WOOLWORTHS and Coles placed "great pressure" on the prices Queensland grocery company SPAR Australia could charge for wholesale supply, a witness
called by the Australian Competition and Consumer Commission told the Federal Court yesterday.
The testimony from SPAR's former chief executive, Leigh Carson, was out of step with the ACCC's case about the market power of Metcash, a much larger grocery wholesaler.
In his opening address on Monday, the regulator's barrister, Norman O'Bryan, SC, said the evidence would show "there's plenty of room for Metcash to move within its wholesale pricing structure".
Metcash and Pick n Pay retailers argue that Justice Arthur Emmett should not block their $215 million deal over the Franklins supermarket chain because Metcash is constrained by competition from the big, vertically integrated chains, Woolworths, Coles and Aldi. The ACCC has put SPAR forward as an alternative buyer of Franklins, which is vertically integrated, owns 80 stores and supplies 10 franchise stores.
Four witnesses called by the regulator yesterday were connected with SPAR. The court heard that Quadrant Private Equity and Archer Capital were separately interested in January in backing a bid for Franklins by SPAR, which supplies 153 retailers in Queensland, 65 in New South Wales, 14 in the
ACT and six in the Northern Territory.
Metcash's barrister, Peter Brereton, SC, asked Mr Carson, who was replaced as chief executive of SPAR by new major shareholder Lou Jardin in December, about his experience of the grocery market while he ran SPAR.
Mr Carson agreed when Mr Brereton asked if the retail pricing of Woolworths and Coles had "a major effect on SPAR as a wholesaler in the prices that SPAR could charge its retailers".
Mr Brereton: "Would you agree that the major chains also had a major effect on SPAR as a wholesaler in terms of the quality of services it provided to its retailers?"
Mr Carson: "Yes, they were major competitors, so any pressure there puts pressure on the wholesale competitor."
And if a wholesaler such as SPAR was unable to secure competitive rebates from suppliers [compared with] other wholesalers, including those that are vertically integrated, then SPAR as a wholesaler was unable to set a wholesale price to enable the retailer to operate their business competitively? - Yes.
SPAR's adviser, David Wells of Falcon Corporate Advisory, spelt out in an affidavit his dealings
with Quadrant Private Equity and Archer Capital in the second
half of last year and early
this year.
The chronology ended in January when, Mr Wells wrote, both firms "expressed interest in pursuing the transaction".
Mr Carson said internal discussions in October about a bid backed by a private equity firm were "in the range of $150 million to $200 million, subject to further information".
He agreed that the notion of SPAR bidding for Franklins was "sheer nonsense" in July, when Metcash announced its agreement with Pick n Pay.
SPAR, which reported a loss of $5.9 million last financial year and had a net current asset deficiency of $1.4 million on June 30, was "on the brink of collapse", Mr Carson agreed.
But any private equity deal would allow it to repay its debt to Westpac, he said.
Frequently Asked Questions about this Article…
What is the ACCC challenging in the Metcash and Pick n Pay $215 million deal?
According to the article, the Australian Competition and Consumer Commission (ACCC) has taken the Metcash–Pick n Pay $215 million agreement over the Franklins chain to Federal Court, arguing the deal raises concerns about Metcash’s market power in wholesale grocery supply. Metcash and Pick n Pay counter that large vertically integrated rivals such as Woolworths, Coles and Aldi constrain Metcash and therefore the deal should not be blocked.
How do Woolworths and Coles affect wholesale pricing for smaller wholesalers like SPAR?
The article reports testimony from SPAR’s former CEO Leigh Carson that Woolworths and Coles put 'great pressure' on the prices SPAR could charge its retailers. He said the retail pricing and competitive behavior of the big chains had a major effect on SPAR’s ability to set wholesale prices and on the quality of services SPAR could provide.
Was SPAR proposed as an alternative buyer for the Franklins supermarket chain?
Yes. The ACCC put SPAR forward as an alternative buyer of Franklins. The article notes Franklins is vertically integrated, owns 80 stores and supplies 10 franchise stores, and that SPAR supplies a network of retailers across several states and territories.
What was SPAR’s financial position as described in the article?
The article states SPAR reported a loss of $5.9 million in the last financial year and had a net current asset deficiency of $1.4 million as at June 30. Leigh Carson told the court SPAR was 'on the brink of collapse' at the time.
Did private equity firms show interest in backing a SPAR bid for Franklins?
Yes. The article reports that Quadrant Private Equity and Archer Capital were separately interested in January in backing a bid for Franklins by SPAR. SPAR’s adviser, David Wells, outlined dealings with both firms and said both expressed interest in pursuing the transaction.
How do supplier rebates influence a wholesaler’s ability to compete, according to the article?
Leigh Carson told the court that if a wholesaler like SPAR cannot secure competitive rebates from suppliers compared with other wholesalers (including vertically integrated ones), it cannot set a wholesale price that allows its retailers to operate competitively. In other words, rebate terms affect wholesale margins and retail competitiveness.
What did the ACCC’s barrister say about Metcash’s scope to change wholesale pricing?
In his opening address the ACCC’s barrister, Norman O’Bryan SC, said evidence would show 'there’s plenty of room for Metcash to move within its wholesale pricing structure,' indicating the regulator’s concern that Metcash could exercise market power through pricing.
Which grocery chains are described as vertically integrated competitors in the article, and why does that matter for investors?
The article identifies Woolworths, Coles and Aldi as large, vertically integrated chains that constrain wholesalers like Metcash, and it describes Franklins as vertically integrated as well. For everyday investors, the article highlights that vertical integration can influence wholesale rebate terms, pricing pressure on smaller wholesalers and competitive dynamics in the grocery sector—factors that can affect profitability and the outcome of mergers or acquisitions under ACCC scrutiny.
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