Woolworths’ proposed $552 million acquisition of PFD Food Services is coming under an increasing amount of scrutiny with food service and retail industry organisations lobbying for the deal to be blocked.

Five industry organisations have presented as a united voice to the Australian Competition and Consumer Commission (ACCC) against the proposed deal. They say that the acquisition is an abuse of market power and would come at a significant cost to independent retailers.

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) and Independent Food Distributors Australia (IFDA) penned a joint letter to the ACCC.

IFDA is a peak industry body made up of Countrywide Food Service Distributors, NAFDA Food Service and The Distributors, and was formed in October to tackle what they see as ‘aggressive and opportunistic’ behaviour from Woolworths.

The joint letter, which has been obtained by C&I, says that the deal would have a “significant adverse impact on the businesses in the Australian food supply chain” impacting growers, manufacturers, distributors, and ultimately flowing through to food service retailers and independent grocers.

Key concerns are that the deal would reduce choice and increase costs for consumers, reduce distribution choice for some suppliers, or for many smaller suppliers, completely remove their route to market. There are also concerns of increased costs for suppliers if trading terms are harmonised.

“We believe that Woolworths’ ability to dramatically impact price through cross-subsidy on key ranges or products to rapidly gain market share will be to the detriment of the majority of our members operating in the food sector and to many SMEs in Australia – and ultimately to consumers as a result of increased market concentration over time,” the letter reads.

Theo Foukkare, CEO, AACS, voiced his concerns in an article written for the February issue of C&I Retailing Magazine.

He said: “While so many industries have suffered during the pandemic, the major supermarkets have delivered record sales and unprecedented demand for their products. And now, they are trying to disrupt the food service distribution community, which is made up of 200+ Australian family owned and operated small businesses. The same businesses that have done it tough, that tried everything to survive, remain competitive and employ many thousands of Australians is under threat.

“This move by Woolworths is another example of the large supermarket duopoly going after an opportunity that is only possible given their substantial market power. Should this be approved, it is likely that this will significantly impact the businesses that comprise many segments of the Australian food supply chain.

“The ACCC should not allow this to happen.”

In mid-December, the ACCC outlined preliminary competition concerns primarily around whether the proposed acquisition could affect downstream competition.

ACCC Chair Rod Sims said at the time: “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 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,” Sims said.

“The dominance of Coles and Woolworths in food retail means that wholesale food distribution is an important alternative customer channel for manufacturers.”

The ACCC is continuing to consider other issues, including whether Woolworths acquiring a company, which supplies its competitors will lead to risks of foreclosure, and the extent to which Woolworths at Work and AGW compete with PFD at the moment or are likely to compete with PFD in future.

The ACCC’s final decision will be announced on 22 April.

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