Don't believe all the hype, says Foodstuffs

Tony Carter says customers will ultimately decide the fate of hypermarkets. Picture / Herald on Sunday

He spent $86 million for a 5.6 per cent stake in The Warehouse last week, but Foodstuffs managing director Tony Carter is sceptical about the discount retailer's venture into hypermarkets.

Carter does not think hypermarkets - combined grocery and general merchandise stores - will succeed here as they have in some countries.

"Otherwise Foodstuffs would probably be developing them ourselves," he said. "I think the customer will determine whether it is a convenient shopping trip for their grocery shopping. The jury is out."

Carter said hypermarkets were notable in France and the United States but less successful in Australia and Britain.

Last Wednesday, the grocery co-operative, owner of the Pak'n Save, New World and Four Square chains, launched a surprise $150 million stand in the market for 10 per cent of The Warehouse.

It was seen as a blocking stake to protect its 57 per cent share of the $10 billion grocery market and came on the eve of The Warehouse launching its first hypermarket - The Warehouse Extra - at Mt Wellington's Sylvia Park.

While that could have been seen as a stamp of approval for the hypermarket venture, Carter said this was not the case. Instead, Foodstuffs was attracted by The Warehouse's strength in general merchandise.

"At the end of the day, the overlap between the two organisations is actually relatively small," he said.

"Most of our product is grocery and most of theirs is general merchandise. But we saw the differences as being more important than the similarities."

Foodstuffs came up short in its bid, achieving just 5.64 per cent - 17.2 million shares - despite offering a premium of 28 per cent above Tuesday's $3.91 price and a 31 per cent premium to the average price of the past three months.

Yesterday, Carter reiterated Foodstuffs was a passive investor only and was happy with the stake, which it considered a long-term investment.

A 10 per cent stake would have provided enough to block a long-rumoured takeover of The Warehouse by giants such as Australia's Woolworths, Britain's Tesco or Wal-Mart of the US.

Foodstuffs also could have used the stake as a lever to negotiate some form of co-operation with The Warehouse in the grocery market.

Carter said there were other ways for supermarkets to offer general merchandise in between the "full-blown" hypermarket model and traditional supermarkets with small general merchandise offerings.

The 12,500 sq m Warehouse Extra offers full grocery, pharmacy, liquor, bakery and general merchandise sections.

The Warehouse plans to spend more than $60 million in the next five years on the Extra format, potentially in around 15 stores.

Shares in The Warehouse closed up 1c at $4.97 last night.

Peter Stokes, of Goldman Sachs, said the fact that the company's share price had held up close to the Foodstuffs offer price suggested investors felt there was potential for another bid to emerge.