Metcash has provided a series of undertakings to the Australian Competition and Consumer Commission that it will not seek to control how much stock smaller retailers buy from its wholesale division, as the competition watchdog calls for public submissions on Metcash’s bid to buy the Home Timber and Hardware business from Woolworths.
Metcash is the owner of the popular hardware brand Mitre 10 and is seeking regulatory approval to acquire Woolworths’ Home Timber and Hardware (HTHG) stores.
Mitre 10 and HTHG are full-service wholesalers to hundreds of independent retailers in the hardware and home improvement sector and a possible merger of the two businesses has raised competition concerns for the ACCC.
The ACCC is now inviting submissions from interested parties on drafted undertakings offered from Metcash, which aim to resolve concerns from smaller retailers, including concerns that the acquisition would force them to purchase supplies from Mitre 10 only.
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“Without the alternative of switching their business to Home Timber & Hardware, many retailers are concerned that Mitre 10 would be able to stop them buying hardware supplies from outside Mitre 10,” ACCC Commissioner Roger Featherston said in a statement.
“So Mitre 10 has offered to undertake not to restrict retailers from acquiring products from such sources.”
Woolworths’ HTHG owns and operates 43 corporate stores, supplies to over 350 independent stores, and also supplies to about 1000 non-branded independents.
These independent stores also held concerns that Metcash would preference it’s own corporate stores over the independent stores.
“The proposed undertaking is also intended to prevent any such discrimination,” Featherston said.
In the undertaking draft, published online, Metcash commits to a non-discrimination clause, stating that for “any member store which is within a 10km radius of a corporate store, the supply terms offered to the member store will be no less favourable than the supply terms to the corporate store”.
Metcash has also committed to not restrict “the ability of a member store or unbannered retail store to purchase goods other than through a warehouse maintained by Metcash”.
A member store is an independent hardware retail store trading under a banner owned by Metcash, Mitre 10, or HTHG, while an unbannered retail store is an independent store supplied by Metcash.
Andrew Ledovskikh, senior industry analyst at IBISWorld, told SmartCompany tif the acquisition was to go ahead, it would involve a “rejigging of the market share” in the hardware retail market, considering Woolworths is also planning to sell or close the Masters business.
“We think that Bunnings and Metcash will look to absorb most of Masters’ sales,” Ledovskikh said.
“It is yet to be seen if Metcash can challenge Wesfarmers market share, they’ve already fended off the attempt by Masters.
“It’s uncertain whether or not Metcash can mount a better attempt than Masters, but they can learn from them.”
Although Metcash has pledged to support independent stores, Ledovskikh says it will still be a struggle for the smaller players.
“Independently owned stores are struggling. They got a bit more breathing room with the Masters exit, but it’s not going to let up severely.”
A Metcash spokesperson told SmartCompany the terms of the undertaking are significant but “are consistent with Mitre 10’s current objective supporting the independent retail sector”.
“Mitre 10 currently allows its members to purchase products from other sources and does not favour joint venture/corporate stores. Post-acquisition, the competitive constraint imposed by Bunnings and other market participants would require Mitre 10 to continue to operate in this manner. The proposed undertaking provides additional and binding assurances.”
“The terms of the undertakings are consistent with Mitre 10’s current operating model. These are assurances to the broader independent market that Mitre 10 would continue to operate in this way.”
Submission for comments on the undertaking close on July 12, and the ACCC will announce its decision on the undertaking on July 21.