Woolworths’ attempt to purchase The Warehouse blocked by Court of Appeal

Posted by Editorial on 31st July 2008

Woolworths’ bid to gain a greater foothold in the NZ supermarket sector has been quelled by a court ruling, which will not enable them to purchase The Warehouse.

The Commerce Commission, the competition watchdog in New Zealand, has claimed the decision by the Court of Appeal, which overturned the High Court decision on ownership of The Warehouse Group Ltd, is a victory for supermarket consumers and competition in markets.

In the second appeal from the Commission’s clearance decision, the Court of Appeal has today reversed the High Court’s November 2007 decision that cleared the way for the three Foodstuffs co-operatives and Woolworths Ltd to acquire up to 100% shares in, or assets of, The Warehouse.

The Commission’s case has focused on its concerns about competition in the supermarket sector where there is, in effect, a duopoly at present, except in the three regions where The Warehouse has opened a supercentre. Foodstuffs and Progressive Enterprises (a subsidiary of Woolworths) dominate the market with the two companies attributed to a combined 90% market share.

“New Zealand consumers know that more competition is needed in the supermarket sector. In coming to its decision to decline the acquisition the Commission considered that The Warehouse had already brought important new dimensions to supermarket competition, and potential competition, through its innovative supercentre stores,” Commerce Commission Chair, Paula Rebstock, said. “The Commission was prepared to leave it to the market to decide whether The Warehouse supercentres would be viable. We did not consider that the Commission could rule out The Warehouse as a significant supermarket competitor, either now or into the future. The Commission considered that the presence of an innovative third party – such as The Warehouse – had the potential to increase the level of competition in this important market.”

“New Zealand consumers and competition are the winners today,” claimed Ms Rebstock.

The Commission declined clearance in mid-2007 for acquisition by either Foodstuffs or Woolworths, because New Zealand’s supermarket retail market is already highly concentrated. There are high barriers to entry in the industry, yet The Warehouse is uniquely placed to compete with the supermarkets because of its existing property portfolio, extensive distribution networks and established brand.

The Commerce Commission and The Warehouse Group have reported they are currently studying the judgment. No further comment will be made by either party until the full reasons for the judgment are released publicly by the Court of Appeal.

On 21 December 2006 the Commission received an application from the three Foodstuffs co-operatives seeking clearance to acquire up to 100% of the ordinary shares in The Warehouse Group Limited. On 17 January 2007 the Commission received an application from Woolworths Limited seeking clearance to acquire up to 100% of the shares in, or assets, of The Warehouse Group Limited. On 8 June the Commission declined to grant clearance for either acquisition, on the basis that it was not satisfied that either of the proposed acquisitions would not have, or would not be likely to have, the effect of substantially lessening competition in relevant markets.

On 29 November 2007 the High Court, on appeal by Foodstuffs and Woolworths, overturned the Commission’s decision to decline clearance for either potential acquisition.

The Court of Appeal heard the Commission’s appeal on 28 April – 1 May 2008.