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ACCC may block Franklins takeover by Metcash IGA

Metcash’s $215 million offer to acquire Franklins 85 supermarkets and distribution chain from South African based Pick n Pay Retailers (Pty) Limited has the ACCC considering whether to block the deal on competition grounds.

Metcash FranklinsMetcash, owner of IGA supermarkets and Australia’s largest independent grocery and liquor wholesaler, announced plans to acquire the Franklins supermarket chain in July. Before this agreement can  proceed the ACCC, Australia’s competition regulator must examine whether the merger of the two supermarket chains will substantially lessen the competition within the Australian market, to the detriment of Australian consumers.

At this stage the ACCC is seeking further comment on the proposed merger through a Statement of Issues issued yesterday, but raised several issues with the deal to buy Franklins, in particular the ACCC believes there is a very real possibility of lessening competition among wholesalers supplying independent retailers in NSW, with Metcash and Franklins currently the two dominant grocery wholesalers supplying the NSW market.

“In light of the limited competitive constraints on Metcash post-acquisition and the height of barriers to entry, the ACCC is concerned that the proposed acquisition would remove the only alternative wholesale supplier able to supply full-line retailers and Metcash’s closest competitor in NSW.” the statement read.

“The ACCC is concerned that as a result of the proposed acquisition Metcash may be able to raise prices or reduce service levels to independent retailers compared to the counterfactual, as there would be insufficient competitive constraints post-acquisition to prevent this.”

Metcash, through the acquisition of Franklins is partially constrained by the three large vertically integrated supermarket chains Coles, Woolworths and ALDI, however the ACCC is concerned that this competition will not be enough for Metcash to not gouge profits out of high prices for wholesaled items to Franklins, IGA and other independent retailers.

“The ACCC has also received information, and notes information provided during the Grocery Inquiry, that suggests that while Franklins is able to compete strongly at the retail level, in contrast due to the pricing of products by Metcash, Metcash supplied independents are not able to compete on price with the vertically integrated retailers across all products.” The ACCC’s statement read.

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David Olsen

David Olsen

An undercover economist and a not so undercover geek. Politics, business and psychology nerd and anti-bandwagon jumper. Can be found on Twitter: <a href="http://www.twitter.com/DDsD">David Olsen - DDsD</a>

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