Woolworths has come under fierce opposition to its proposed acquisition of a 65 per cent stake of PFD Food Services with a united group of five industry associations rallying for the deal to be blocked.
Their primary concerns are that the proposed acquisition would reduce choice and increase costs for food service operators, it would reduce distribution choice, increase costs, and erode the value chain for suppliers, and that it would reduce innovation in food manufacturing and production.
Speaking at the recent Australian Food and Grocery Council (AFGC) Conference, Woolworths CEO Brad Banducci, expressed his views on the strength of the opposition to the proposed acquisition of PFD.
“It’s a very interesting scenario,” said Banducci. “It just happened to be – life is full of strange events – that at the point we announced the demerger of our liquor business, Endeavour Drinks, which is a market leader with Dan Murphy’s and BWS in a $20bn market segment, we had the opportunity to partner with the Smith family in PFD and invest in an 11 per cent share player in a segment about the same size. So, it was moving out of drinks and focusing more thoughtfully around the core business we’re in, which is moving food products around – albeit to very different customers with different pack sizes and services and so on.
“Prima facie we felt it was the right thing for Woolworths as we’re a food and everyday needs business and we try to add value to the group through advanced analytics and the way we actually engage with our suppliers, the way we focus on customers and also utilise PFD to help us solve some of our logistical challenges at Woolworths. That’s primarily to do with getting niche ranges or small suppliers into our stores and getting out of direct to store deliveries, which is good for no one – incredibly complex and still very alive in our business.
“It’s actually an 11 per cent share of a segment we don’t compete in and we want to do it in partnership with a family – actually of a similar age funnily enough to Bruce Mathieson and his family – in the Smith Family. It’s a very similar structure of transaction.
“We got some very early and I thought very useful feedback from the AFGC to say there were concerns with suppliers around trading terms across channels. I thought it was very helpful feedback and we took onboard the challenge.
“I actually personally wrote hopefully to most of you saying we committed not to do that. It was an easy thing to commit to because the Grocery Code if you look at confidentiality clause 25 it says trading terms cannot be used for a purpose for which they’re not intended. We all know retail trading terms were not intended to be applied in food service. So, all I was doing actually was complying with the Code, but it was important that I said it. We’ve actually then issued a draft undertaking to the ACCC in this regard. The letter I sent is a legal undertaking that binds Woolworths irrespective of the Grocery Code.
“We feel we’ve listened and we’ve acted. We’ll act on any other advice we get. We’re not in the business of trying to take trading terms across channels.
“We’re learning to be much more thoughtful about that inside Woolworths irrespective of PFD. From the feedback we’ve got we’ve started to adjust how we approach even Woolworths at Work, which is a derivative of our consumer business.
“We’re committed to doing the right thing and we shouldn’t confuse what are we doing with us not wanting to be competitive and delivering value for food services customers, which we know PFD do. We’d love to do it in partnership with them, so we shouldn’t confuse competition with doing the right thing.
“We think it’ll be a great partnership and we think – funnily enough – PFD will add a lot of value to Woolworths, which sounds ironic, but if you understand the constraints in our supply chain you would understand why I say that.”