Red Shed ruling rubbished

The Commerce Commission was wrong in deciding that a Woolworths takeover of The Warehouse would harm competition, Woolworths says.

The Australian supermarket giant and its rival Foodstuffs are appealing against a commission ruling in July blocking either of them from making a bid for the Red Sheds' owner. The Warehouse has joined the appeal against the commission, which began yesterday in the High Court at Wellington.

In his opening submission for Woolworths, David Goddard, QC, said the commission's findings were not supported by evidence.

"The commission has made significant errors in its analysis of the material before it, has failed to have regard to important information before it, and has made findings that are based on speculation and lack of a proper evidential foundation," Mr Goddard said.

The main factor in the decision to reject the applications was The Warehouse's move into supermarket retailing through its new Warehouse Extra hypermarket stores. So far it had three such stores.

Commission chairman Paula Rebstock said in July that 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 New Zealand consumers".

But Mr Goddard said the commission had erred in law in the approach it adopted to its competition analysis. The commission could not decline a clearance application based on "possibilities".

The Warehouse lacked the economies of scale to be a viable competitor in grocery markets "and will not achieve those economies of scale in the foreseeable future".

Mr Goddard said the proposed acquisition by Woolworths of The Warehouse was unlikely to substantially lessen competition because the presence of Warehouse Extra had no material effect on competition in grocery markets.

The "supercentre" concept, as Extra has sometimes been described, was at least as likely to continue if a takeover of The Warehouse took place, he said.

The commission's decision had overlooked the fact that both Woolworths and Foodstuffs were better placed to advance the supercentre concept than The Warehouse due to their superior economies of scale and distribution networks.

There was no reason to expect any reduction of the intense competition between Woolworths and Foodstuffs if The Warehouse was taken over, Mr Goddard said.

The vigorous pursuit and passing on of cost savings and the introduction of competitive initiatives had begun before any Warehouse Extra stores opened and could be expected to continue.

Woolworths and Foodstuffs each acquired 10 per cent stakes in The Warehouse last year and had been expected to start a bidding war for the company if their applications to the commission were successful.

The appeal, being heard before Justice Mallon and Stephen King, an Australian academic and commissioner on the Australian Competition and Consumer Commission, is taking the form of a complete rehearing of the Woolworths and Foodstuffs applications.

The court has the power to overturn the original commission ruling.