Page 90 - Conveniece World Magazine Nov/Dec 2020

ACAPMA PETROLEUM INDUSTRY REPORT WOOLWORTHS AND PFD MERGER REQUIRES SCRUTINY By ACAPMA CEO Mark McKenzie. In a key address, ‘Market power in the Covid-19 era’, delivered to the National Press Club in Canberra in October, ACCC Chair Rod Sims highlighted the need for Australia to tackle the issue of market power as the economy emerged from the downturn created by the pandemic and the associated increase in digital commerce. He pointed to the fact that a strong recovery will require the nation to be especially vigilant in respect of post- pandemic merger and acquisition activity that has the potential to damage market competition in multiple markets, to the detriment of consumers and small businesses. “My thesis today is that we must, in all decisions affecting our market economy, consider market power and the consequences that flow from it,” Mr Sims said in the address. “This is particularly crucial at this time as we confront the economic challenges of the Covid-19 pandemic, and the implications of an ever-growing digital economy.” The delivery of Mr Sims’ address on 21 October is interesting in the context of a prior announcement by Woolworths of its intention to pay $552 million to acquire 65 per cent of PFD. PFD provides fresh and frozen food products to cafes, restaurants, fast food companies and convenience stores. Employing an estimated 2800 employees, it’s the second largest operator in Australia’s food services and distribution market. Annual turnover is around $2.1 billion, with earnings of around $57 million. Founded in 1943, PFD primarily offers fresh and frozen food products to cafes, restaurants and fast-food companies. Woolworths’ acquisition builds on an existing partnership between the two companies established in April to allow the retail chain’s existing business customers to buy from PFD's product range, after Woolworths became concerned about some potential vulnerabilities of its business model in the face of the pandemic. The deal has attracted the attention of the ACCC, which is understood to be investigating the proposed merger and expected to hand down a decision on the proposal during December 2020. On the face of it, this deal looks relatively benign as it doesn’t necessarily change Woolworths’ already substantial share of the retail market for food and grocery, but the deal presents potential adverse competition consequences in other markets, given the nature and significance of PFD’s operations. The acquisition involves a vertical integration (ie, between a retailer and wholesaler) that poses a whole series of relatively complex questions about the potential impacts of this merger on industries supported by PFD, including hospitality, restaurants and even petrol-convenience. Essentially, the deal involves a major entry of Woolworths into the business-to-business 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 in regional Australia,” IFDA Chair Richard Hinson said. ACAPMA has recently engaged in dialogue with IFDA (and national organisations such as Master Grocers Australia and the Council of Small Business Organisations 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. ACAPMA has also engaged with the ACCC on this issue, with a view to ensuring that the merger doesn’t adversely impact petrol-convenience businesses, and this process is ongoing. 88 CONVENIENCE WORLD NOV/DEC, 2020