KEY POINTS:
Allowing Foodstuffs or Woolworths to take over The Warehouse would destroy an opportunity that could result in cheaper groceries, the Court of Appeal was told today.
The Commerce Commission today opened its case to strike out a High Court decision overturning the commission's block on the rival supermarket chains bidding to take over The Warehouse.
Much of the hearing involves commercially sensitive material and today James Farmer QC released the edited outline of the commission's submission.
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.
Dr Farmer said the High Court at Wellington was wrong in fact when it concluded it was unlikely the Extra store concept would be expanded and even if it did succeed it was unlikely to exert competitive pressure.
"It would be ironic that the firm, which has the potential to expand and which is already exerting pressure on the incumbents, should be able to be the subject of acquisition by one or other of those incumbents, thereby subjecting consumers once again to the duopoly," Dr Farmer said.
The High Court had also been wrong in law not to accept it was the commission's duty to decline the right for the supermarket companies to make a takeover bid.
The High Court had been of the view there was enough doubt about the effects of a takeover on competition that one should be allowed.
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.
Dr Farmer said the High Court had accepted there was very little chance of any other new competitor entering the nationwide supermarket trade.
This was due to the difficulties in finding sites, getting resource consents and the market power of the incumbents.
Other than The Warehouse Extra stores there was little chance of any new competitive pressures on the two companies.
The Extra concept would offer a different type of shopping experience, but with a smaller range of groceries priced between Pak'n Save prices and full service stores such as New World or Woolworths, the Commission argued.
The new stores were also likely to offer discounts on general goods in return for grocery spending and vice versa.
Evidence which showed that the new stores were already having an effect in the areas they operated in was deleted due to commercial confidentiality.
The commission said there was no evidence that the two big companies would pursue the Extra stores if one of them bought The Warehouse.
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.
Key to a successful bid would be The Warehouse founder Stephen Tindall, who controls 51 per cent.
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.
Warehouse shares closed down 6c at 2.94 yesterday.
- NZPA
