Red Shed ruling 'based on cast-off plan'

The Commerce Commission relied on a plan by The Warehouse that has since changed when making its decision to deny applications from Foodstuffs and Woolworths to take over the Red Sheds operator.

Foodstuffs lawyer Iain Thain made this assertion in the High Court at Wellington yesterday when giving opening submissions for the supermarket operator.

Both Foodstuffs and its rival Woolworths are appealing against the commission's ruling.

In mid-2006 The Warehouse launched a new "supercentre" concept called Warehouse Extra, including a full supermarket offering.

There are now three of these stores and The Warehouse hoped to have about 15 in five years.

However, last month, the company said the Extra performance had been below expectations and it would not open more of the stores till the economics of the concept were proven.

The launch of Extra was a main reason for the commission's decision to block either Woolworths or Foodstuffs from bidding for The Warehouse.

The commission said in July that New Zealand's supermarket retail market was already highly concentrated, and a reduction of operators from three to two would substantially reduce competition, to the detriment of New Zealand consumers.

Mr Thain said yesterday that the court would now have to decide whether to overturn the commission's decision on the "evidence that now exists".

"Any plan that could have been said to have existed at the time of the (commission's) decision has changed," he said.

He believed there were other shortcomings with the commission's process in reaching its decision.

Not enough weight had been given by the commission to the competitive effects in grocery retailing of the convenience stores.

Mr Thain also said a vital part of the success of The Warehouse's Extra strategy would be to achieve the "halo effect" - the sale of merchandise other than the core business - to push additional sales.

The commission had not, as it should have, examined the country's general merchandise market as a whole to see whether The Warehouse, which already has a strong position in the market, could increase its sales to the extent it needed to.

"The level of 'halo' it needs to achieve means there are a fair number of shopping trips or greater produce on the trolley to make that happen," he said.

The commission had also not been consistent in its treatment of the "halo". It had assumed that with a takeover of The Warehouse "the halo would disappear".

On the contrary, if the theory about supercentres was proven, Foodstuffs with its scale could be expected to make a better success of "the halo effect, supercharged", than The Warehouse, with its lack of scale.

The appeal, being heard by Justice Mallon and Australian academic Stephen King, is due to end on November 2.

After the commission's opening submission's today, much of the rest of the evidence will be confidential.

This will include evidence given by The Warehouse's managing director, Ian Morrice, tomorrow and that of several experts appearing in court early next week.