KEY POINTS:
The Warehouse Extra lacks the economies of scale required to be a viable and effective competitor in grocery markets and would not achieve them in the foreseeable future, David Goddard QC told the Wellington High Court yesterday.
Goddard is acting for Woolworths in its appeal against the Commerce
Commission's blocking of a prospective takeover of the company by Woolworths or Foodstuffs.
Goddard also said the Warehouse Extra "experiment" depended on the "halo effect" where selling groceries resulted in much higher sales of general merchandise in that store than in outlets devoted to general merchandise alone.
It was not clear that was being achieved.
Like much of the information which the court will hear over the nine-day hearing, Goddard's third key point was deemed to be commercially sensitive and will not be made public.
The hearing should not be "a clearing house for commercially sensitive information", Goddard told Justice Jill Mallon and lay member, Professor Stephen King of the Australian Competition and Consumer Commission.
Woolworths, Foodstuffs and The Warehouse are all involved in appeals against the commissions' June decision disallowing a takeover of The Warehouse by either of the other two.
Woolworths and Foodstuffs each have a 10 per cent stake in The Warehouse which is 51 per cent owned by founder Stephen Tindall. A successful appeal against the commission's ruling would likely be followed by a full takeover bid worth about $2.5 billion.
In July, commission chairwoman Paula Rebstock said that without the "competitive threat" offered by The Warehouse's fledgling move into grocery retailing via its Warehouse Extra stores "Foodstuffs and Woolworths would not face the same incentives to reduce prices, and increase quality, service and innovation".
Foodstuff's share of New Zealand supermarket sales is about 56 per cent against Woolworth's 44 per cent.
The commission was not satisfied a Warehouse takeover by either of the duopoly members would not lessen competition.
However, since the commission's initial decision, The Warehouse has said its three Extra stores, at Sylvia Park in Auckland, Te Rapa in Hamilton, and Whangarei , were underperforming and it had put plans for further Extra stores on hold for the current financial year.
Much of Friday's court session will be dedicated to an update of relevant information, which Goddard confirmed would deal with The Warehouse's postponement of a further rollout of Warehouse Extra stores.
"The game has moved on," he said.
That additional information, also to be heard in a closed session, would be central to Woolworth's appeal.
The court will hear opening submissions from Foodstuffs and the Commerce Commission today. Testimony from expert witnesses, principally economists, will be heard early next week.
