Editorial: The tasty prospect of The Warehouse taking on the supermarket duopoly

The Warehouse Group renewed its focus on groceries in 2020 and there's speculation a successful buyout could help it expand in the area.

EDITORIAL

Long-suffering grocery shoppers will be hoping that speculation about a significant new sector player is more than just that.

The proposed buyout of The Warehouse is still in its early stages and there’s much water to go under the bridge – not least whether an ambitious takeover offer will succeed. But a new emphasis on groceries for one of the country’s most well-known businesses could see it challenge the big two – Woolworths and Foodstuffs.

Battling them is no mean feat. They’re entrenched and are notorious for using their market power to get what they want, leading to a litany of complaints about anti-competitive behaviour in the sector where about $23 billion is spent every year.

The Commerce Commission’s market study published in 2022 found there was a duopoly whose prices were high by international standards, competition was muted, entry and expansion by other grocery retailers was difficult, and competition is not working well for many suppliers due to the imbalance in bargaining power.

In spite of the fortresses Woolworths and Foodstuffs have built, there’s been talk of a third player in the supermarket sector for years. Indeed, The Warehouse has been dipping its toe in in one form or another for nearly two decades.

It offered a full range of groceries in 2006, but only in a few stores, and pulled the pin a little over two years later, ditching expansion plans for that model.

More recently, it has offered a limited range of groceries and some fresh produce for top-up shopping, with some products very sharply priced. But it has baulked at taking on the duopoly with a full-frontal attack.

Will The Warehouse, with its geographical reach, store locations and plenty of overseas supermarket models to emulate, again give it another crack?

Since its inception in 1982, the chain founded by Sir Stephen Tindall has been a disruptor but has now found itself disrupted in what is a truly global retail environment. The Temu effect is biting.

Even though The Warehouse has jettisoned its Torpedo 7 business and TheMarket.com, it still has Noel Leeming, Warehouse Stationery and Warehouse red sheds.

The offer process itself has a long way to go.

The Warehouse Group has received an informal takeover offer, pitched at $1.50 to $1.70 a share, from Australian private equity firm Adamantem Capital Management through a scheme of arrangement. The offer values the group in total at $520.2 million to $589.6m.

Tindall, the Tindall Foundation and trustees of trusts associated with Tindall support the proposal and would remain invested in the company through reinvesting a portion of their consideration in the acquirer.

Tindall, and interests associated with him, have about 48% of The Warehouse, but for the scheme to get over the line, it will require the approval of 75% of that block of shares not controlled directly or indirectly by him. Other big shareholders therefore could be a stumbling block.

Adamantem and Tindall are saying little for now about the offer, let alone what a privatised Warehouse Group would end up doing.

But for supermarket shoppers, a third player, especially such a well-known one, would be a tasty prospect.