ACCC gives all clear to Woolworths’ Thomas Dux expansion plans

Posted by Daniel Palmer on 17th June 2009

Australia’s competition watchdog has today advised that it will not oppose the acquisition of organic supermarket operator Macro Wholefoods by Australia’s largest supermarket operator, Woolworths.

Woolworths announced the proposed takeover of Macro last month and plans to turn all Macro stores into outlets of their upmarket grocery subsidiary – Thomas Dux*. They will also acquire ownership of the Macro Organic private label brand.

The Australian Competition and Consumer Commission ruled that the only market relevant to the acquisition was the organic food and grocery markets, with the deal considered unlikely to substantially lessen competition in this sector.

In reaching its decision, the ACCC considered the extent to which Macro and Woolworths compete in the retail sale of organic food and grocery products and found that competition was limited due to key differences in their retail offering.

“Organic products are only a small component of the range in Thomas Dux stores and make up less than one per cent of sales in Woolworths’ full-range supermarkets; their closest competitors are other supermarkets,” acting ACCC Chairman, Mr Peter Kell, explained.”In contrast, Macro focuses almost entirely on organic products. It is less competitive on price, instead emphasising range, quality, service, location and convenience. The ACCC’s extensive inquiries found Macro’s closest competitors to be smaller, independent retailers with a similar focus. These competitors will remain in the market after the acquisition, continuing to provide consumers with choice.”

In addition to noting the prevalence of small independent retailers in the retail sale of organic products, the ACCC’s inquiries found that non-organic retailers could also readily expand their organic offering to meet demand – with some already doing so.

The ACCC admitted that their hand was forced to some degree by Macro’s deteriorating financial position, which meant it was unlikely to operate as a strong competitive force in the future.

In relation to wholesale markets, the ACCC concluded the acquisition would have little impact in relation to organic produce, which will continue to comprise only a small minority of Woolworths’ and Thomas Dux’s fresh produce sales, and that Woolworths’ plans to introduce the Macro brand as a private label for packaged organic products would not allow it to significantly influence wholesale prices.

Woolworths will acquire Macro’s organic supermarkets at Crows Nest, Hornsby and Mona Vale in NSW, and Richmond, Black Rock, Glen Waverley and Armadale in Victoria, and a store in Port Melbourne that Macro leased but never opened.Macro’s Bondi Junction store will be sold separately to an independent organic retailer, About Life.

* The Thomas Dux Grocer store format was first introduced last year by Woolworths to compete with the proliferation of upmarket grocers. There are currently two in operation, with the outlets smaller than the retailer’s conventional supermarkets and offering more premium groceries.