Australia’s biggest supermarket chain Woolworths plans to spend more than half a billion dollars on a food services company, but competitors fear the move will lead to reduced choice for consumers and put “thousands” of jobs at risk.
Woolworths has been seeking to buy a majority stake in PFD Food Services since August, but the deal is still under review by the Australian Competition and Consumer Commission.
The “strategic investment” would come at a cost of $552 million and include a 65 per cent stake of the family-owned food distributor, and the purchase of its freehold distribution centres.
But the deal, which the ACCC is expected to give its verdict on by the end of the year, has outraged PFD’s competitors.
Three of the nation’s largest independent food service suppliers and distributors have united to oppose the deal under the banner of Independent Food Distributors of Australia.
IFDA’s mission is to “counter the aggressive and opportunistic behaviour of the large supermarkets”.
The organisation’s chairman Richard Hinson, who is also the chief executive of Countrywide Food Service Distributors, said Woolworths’ PFD deal will reduce consumer choice and put “thousands” of jobs at risk at independent food suppliers and distributors, many of which are in regional Australia.
“The large supermarkets have been the biggest beneficiaries from the pandemic, with Woolworths and Coles posting $1 billion net profits,” Mr Hinson said.
“Now, while small business continues to suffer, Woolworths has announced its plans to expand into the B2B space with a planned acquisition of PFD Foods. This will have a profound impact on independent food distributors.”
Woolworths and PFD hit back at the claims in statements to The New Daily.
“Our customer strategy is underpinned by strong support for supplier brands. It’s one of the key reasons customers choose PFD over others in the marketplace, so we will continue to offer them supplier brands and choice,” a PFD spokesperson said.
“We’re the proud employer of some 3000 Australians, and have entered into a partnership, which not only allows us to continue to run our business and innovate in the food service industry, but also secures the long-term jobs of the people we so proudly employ.”
A Woolworths spokesperson said the PFD investment “won’t reduce the choice customers have in who they source their food service products from – nor the number of food service players that suppliers can partner with to get their products to market.”
“We have no presence in food service right now, and believe our investment will not only help PFD grow its business, but also add to competition on service levels across the industry,” they said.
What’s all the fuss about?
The PFD acquisition shows that Woolworths is “looking to grow their business” beyond the supermarket shelves, QUT retail expert Gary Mortimer explained.
Woolworths has “traditionally run a ‘B2C’ or business-to-consumer model”, but the PFD acquisition means it is “now moving into a business-to business-model where Woolworths will provide products to other businesses”, Professor Mortimer said.
PFD is “basically a conduit between independent food suppliers, processors, manufacturers, and other businesses like childcare facilities, event centres and other types of businesses” he said.
“So clearly, that’s a viable market.”
However, independent food suppliers and distributors are worried that Woolworths is encroaching on their turf, and could become so powerful that smaller players lose their market share.
“The concerns being raised by food suppliers and distributors is that if Woolworths were to take a majority share of PFD they could possibly restrict suppliers, and end up supplying their own particular private-label products into businesses,” Professor Mortimer explained.
“For example, an old aged-care facility or retirement home may have certain products that they use to cook meals for their residents. Those products may hypothetically become Woolworths products.”
Although that is a “legitimate concern”, consumers “still have the right to choose”, Professor Mortimer said.
“If consumers or businesses are satisfied with the current offering, then they are less likely to shift to a different brand.”
With the ACCC set to rule on the PFD acquisition by the end of 2020, Professor Mortimer believes consumers and businesses can have confidence that an “appropriate outcome” will be reached.