The Warehouse Group considered attempting to buy supermarket operator Progressive Enterprises as it looked at options for entering the food business, court documents show.
Ironically, Progressive, which operates the Foodtown, Countdown and Woolworths supermarket chains, was later taken over by Woolworths Australia, which has since applied for High Court clearance to make a takeover offer for The Warehouse.
The information about The Warehouse's ambitions for Progressive was contained in the court's ruling released last week, which cleared the way for Woolworths or rival supermarket operator Foodstuffs to make takeover offers, unless the decision is appealed.
The documents show The Warehouse also considered forming a partnership with another food retailer as a way of entering the food market, but instead decided to go it alone and roll out its Extra stores. However it appears The Warehouse has not completely abandoned the idea of buying another retailer.
Although much of the evidence the court examined has not been publicly released, the judgement reveals that Warehouse chief executive Ian Morrice told the court: "The Warehouse has a strong balance sheet. The Extra strategy has been testing a number of different things and there is a long list of things the board will need to consider. That includes what other investment opportunities are presented." The judgement also suggested that at least some of The Warehouse directors shared institutional investor scepticism about the Extra concept and the risks it posed. It quotes Warehouse founder Stephen Tindall as saying "the boardroom battles we had around going into food were quite historic" and that the strategy was always seen as "risky".
The court papers also throw some light on the difficulties The Warehouse has encountered since opening its first Extra stores and suggested the company has been disappointed at the prices grocery suppliers were prepared to offer the company. "Suppliers had indicated to The Warehouse that a third player would be welcomed but `reality' and `promise' are two different things," the judgement said. This meant The Warehouse Extra stores could not match the special promotional prices provided by discount operators like Pak'n'Save.
The Extra concept was also adversely affected by the acquisition of Progressive by Woolworths, which created a common buying umbrella for that company's Australian and New Zealand supermarkets. Morrice told the court that Woolworths' acquisition of Progressive had put pressure on suppliers to cut their prices. As a result, competitive conditions had fundamentally changed since The Warehouse embarked on the Extra strategy. When the research for Extra was carried out, the margins in supermarkets were higher than they are now, the court was told.
The Sunday Star-Times also understands that when The Warehouse opened its first Extra store at the Sylvia Park mall in Auckland, it accused Progressive of predatory pricing in its neighbouring Foodtown outlet, and sought a High Court injunction and the intervention of the Commerce Commission. It was unsuccessful in both instances.
