KEY POINTS:
The days may be numbered for the Warehouse Extra, the High Court judge who overturned a ban on Woolworths and Foodstuffs buying the Warehouse Group has concluded
The High Court at Wellington yesterday released its full judgment.
Justice Jill Mallon said there was a very real prospect that
the Warehouse Extra would be abandoned when it is reviewed, possibly without expanding beyond the current three stores.
"We consider there is not a real or substantial prospect that the Warehouse Extra will continue for long enough to establish the halo effect on which the concept depends.
"The rollout of more Extra stores on a scale that would make the concept sustainable is not likely to occur," Justice Mallon found.
In a decision that raises issues for future competition in the grocery industry and for other duopoly markets, Justice Mallon also concluded the sale to either of the grocery giants would not be bad for competition.
It would not have a significant effect on competition and prices even if the Warehouse Extra was expanded beyond the present three stores, the judge said.
Both Woolworths and Foodstuffs own 10 per cent of The Warehouse and are lining up for a bigger stake but needed Commerce Commission clearance to begin bidding.
The commission found that if either bought the Warehouse Group - even though the grocery offering was small - it would substantially lessen competition.
Commission lawyers will today be poring over the decision to see if there are grounds to go to the Court of Appeal. They have until just after Christmas to decide.
Simpson Grierson specialist in competition law James Craig said it was an important case because the impact of third market players was likely to come up at future competition cases.
Craig said that two factors in the decision would weigh on the Commerce Commission's decision to seek leave to appeal.
The judgment estimated that the Warehouse Extra would not affect prices by more than 2 per cent. That was conservative as typically the threshold was 5 per cent.
For that reason he said the decision could be used to assist other acquisitions involving a third maverick player in the market.
It appeared that the decision had been largely based on facts rather than points of law, Craig said.
The Warehouse Group did not support either Woolworths or Foodstuffs in their appeal to the High Court but its submissions clearly helped their case for the Commerce Commission ban to be rejected.
The Warehouse's chief executive, Ian Morrice, downplayed the prospects of Warehouse Extra stores being rolled out to any great extent.
Although much of his evidence was suppressed as commercially sensitive, the judgment notes that he could not say at the present time whether the Extra concept would continue "and if so, to what extent".
Morrice also noted that The Warehouse was never intended or expected to be a price leader on food. "You can't come in with a few stores ... aim to probably have about 3 per cent of the market and then try to behave like a price leader," he told the court.
Justice Mallon decided that while there remained a remote possibility that the board might decide to roll out more stores, Morrice's evidence was the most up-to-date view of the likely future of the Warehouse Extra.
Shares in The Warehouse rose 5c yesterday to close at $6.40.