Independents escalate attack on Woolworths’ food service plans

Sue Mitchell

Oct 2, 2020

AFR

Independent food service distributors have stepped up their attack on Woolworths’ $552 million acquisition of PFD Food Services, setting up an industry peak body to mount a co-ordinated campaign against the retailer’s expansion plans.

Countrywide Food Service Distributors, NAFDA Foodservice and The Distributors, which represent more than 200 independent distributors who employ 8350 staff and have a combined purchasing power of $5.5 billion, have formed Independent Food Distributors Australia (IFDA) to represent the interests of players in the $12 billion sector.

IFDA, chaired by Countrywide chief executive Richard Hinson and run by communications consultant Richard Forbes, will make a submission to the Australian Competition and Consumer Commission’s investigation into Woolworths’ proposed acquisition of a 65 per cent controlling stake in PFD Food Services.

Countrywide Countrywide Food Service Distributors CEO and IFDA chairman Richard Hinson: “Having that much market power in food in Australia is a real problem.”

IFDA’s submission will augment individual submissions to the ACCC from Countrywide, NAFDA, The Distributors as well as food manufacturers and suppliers, worried about the impact on trading terms as Woolworths pushes into the sector.

“The three organisations have put rivalries aside and come together and I’ve no doubt we’ll be able to make a very robust submission about the catastrophic impact [the Woolworths acquisition] will have on our industry – thousands of jobs are at risk if this goes through,” said NAFDA chief executive Brad Lee.

The ACCC has launched a formal investigation into Woolworths’ acquisition of a controlling stake in PFD, the country’s second-largest food service distributor, and is also looking into Woolworths’ plans to expand its B2B operations into food service. Submissions close on October 9.

IFDA fears Woolworths’ ability to leverage its buying power and logistics and take a dominant share of the sector will put independents out of business, harm the small suppliers they service and eventually lead to higher prices and reduced choice for consumers.

“We believe there are several different arguments to take as to why Woolworths entering the food service marketplace and leveraging their market dominance in supermarkets is not appropriate,” said Mr Hinson.

Woolworths chief executive Brad Banducci has tried to reassure independent distributors and suppliers, saying the $18 billion food service sector was highly fragmented and PFD’s share of the sector was just $2.1 billion. Woolworths has made commitments to establish Chinese walls so there is no sharing of information on trading terms between PFD and supermarket buyers.

“Our 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,” a Woolworths spokesman said on Thursday.

“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 and lift service levels across the industry,” Woolworths said.

Mr Hinson said Woolworths, which accounts for about 45 per cent of supermarket sales, had ‘inflated’ the size of the total market to minimise the size of its potential market share.

“[Woolworths] says it’s buying a $2 billion business in an [$18 billion sector], the reality is they’re buying a $2 billion business in what we believe is an $11 billion to $12 billion sector,” Mr Hinson said.

“They have a 45 per cent share of supermarkets and … they’ll pick up a 30 per cent chunk of the food service market place on acquisition, which to us is an untenable situation,” he said.

“Having that much market power in food in Australia is a real problem.”

Mr Hinson also queried Woolworths’ claim PFD would continue to operate as a stand alone business and the “Chinese walls” between Woolworths’ buying teams and PFD, pointing out Woolworths’ representation on the PFD board and the fact the partnership with PFD and Woolworths’ B2B business would be overseen by Claire Peters.

Ms Peters was managing director of Woolworths Supermarkets for three years until a recent management reshuffle.

IFDA will also lobby government ministers and departments to raise awareness of the independent food distribution sector, which has played a largely unrecognised role supporting essential services such as aged care centres, hospitals, schools and child care centres during the pandemic.

IFDA has suggested JobKeeper should be extended or made more flexible for independent food distribution businesses, whose revenues have been decimated by lockdown and social distancing restrictions, 200 per cent tax deductions for unsold stock, a national ‘eat out to help out’ voucher scheme to encourage consumers back to cafes and restaurants, dropping fringe benefits tax on business lunches for two years, and a further six-month deferral for small business loans.

Sue Mitchell is a senior Companies reporte