Woolworths has invested AU$552m (US$396.0m) in acquiring a 65% stake in PFD Food Services, Australia's second largest foodservice supplier.
Another cog in the Woolworths ecosystem
The deal involves AU$302m (US$216.7m) for the equity interest in the business and a further AU$249m (US$178.7m) that will see Woolworths acquire its 26 freehold properties and distribution centres. Woolworths Group CEO, Brad Banducci, said that the acquisition will continue to support the evolution of Woolworths into a 'food and everyday needs ecosystem' and will build off the back of its existing relationship with Australia's 'number two player in the large and fragmented out-of-home foodservice and non-retail business-to-business markets.' The deal is subject to ACCC approval, but it is hoped that it will be completed by the end of 2020.
Synergies for both businesses
The new deal is expected to see Woolworth and PFD benefit from new foodservice ranges and offers in Woolworths stores, transportation, and logistics synergies, sharing of digital assets and operational expertise. Brad Banducci, commented, "The investment will also unlock synergies for both businesses across the combined network and fleet. We will help to support PFD’s growth through access to our logistics, digital and data analytics and operational capabilities. For Woolworths Group, it will enhance store range localisation and provide fleet synergies through better route and capacity optimisation across our combined network.” PFD is a family-owned business with the remaining 35% of equity remaining in the Smith family. PFD will also continue to operate separately under its current management team, with Kerry Smith as CEO.
Food solutions a major focus for Woolworths and Coles
The development follows Coles' acquisition of one of Australia's largest branded and private label ready meal manufacturers, Jewel Fine Foods, earlier this year. Both Coles and Woolworths are focused on expanding the range, quality and value of their food-to-go and food-for-later propositions, as well as their foodservice offers, which help deliver better margins for stores as sales from more traditional categories shift online. Through vertically integrating these businesses within their structure, both retailers will have more control and margins should be further enhanced. Both retailers are also developing smaller Metro and Local formats, tailored towards urban lifestyles and the shift towards convenience shopping missions, where these new offers and ranges will be particularly relevant. Both deals are likely to see innovation in the area further ramp up in future years and it will be an interesting space to stay close to.