The Australian Competition and Consumer Commission will block the proposed acquisition of the Franklins supermarket chain by Metcash Trading Limited, who operate the IGA chain of supermarkets and wholesalers.
ACCC chairman Graeme Samuel said the move to block the takeover bid by Metcash was motivated out of concerns it would lessen competition in the wholesale supply of groceries in NSW.
“Central to the ACCC’s concerns is that the proposed acquisition is likely to result in a substantial lessening of competition through the removal of Metcash’s closest and only genuine competitor for the wholesale supply of packaged groceries in NSW,” he said.
Metcash is Australia’s largest wholesaling and distribution company servicing independent grocery retailers throughout Australia, including those under the IGA and Supa IGA banners. Franklins operates 80 corporate owned and 8 franchised Franklins supermarkets in NSW, and is currently owned by Pick n Pay Retailers (Pty) Limited South Africa’s largest retailer.
“Our thorough review found that the proposed acquisition would have reduced the number of players competing to provide these services from two to one, effectively giving Metcash a monopoly on grocery wholesaling to independent supermarkets in NSW. Barriers to entry in this market are already high, making timely new entry of a competitor to Metcash unlikely if this transaction proceeds.”
“Because of high fixed costs, potential entrants need a large number of supermarkets as customers to give them the scale to operate a wholesale network profitably. The proposed acquisition would have resulted in the removal of a large pool of 88 supermarkets, including many medium and large supermarkets, which would otherwise be contestable, either partly or wholly, by a new wholesale competitor,” Mr Samuel said.
The ACCC’s investigation has also indicated that although the large supermarket chains impose a competitive constraint on IGA and Franklins stores at the retail level, this provides only an indirect and imperfect competitive constraint on Metcash at the wholesale level. The important additional competitive constraint that comes from direct competition at the wholesale level from Franklins would be lost as a result of the proposed acquisition. That competition presently forces Metcash to compete on wholesale prices, rebates, promotions and services to independents.
“It should be clearly understood that today’s decision by the ACCC does not in any way mean that the big supermarket chains can come in and acquire their choice of Franklins stores. To the contrary, any proposed acquisition will be subject to the scrutiny of the ACCC, and as part of this process the ACCC will be mindful that other parties, who appear to raise no competition concerns, have expressed strong interest in acquiring the entire Franklins business and continuing to provide strong competition in wholesaling to independent supermarkets,” Mr Samuel said.
