The ACCC is seeking feedback from the trade on a proposed undertaking by Woolworths and PFD Food Services in relation to Woolworths’ proposed $552m acquisition of 65 per cent of PFD.
The proposed acquisition has been met with significant backlash from the industry with a group of key retail and food service associations joining forces to fight what they have said would be a “watershed moment for Australia’s retail sector”.
The united group is called Independent Food Distributors Australia (IFDA), and consists of Australian Convenience and Petroleum Marketers Association (ACAPMA), Council of Small Business Organisations Australia (COSBOA), the Master Grocers Association (MGA), the Australasian Association of Convenience Stores (AACS). They believe that if the proposed acquisition is approved, it will create “major impacts to competition, supply, and prices”.
Speaking of the proposed undertakings, Theo Foukkare, CEO of AACS, told C&I: “The Grocery Code works in a highly regulated, sophisticated and controlled environment, not in the small business environment that we operate in. There is no way that this type of arrangement will be managed effectively within this framework.
“This is simply a smokescreen to try and divert attention away from the issues at heart, which will ultimately result in increased costs for consumers and erode suppliers value chain.”
PFD is a wholesale food distributor, purchasing a wide range of food products from manufacturers and distributing them to food service businesses such as restaurants and cafés, fast food franchises, hotels and clubs.
Woolworths and PFD both acquire food and groceries from suppliers such as frozen food manufacturers, dairy processors and manufacturers of pasta and sauces.
In December, the ACCC raised preliminary concerns that the acquisition would increase Woolworths’ already substantial bargaining power in its dealings with food manufacturers.
It also raised concerns that the acquisition would remove PFD as an important alternative customer in the food sector.
In response to the ACCC’s statement of issues outlining preliminary competition concerns, Woolworths and PFD have offered a draft behavioural undertaking designed to maintain a degree of separation and independence between Woolworths and PFD for three years after the acquisition, but the duration could be shorter in certain circumstances.
“The release of an undertaking for public consultation should not be viewed as a sign that we will ultimately accept it, or any other form of undertaking,” ACCC Chair Rod Sims said.
Woolworths and PFD have indicated that the temporary measures in the draft undertaking are designed to preserve the current market dynamics and enable market participants, such as independent suppliers, to continue to do business with Woolworths and PFD independently. The companies consider that this will allow the market to adjust to Woolworths and PFD ceasing to be independent of each other.
“We are seeking feedback from market participants about whether the proposed behavioural undertaking is likely to address competition concerns raised by Woolworths’ acquisition of PFD,” Sims said.
The proposed undertaking would place obligations on PFD’s board and governance structure and impose confidentiality protocols regarding certain supplier information. These obligations are intended to last three years unless certain early termination clauses are triggered. These early termination clauses are generally dependent on PFD’s CEO. For example, if PFD’s CEO ceases to be involved in the day-to-day management of PFD on a full time basis the three year period could end earlier.
PFD would also be required to implement a charter in dealing with suppliers which reflects certain principles of the Food and Grocery Code of Conduct and which would be in place for five years. Any changes to the charter would need to be approved by the ACCC and PFD would be required to provide suppliers with advanced notice of any changes.
“The undertaking is behavioural in nature and imposes obligations on the companies to act in certain ways and not undertake certain actions. It will be important to get feedback from market participants on whether the undertaking provides a sufficient remedy to address the competition concerns,” Sims said.
A Woolworths Group Spokesperson, said: “We provided the draft undertaking to the ACCC in mid March and are pleased they’re now consulting stakeholders and industry on the matter.
“Critical to the success of our proposed partnership with PFD is maintaining long-term, collaborative and sustainable supplier and customer relationships.
“The undertaking provides further assurance to our previous public commitments to keeping supplier and customer information confidential.
“We continue to submit to the ACCC that the proposed partnership will give rise to no substantive competition concerns irrespective of the undertaking we have offered.”
However, industry bodies remain skeptical of the proposed undertakings, with Foukkare saying: “ACCC Commissioner, Rod Simms has clearly said that he doesn’t believe in Woolworths’ behavioural undertakings because it’s just too difficult to monitor on a daily basis,” continued Foukkare.
“The undertakings by Woolworths do absolutely nothing to reduce their significant market power in Australia. The acquisition if allowed will have a major negative impact all the way through the supply chain from farm to suppliers to distributors to consumers.”
Anyone wishing to make submissions should do so by 9am on 19 May 2021. The proposed date for the ACCC’s final decision is 10 June 2021.