ACCC stymies Woolworths and Heinz’s plans in supermarket sweep

The competition watchdog announced yesterday it is opposing Heinz’s acquisition of baby food maker Rafferty’s Garden and Woolworths’ application for a new store, highlighting its concerns with the supermarket sector.

The Australian Competition and Consumer Commission found if Heinz was allowed to acquire Rafferty’s Garden, the merged company would have accounted for 80% of market share in the wet infant food market with most sales occurring through the supermarket chains.

ACCC chairman Rod Sims said this was likely to result in a substantial lessening of competition, in particular given the dependence of both Heinz and Rafferty’s Garden on the major supermarket chains for stocking their products.

“We are not satisfied that the power possessed by the major supermarket chains will necessarily constrain prices for consumers or drive innovation. Fierce inter-brand competition is more likely to achieve this,” Sims said in a statement.

The ACCC also moved yesterday to oppose the proposed acquisition by Woolworths of a supermarket site at Glenmore Ridge in New South Wales, again on the grounds it would substantially lessen local supermarket competition.

“The Glenmore Ridge site represents the only opportunity for a competing supermarket to enter Glenmore Park in the foreseeable future, other than an ALDI that is due to open in 2014,” Sims said in a statement.

Sims, stated earlier this year that he’s looking for more litigation and is looking for some losses.

Sally Scott, partner at law firm Hall & Wilcox, told SmartCompany this means costly and time consuming litigation for businesses.

“While it may seem unusual that a regulator is looking for losses, what he meant by this was that he’s looking to push the envelope and test the competition and consumer laws,” said Scott.

“That might be good news for lawyers and academics, but it’s not good for the companies involved.”

Scott says since Sims took over the reigns as chairman of the ACCC in 2011, he has focused heavily on the supermarket space.

As Heinz’s bid to buy Rafferty’s Garden involves sales in that space, Scott is “not surprised” it has come across the ACCC’s radar.

But Scott cautions this is not the end of the matter and the ACCC does not have the final say.

“There are many steps involved and ultimately it is the courts that have the final decision,” she says.

“The ACCC has had its decisions reversed in the past, as with the Franklins/Metcash merger where the ACCC opposed that merger on the basis that it was anticompetitive. However, the Full Federal Court ultimately held that the merger was not anticompetitive.”

Similarly, Scott says the court is the final decision maker, not the ACCC in relation to Woolworth’s acquisition of the Glenmore Ridge site.

But she traces the ACCC’s opposition in both cases back to growing concern about the conduct of the big supermarkets.

“There is a widespread view that the conduct of the big two [supermarkets] is anticompetitive and that the ACCC is not doing enough to stop them,” she says.

“While the big two have been highlighting their lower prices and the public has not been complaining, the concern is about the impact of this in the longer term – whether driving prices down in the short term could have the effect of driving out competitors which could then ultimately result in less competition and higher prices.”

The ACCC has been focusing on the potential impact of the big two supermarket chains on competition for some time now.

Early last year the ACCC approved the supermarket’s approach to milk pricing despite concerns the big two supermarkets were selling below cost which could drive out competitors and result in reduced competition.

“The ACCC found that the conduct of the big two was not anticompetitive,” Scott says.

“This position has been widely criticised by competition lawyers, farmers and other supermarket chains.”

SmartCompany contacted Woolworths, Heinz and Rafferty’s Garden, which all issued statements saying they are disappointed by the ACCC’s decision and are currently considering their options.