The ACCC did not oppose the recent acquisition by Woolworths of the wholesale food distribution company, PFD Food Services.[1]

This case is a reminder for businesses to consider the competition aspects of any proposed merger, even when the proposed sale involves a business with a relatively small market share.  (In this case PFD had a market share of just 2% of the overall wholesale food supply sector.) If there is any concern about competitiveness, businesses should seek legal advice before entering into the transaction, as the ACCC can wind back transactions which it considers anti-competitive.  Particularly, merger parties should consider the ACCC’s approach to identifying the markets (product and geographical) for merger purposes, as detailed below.


Woolworths proposed to acquire 65% shares in PFD, with an option to acquire a further 35% in the future.  PFD is a wholesale food distribution company, which purchases (in some cases) products from suppliers and distributes products to businesses such as restaurants, cafes, hotels and clubs, petrol and convenience stores and institutions such as hospitals.  PFD has a market share of about 15 per cent of the wholesale food distribution sector, and 2% of the wholesale food product supply sector.

Woolworths is the retail supermarket giant, but also owns smaller businesses including Woolworths at Work which supplies retail food products to businesses, and Australian Grocery Wholesalers which supplies products to service stations.

In September 2020, ACCC commenced an informal merger review of the proposed acquisition, which had attracted criticism from independent food service distributors. ACCC identified and published issues of concern[2] and undertook public review.

In arriving at its decision, ACCC undertook a detailed analysis of the markets of each business, and considered how the acquisition might affect competition within these markets.  The review process lasted 176 days.  ACCC concluded that the customer markets of each business were distinct, with insufficient overlap for Woolworths to use its dominance in the retail market to affect the wholesale food distribution market.

The Law

The Competition and Consumer Act prohibits acquisitions (of shares or assets) that would result in a substantial lessening of competition in any market, and sets out some of the matters that must be taken into account, including:

  • the actual and potential level of import competition in the market;
  • the height of barriers to entry to the market;
  • the level of concentration in the market;
  • the degree of countervailing power in the market;
  • the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins;
  • the extent to which substitutes are available in the market or are likely to be available in the market;
  • the dynamic characteristics of the market, including growth, innovation and product differentiation;
  • the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor; and
  • the nature and extent of vertical integration in the market.[3]

ACCC’s general approach to assessment of competition in proposed or completed acquisitions

ACCC offers two types of merger clearances: formal and informal.  This case exemplifies the latter, which is the more common, and usually considerably quicker, type of review.

An informal merger review may be initiated by the merger parties (most commonly), a third party, or ACCC.  The ACCC assesses on the ‘substantial lessening of competition’ test.  After a 2-4 week initial pre-assessment, the ACCC decides whether the acquisition has a low risk of substantially lessening the competition, in which case no further review is necessary, or whether further market review is necessary.  The review may be confidential, or a public review (as in this case), which typically takes 6 to 12 weeks, during which time ACCC makes market inquiries.

In contrast, a formal review applies a statutory test, invites public submissions on a public Mergers Register, and takes much longer.  ACCC takes up to 90 days to publish a determination, and this period may be extended in complex cases.  The transaction cannot be completed while under formal investigation.

How ACCC identifies the relevant markets[4]

ACCC considers two distinct categories of markets: product markets and geographical markets.  In both of these markets, substitutability is a key concept.

  1. Product markets

The ACCC identifies the good or service supplied or acquired, and its close substitutes.  Substitutes may be demand-side substitutes, ie those products customers would turn to as an alternative if the price increased.

The ACCC also considers whether there might be constraints on supply-side substitution.  Are there constraints on suppliers who have the physical and human assets to respond to an increase in price of a good or service, by switching quickly and without significant investment cost to produce a substitute product?

In addition to product and geographic markets, ACCC will consider the different levels in the supply chain, for example production, wholesale, retail, etc.  The timeframe over which substitute possibilities should be assessed is considered in the context of each transaction.

Ultimately, the definition of markets is very much contextual, and purposive, taking into consideration the commercial realities and the legal aspects of each merger.

ACCC’s approach in this case

Identify the markets

In this transaction, ACCC identified multiple potentially affected markets, and analysed the acquisition effect with respect to each of the markets.  The markets included:

  • the acquisition of food products from manufacturers and suppliers; and
  • the wholesale supply and distribution of food products to customers such as restaurants, hotels, etc.; and
  • the customers of that supply and distribution.

ACCC considered the effects on these markets at national, regional and (where relevant) local levels.

Anti-competitive effects?

ACCC was concerned that Woolworths might leverage its buyer power in supermarkets to gain better prices for PFD, causing competitors to exit the market.

In assessing the likelihood of such an outcome, ACCC compared the likely future scenarios with the acquisition compared to without the acquisition (the “status quo”).

Effects on suppliers

ACCC considered the two groups of customers who on-sell food products – supermarkets and wholesale food distributors – and posed the question: was wholesale food distribution a competitive alternative to supermarkets for food distribution?

Although the two groups frequently sell the same product, their customers usually have different product specifications, for example packaging and size requirements.

The ACCC noted that PFD ‘s market share (2% of overall demand from food suppliers) meant that it was unlikely on its own to be a competitive channel of distribution to supermarkets.

Although Woolworths currently has a much larger share of all food product acquisitions (15-40%), when the specific segments of the markets in which PFD and Woolworths each currently buys from suppliers were combined, there was no segment of the wholesale food distribution market in which their combined share was significantly increased.

In other words, the acquisition led to no significant increase to Woolworths’ existing buying power, and there was no wholesale segment in which Woolworth’s and PFD’s combined buying power would significantly increase PFD’s current market share.

Effects on wholesale food distribution

PFD holds a 15% share of the wholesale food distribution market.  Suppliers expressed concern that Woolworth’s ownership of PFD would erode the wholesale food distribution sector’s role as a hedge against the industry developing an over-reliance on supermarkets.

ACCC concluded that although the acquisition was likely to spark change in how the wholesale food distribution sector operates, the wholesale industry had an adequate existing number of players to compete, and those players had the capabilities to differentiate themselves with regards to non-price terms, in particular the range of products, and quality of service (harking back to the criteria set out in the Competition and Consumer Act).

Take-away messages

This decision exemplifies that, even for relatively small transactions the parties should consider the competition aspects of the merger.

Will the merger substantially lessen competition?

  • All relevant markets and sub-markets should be identified.
  • The ability of the competitors to compete should be assessed by the application of the tests set out in s50 of the Competition and Consumer

If there is any doubt:

  • Seek legal advice prior to entering into the transaction; and
  • Consider whether the transaction documents should reflect that the merger is conditional on ACCC approval, noting that the ACCC can wind back anti-competitive transactions.


[2] ACCC issued a Statement of Issues in December 2020 (see

[3] Competition and Consumer Act 2010 (Cth) s 50.

[4] For more detail, refer to


For further information please contact:

This article is for general information purposes only and does not constitute legal or professional advice.  It should not be used as a substitute for legal advice relating to your particular circumstances.  Please also note that the law may have changed since the date of this article.