KEY POINTS:
The Warehouse's venture into the grocery trade would have no real effect on the market because of the existing vigorous competition between the two major supermarket chains, the Court of Appeal was told today.
Counsel for Woolworths, David Goddard QC, told the court that the Commerce Commission was wrong to appeal a High Court decision overturning the commission's block on Foodstuffs or Woolworths bidding to take over The Warehouse.
Yesterday, the commission argued that allowing one of the rivals to swallow The Warehouse would destroy an opportunity that could result in cheaper groceries.
Goddard said in a non-confidential brief of his submission that the general goods merchant's venture into selling groceries through The Warehouse Extra stores had not been a success and was unlikely to expand.
Even if The Warehouse Extra stores did expand they would still be an insignificant factor in the duopoly's wider battle for household spending.
"There is other much more significant innovation occurring as a result of the vigorous competition between the national supermarket chains," Goddard said.
"This will occur... regardless of the presence of Extra, e.g. fuel discounts, new formats for stores."
The commission's complaint with the High Court judgment was that it was based on the evidence that a significant lowering of competition would not take place if the takeover of The Warehouse went ahead.
It instead preferred a theoretical "three to two is bad" for competition.
"It is that evidence which is important, not crude rules of thumb," Goddard said.
The Warehouse had planned to roll out 15 Warehouse Extra stores, which have a grocery component.
Three were opened but further expansion was put on hold in September to allow the company to assess their performance.
The commission believed the Extra stores would be a way to challenge the market dominance of Woolworths and Foodstuffs, but the High Court said it would not.
The commission argued that while the initial Extra stores had made slow progress recent results had been more encouraging and there was a chance their expansion could have a greater effect on prices than the small market share implied.
Goddard disputed that today.
The commission said yesterday the High Court had accepted there was very little chance of any other new competitor - outside The Warehouse - entering the nationwide supermarket trade.
New Zealand-owned Foodstuffs and Australia's Woolworths each have 10 per cent stakes in The Warehouse, and successfully went to the High Court to overturn the commission's decision to block any potential bid.
The commission is now appealing that decision.
Foodstuffs and Woolworths have not said if they will launch a bid for The Warehouse, but they are widely expected to do so.
Analysts have put a value on an offer of at least $8 per share, or $2.5 billion.
Between them, Woolworths and Foodstuffs account for about 99 per cent of the grocery market, but despite the duopoly, margins have been described as slim and competition intense.
Foodstuffs, a co-operative, runs the New World, Pak 'N Save and Four Square brands. Woolworths bought Progressive two years ago and runs the Foodtown, Countdown and Woolworths brands.
-NZPA
