KEY POINTS:
The Commerce Commission used the wrong test in deciding whether to allow rival supermarket groups to bid for The Warehouse, the High Court at Wellington has been told.
Supermarket rivals Woolworths and Foodstuffs, along with The Warehouse itself, are appealing a Commerce Commission decision preventing the two chains from seeking to buy all of The Warehouse.
Both Woolworths and Foodstuffs already each have a 10 per cent stake in The Warehouse.
The commission had seen The Warehouse's roll-out of its Extra store format, which has a grocery component, as a way to challenge the market dominance of Woolworths and Foodstuffs.
But with just three of the Extra stores in operation, The Warehouse put expansion of the format on hold in September to give it time to focus on improvements before determining its next steps.
Today lawyers for the two supermarket chains and for the commission gave summaries of their closing submissions in open court before the hearing went into a confidential sitting.
Woolworths counsel David Goddard QC said the most fundamental problem with the decision was that the commission had used the wrong test in deciding whether it was satisfied a takeover of The Warehouse would not have, or be likely to have, the effect of substantially lessening competition.
The commission had treated the requirement it be "satisfied" as a requirement that it be satisfied beyond reasonable doubt.
But in this matter the civil standard of balance of probabilities applied, Mr Goddard said.
The commission had failed to consider whether the scenario in which The Warehouse Extra provided a material competitive constraint was "likely", in the sense it was real and substantial.
It must be likely that The Warehouse Extra would continue and that it would continue in a form and at a level of competitive significance, he said.
The commission had focused a magnifying glass on the activities of The Warehouse Extra and failed to step back and paint a complete picture of competitive forces in the market.
Above all, it failed to include in its picture an accurate portrayal of the "intense competition" between Woolworths and Foodstuffs, Mr Goddard said.
Any effect the Extra stores may have on prices was very small.
Neither The Warehouse Extra's current performance nor its future plans provided a proper basis for a finding it could become a material competitive constraint in the foreseeable future.
Commerce Commission lawyer Stephen Kos QC said evidence given to the court reinforced the conclusion there remained a real danger a takeover would lessen competition in markets where the Warehouse Extra operated, and those where it might be likely to operate if it continued to expand.
If The Warehouse did make a go of the Extra format those stores would compete with Woolworths and Foodstuffs and an acquisition would lessen competition.
Recognising the national importance of supermarket markets and the potential impact of its decision for every New Zealander, the commission had taken considerably longer than normal to reach its decision on The Warehouse bid, Mr Kos said.
Woolworths and Foodstuffs had to satisfy the commission, and now the court, that there was no real chance a bid for The Warehouse would lessen competition.
Until recently the New Zealand supermarket market was the most concentrated in the world, with two players operating as a duopoly with relatively similar market shares.
That enabled them to exercise significant market power in both wholesale and retail markets, he said.
No new entrants had come into the industry in 20 years, rather the number of players had reduced from three to two in 2002.
That year Progressive Enterprises bought Woolworths New Zealand, then in 2005 that combined operation was bought by Woolworths Australia.
Barriers to entry to the supermarket industry were extremely high and none of the parties to the appeal had been able to identify any new potential entrant.
- NZPA
