“The Woolworths-PFD Deal will reduce customer choice and put thousands of jobs at risk at independent food suppliers and distributors, many of which are regional Australia”, said IFDA Chairman Richard Hinson.
ACAPMA has engaged in dialogue with IFDA (and national organisations like the Master Grocers of Australia and the Council of Small Business Organisations of Australia) to better understand the nature of any potential adverse impact of the proposed acquisition on the national distribution market – and any subsequent consequences for the petrol-convenience market.
“We have also engaged with the ACCC on this issue with a view to ensuring that the move does not adversely impact petrol-convenience businesses – and this process is ongoing” said Mark.
Any ACAPMA member or affiliate who has concerns about the proposed merger is encouraged to contact ACAPMA CEO (by emailing firstname.lastname@example.org) as soon as possible.