ACCC to investigate Woolworths’ $1b B2B push

Sue Mitchell

Jul 17, 2020

AFR

The competition regulator is looking into Woolworths’ plans to build a $1 billion wholesale business supplying the education, childcare, healthcare, disability and government sectors.

Australian Competition and Consumer Commission chairman Rod Sims confirmed the regulator had received letters from food service distributors and food and grocery suppliers worried about the effect of Woolworths’ expansion in the sector through its fast-growing digital business.

Mr Sims said the ACCC would look at whether Woolworths’ B2B strategy had an adverse impact on competition, rather than an adverse impact on competitors.

Woolworths wants to lift its wholesale sales three- to four-fold to $1 billion in three years by using its burgeoning online platform and massive distribution network to supply small, medium and large customers such as childcare centres, schools and disability and care services with food and groceries.

As reported by The Australian Financial Review, independently owned food service distributors are worried Woolworths will take advantage of its scale to snare a major share of B2B sales, threatening businesses and jobs in regional areas.

Food and grocery suppliers have been asked by Woolworths to supply its B2B channel on the same trading terms as they supply supermarkets and fear ramifications if they refuse because of the impact it would have on their margins.

“Whenever someone new enters a market that’s usually damaging for players in the market, but that’s not the test,” Mr Sims said.

“In a sense people entering a market is good because more competition means a better outcome for consumers,” he said. “What we have to weigh up is does it damage competition.”

Woolworths has denied it is targeting the cafe and restaurant trade and says childcare centres, aged care centres, and disability services are already shopping for groceries such as snacks, drinks, toilet paper and cleaning products in stores and on its consumer website.

It’s a pretty weak code. The essential problem with the code is it has no sanctions if you breach it.

— Rod Sims, ACCC chairman

“This doesn’t work as well as it should for them or us,” a Woolworths spokesman said.

“We believe they would benefit from having a dedicated website, consolidated invoicing and easy-to-use expense reporting. That’s why we’re developing a convenient extension of our existing online grocery business for these organisations,” he said, adding Woolworths would assist the ACCC with its investigation.

The ACCC is gathering information from market players, but Mr Sims said it was early days.

“You have to go into it with an open mind and just gather the facts and that’s what we are doing now, just trying to see whether there’s anything that’s being done which might obstruct the ability of anybody to compete,” he said.

The ACCC would also look at Woolworths’ requests to food and grocery manufacturers to supply goods for its B2B business on the same terms as supermarkets, including rebates and promotional and marketing support.

However, he said the ACCC’s ability to take action if, for example, Woolworths was found to have applied duress, was limited because of shortcomings in the Food and Grocery Code of Conduct.

“We’ll look at it with the code in mind but it’s a pretty weak code,” Mr Sims said. “The essential problem with the code is it has no sanctions if you breach it.”

The services rejected, according to the ACCC, included spinal surgery, knee reconstructions and hip surgeries, among others.

RE

The voluntary code was introduced in 2015 to reduce inappropriate use of market power in the industry and address anti-competitive and unconscionable behaviour.

The ACCC believes the code has gone some way towards improving the conduct of retailers and wholesalers but it has significant shortcomings, including a lack of sanctions and civil penalties and enabling retailers to opt out of certain obligations.

The code was reviewed by the federal government in 2018 but the ACCC’s calls for the code to be made mandatory, for civil penalties and infringement notices to be introduced and for the removal of opt-out provisions were overlooked.

The review is still sitting with Assistant Treasurer Michael Sukkar and the recommended changes released in April 2019 have not been implemented.