The competition watchdog has backflipped on past concerns and cleared Woolworths’ $550 million acquisition of 65 per cent of food services supplier PFD.
The Australian Competition and Consumer Commission had earlier raised potential problems with Woolworths taking a big slice of one of the nation’s largest food service providers.
But on Thursday ACCC chairman Rod Sims said that after detailed analysis “the evidence before us
Woolworths welcomed the decision, which followed nine months of ACCC investigations. At the end of the day the regulator couldn’t get the evidence to back its past concerns.
Mr Sims said many of PFD’s competitors had expressed strong concerns about the Woolworths deal, in particular over the potential for Woolworths to aggressively expand in food distribution and to leverage its buyer power in supermarkets into food distribution.
“The ACCC acknowledges that the acquisition will likely lead to changes in the way the wholesale food distribution industry operates,” Mr Sims said.
“Despite these potential changes, we concluded that there are several competitors in the wholesale segment with similar market share to PFD and non-price aspects of competition, such as range, quality and service levels are likely to remain an important part of the competitive dynamics.
“Consequently there is not likely to be a substantial lessening of competition.”
PFD has just two per cent of the food market and Woolworths an average of 32.5 per cent – ranging from 25 to 40 per cent depending on the category.
The ACCC ignored behavioural undertakings offered by Woolworths to clear the deal.
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While a range of small and larger suppliers had opposed the deal because they supply both companies, the overlap was relatively small.
Woolworths also argued it offered fair terms to suppliers because as the primary revenue source they were needed to survive in business.
While that argument was treated with some scepticism, at the end of the day the ACCC couldn’t find the evidence to oppose the deal.
The acquisition gives Woolworths a strong market position in the food services market, which supplies restaurants, hotels and small retailers.
After clearing Woolworths, the ACCC will struggle to stop Coles doing a similar deal and another Australian industry will consolidate.
Mr Sims has warned against the trend but yet again waved it through.
In a statement he said: “We conducted extensive market inquiries across the industry, and undertook detailed analysis of supplier and competitor data, and internal documents of key interested parties. Ultimately the evidence before us did not indicate the transaction would be likely to substantially lessen competition.”
Mr Sims added “Our investigation focused on the potential impact of the transaction on suppliers of food and grocery products. Market feedback suggested that some suppliers see the wholesale food distribution channel as a competitive alternative to supermarkets in distributing their products.”
In December the ACCC said it had serious concerns with the deal.
The ACCC said: “While there were concerns expressed by some suppliers, many suppliers did not raise competition concerns. PFD makes up about two per cent of the overall demand from food suppliers, which was a key factor in the lack of concern from some suppliers.”
The strongest concerns about the deal related to Woolworths’ potential to aggressively expand in food distribution, including through selling private-label products through PFD.
Market feedback indicated that Woolworths will likely be a strong competitor in food distribution. It may try to expand PFD’s share of the wholesale segment by bringing down prices for restaurants, cafes and other businesses.
Although it had determined that undertakings by Woolworths were not necessary, the ACCC also considered that an undertaking of the type proposed raised considerable compliance risks that would likely have made it unacceptable