KEY POINTS:
New Zealanders will miss out on the big cost savings that American grocery shoppers have enjoyed due to the rise of "hypermarkets" if The Warehouse is sold to either Foodstuffs or Woolworths, the Commerce Commission says.
The commission - which on Friday released its reasons for ruling out a sale to either party - argues that the rise of hypermarkets, or super centres, has driven cost savings for US consumers in the past decade as the likes of Walmart has developed its grocery offering.
When the battle heads to the High Court in October Woolworths and Foodstuffs will argue that The Warehouse is currently only a bit player in the sector - it has just three stores with significant grocery offerings.
Both potential buyers told the commission they don't believe the Warehouse Extra format is likely to become a nationwide phenomenon.
Woolworths said it believed The Warehouse was likely to abandon its Extra concept "in the foreseeable future".
Key information such as exactly how long The Warehouse plans to trial the Extra concept and how successful it has been to date was deemed commercially sensitive and deleted from the public version of the commission's 84-page ruling.
Warehouse chief Ian Morrice says the primary goal of any grocery offering at The Warehouse is to increase sales of general merchandise.
"It's what we call the halo effect," he says. "If they [shoppers] get in the habit of buying food regularly with us they pick up the general merchandise pretty much in every visit."
The report illustrates how successfully Walmart expanded its super centre stores after spending five years in the trial phase. Between 1988 and 1992 Walmart increased the number of stores with a grocery offering from two to nine. Then having perfected the concept, it began a mass rollout. It now has nearly 2000 super centres.
A study showed grocery prices in the super centres of US retailer WalMart were 15-25 per cent lower than prices in nearby supermarkets.
Both Foodstuffs and Woolworths said the entry of The Warehouse Extra format has had no impact on their pricing behaviour, either in the Sylvia Park or the Whangarei regions.
Woolworths also highlighted the failure of the hypermarket concept in Australia - where Super K-mart stores floundered for several years before being abandoned.
The commission said it was "not appropriate or possible to undertake a detailed assessment of the likely success of The Warehouse super centre concept". But it concluded "there is no empirical data to support the proposition that The Warehouse Extra will not succeed".
And if the "concept is successful, the implications for grocery retailing in this country could be substantial".
It described The Warehouse as a "maverick" in the grocery sector. "Sometimes a market contains a firm that is in some way non-typical ... or is an innovator, or is a maverick."
Citing its own Merger and Acquisition Guidelines it noted "the independent or less predictable behaviour of such a firm may be an important source of competition in the market. Such a business need not be large to have an impact on competition out of proportion to its relative market size."
On one point the commission did find in favour of the sale. It ruled that competition in the wholesale supply of the grocery market would not be unduly lessened.
Despite compelling submissions from grocery manufacturers (one described The Warehouse as the "one ray of hope for the industry") the purchase of The Warehouse would not greatly enhance the buying power of either supermarket, the commission concluded.
That may be good news for Foodstuffs. Some commentators have suggested that its wholesale edge makes Foodstuffs less likely than Woolworths to get approval.
STORE NUMBERS
* The Warehouse has 85 stores selling general merchandise plus 43 stationery stores. It has "super centres" or "hypermarkets" at Mt Wellington, Whangarei and Te Rapa selling wide ranges of groceries.
* Foodstuffs (New World, Pak 'n Save) has an estimated 56 per cent of total NZ supermarket grocery sales, and Woolworths (Foodtown, Countdown, and Woolworths stores) has an estimated 44 per cent.
* Last month the Commerce Commission ruled that neither supermarket chain could buy The Warehouse, putting expected takeover bids on hold.
* In October the case heads to the High Court where Woolworths and Foodstuffs will challenge the decision.
