The Commerce Commission is sticking by its view that The Warehouse can make a success of its "Extra" supercentre format and says it is not for the court to conclude that the concept will fail.
In his opening submission for the commission in the High Court at Wellington yesterday, Stephen Kos, QC, said based on overseas experience it could take several years for the supercentre concept to be successful here. "It should be no surprise that the first year for Extra has been a hard one."
Woolworths and Foodstuffs are appealing against the commission's June decision to block either of them from taking The Warehouse over. The court can overturn the commission's decision.
The launch of the Extra stores, of which there are now three, was the main reason for the commission turning down the supermarket companies' takeover clearance applications. The Warehouse originally talked about having 15 of the stores in five years. When making its ruling, the commission said New Zealand's supermarket retail market was already highly concentrated, and a reduction of players from three to two would substantially reduce competition, to the detriment of consumers.
Last month The Warehouse said the performance of the Extra concept had been below expectations, and more of the stores would only be opened when the economic potential of the model was proven.
But Mr Kos said the commission had been aware that The Warehouse was planning to "pause" the roll-out of Extra when it reached its decision in June. "Extra's success is not assured, but is in the commission's view a plausible prospect." However, the supermarket companies had been "publishing Extra's obituary".
Woolworths had misrepresented a planned March 2008 review by The Warehouse board of the format as being held with a view to abandoning the strategy, he said. This was not the case. "It is not for the commission to reach a conclusion that the board of The Warehouse has not reached and may not reach. Until the owner of the enterprise says 'this is not something we are going to continue', we must assume there is a reasonable chance it will keep going." Mr Kos said a defining feature of Woolworths and Foodstuffs' submissions to the court had been "their distorted view of the key facts and legal elements of the appeal".
He challenged many aspects of their points, including their suggestions that they could be more successful at running the Extra stores than The Warehouse. "Either incumbent, if cleared to acquire The Warehouse would resist cannibalising sales from its existing stores."
Mr Kos also questioned the extent to which there was intense competition in supermarket retailing, as portrayed by Foodstuffs and Woolworths. "The commission does not subscribe to that." The supermarket sector was not intensely competitive either in pricing or service, and there was very little innovation in either service or product range till the advent of Extra, he said.
The case, being heard by Justice Mallon and Australian academic Stephen King, finishes on November 2. Confidential evidence was to be heard in a non-public hearing today from The Warehouse's chief executive Ian Morrice, and managing director of Woolworths' subsidiary Progressive Enterprises, Peter Smith.
