The visible hand in economics

Thoughts on the Warehouse Decision

Posted on: December 5, 2007

I found this point particularly interesting

“it is not possible to conclude that the relevant markets would be more competitive if the Warehouse Extra concept is pursued by the acquirer than if the Warehouse is not acquired”

I have always been of the opinion that the Extra concept would be much more effective in the hands of Woolworths or Foodstuffs due to the massive scale they have in the wholesale market. One of the supermarkets could then use the “halo” effect to the benefit of their grocery operations. I think this would lead to more competition than the status quo.

Another really interesting point is that the high court ditched the 5% price effect threshold in favor of 2% and still found that the acquisition wouldn’t substantially lessen competition. While this is interesting in it self, it also has profound implications for future mergers as the commission will have leeway to use different thresholds depending on the situation now that there is high court precedence for doing so


11 Responses to "Thoughts on the Warehouse Decision"

Never liked the idea of Warehouse Extra.

I liked being able to go to the Warehouse, buy a single item, stand in any queue for a short amount of time, and get out the door quickly.

If I am having to share checkouts (even Express Checkouts, which seem to take just as long) with someone buying a couple hundred individual items that need to be scanned, weighed and maybe bagged, I will not bother.

Fair point, I guess the same applies for people who just want to buy some milk but are being held up by someone who is doing all there christmas shopping:)

Although, I’m assuming that the places where they would have extra stores are generally going to be quite massive and have the capacity to cope quite well with huge numbers. In the US walmart stores have grocery and general merchandise and I’ve found things seem to run pretty smoothly as they just have heaps of checkouts.

They are a bad customer experience in my opinion too, the one at Sylvia park never seems to have any grocery shoppers there.

The idea of buying groceries from the warehouse wierds me out personally.

“I have always been of the opinion that the Extra concept would be much more effective in the hands of Woolworths or Foodstuffs due to the massive scale they have in the wholesale market”

I hope that Woolworths ends up being the party that purchases the Warehouse. They have previously stated their own interest in taking advantage of the ‘halo effect’. I’m not quite sure how this would lead to “more competition than the status quo” though, would you care to elaborate?

I think if one of the super markets can implement the Extra format successfully it will give that firm a non-price advantage which will force the other to respond through either price or non-price means,either of which would probably be a good thing

Such as economies of scope in their wholesale buying activities?

that’s a slightly different issue I think, the warehouse most likely already achieves pretty good scale in the wholesale market for general merchandise and both of the supermarkets will have good scale for groceries so I don’t think a merger is going to have that much of an impact on the wholesale markets

I was more referring to the Halo effect that you love so much, if the merged firm starts pulling people away from the non-merged firm because of the halo effect then the non-merged firm will have to respond in some way

That dirty old halo effect. I’m still waiting for someone to ask me if that has something to do with the xbox game :). Who do you think Tindell will sell to?

To be sure, Matt, the REAL Halo effect is the ability to sell an overrated games consol on the back of one major title.

I want to coin a new phrase, the pitchfork effect. That is where a firm that was once considered a nice and friendly member of the community merges with a faceless corporation with zero public appeal.

The nice firm may keep doing all the good things they were doing, they may even increase them. But deep down inside, people will start to distrust their motives and discount the good they are actually doing. People will start to think that the nice firm has lost its soul.

The faceless corporation will start to panic and try even harder to prove that the joint venture is really actually nice. This will cause people to ask, why are they trying so hard? The old nice firm didnt have to. What do these guys have to hide?

Nothing, the joint venture will say, look we are doing even MORE!

Slowly the nice firm will have changed its look, its feel, its vibe, until people realise that the nice firm doesnt really exist anymore. They will say things like, dont you remember the old days of the nice firm, everything was cheap and crappy but we liked it. Not like today with that nasty firm, with all their cheap and crappy stuff.

The nice firm is dead, long live the soulless, faceless corporation with zero public appeal.

= The Pitchfork effect

“To be sure, Matt, the REAL Halo effect is the ability to sell an overrated games consol on the back of one major title.”

Hahahahahaha 🙂

The pitchfork effect sounds sorta like whats happening to the Body Shop. Damn consumers

[…] 01 2008 We’ve previously talked quite a bit about the issues around the Warehouse case  (here,here,here,here,here,here). The Commerce Commission pretty much set a new record in how many times […]

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