A takeover of The Warehouse by supermarket giant Foodstuffs could increase competition in the grocery market and drive prices lower, Foodstuffs' legal counsel told the High Court at Wellington.
Iain Thain yesterday made opening submissions on behalf of Foodstuffs in the second day of an appeal against theCommerce Commission's blocking of a takeover of The Warehouse by either Foodstuffs or rival Woolworths.
Like Woolworths' counsel David Goddard, QC, on Tuesday, Thain painted a downbeat picture of The Warehouse's Extra format stores' prospects.
The Extra stores, which sell groceries as well as general merchandise under the same roof, rely on a "halo effect" for success. The theory is that the availability of groceries would lead to greater sales of general merchandise in such a "super centre" outlet than in one offering general merchandise alone.
In rejecting Foodstuffs and Woolworths' applications for clearance to purchase The Warehouse, commission chairwoman Paula Rebstock in July said the super centre model had proved successful overseas and resulted in greater competition in grocery markets and lower prices for consumers.
However both Thain and Goddard have argued that The Warehouse lacks sufficient economies of scale in the grocery business to ensure the success of the model, undermining the importance the commission placed on it in its ruling.
Thain went further yesterday, saying Foodstuffs' economies of scale meant it would enjoy a far greater halo effect should it take control of The Warehouse and persevere with the Extra model.
The resulting "increased assymetry" between the two players, in what would then be a duopoly, would in itself increase competition, he said.
The Australian Competition and Consumer Commission's Stephen King, who is presiding over the hearing with Justice Jill Mallon, asked whether the company enjoying this enhanced halo effect would merely pocket the resulting gains.
Thain replied that the halo effect would also result in a lower net cost of sales across the business.
"Some of that saving would be passed on to customers."
The Commerce Commission will begin submissions this morning.
