Turning red sheds into bread sheds

By Deborah Hill Cone

Friday 2nd May 2003

The Warehouse's share price slouched to $5.51 late yesterday as the retailer tried to downplay claims it was poised to dive into the grocery business.

The red shed's shares caved in three months ago when it confessed Christmas had not been as good as expected.

The shares are now down more than $2 from the $7.90 they were changing hands for last June.

But they may rebound with next week's third-quarter announcement and speculation the retailer is planning to step into the supermarket business.

Warehouse chief executive Greg Muir was reluctant to confirm a Food Industry News report this week that the retail giant was working with UK giant Tesco to develop a comprehensive grocery at 40 or more of its general merchandise stores in a move to take on Progressive and Foodstuffs.

But Mr Muir confirmed the company already did $120 million of business in food and health and beauty categories, traditionally the domain of supermarkets.

And he admitted The Warehouse had been investigating whether there was an opportunity to move into the grocery market following the takeover of Woolworths by Foodland Associated, parent of Progressive Enterprises.

"The initial excitement over Progressive and Woolworths getting together sparked all this off," Mr Muir told The National Business Review.

The connection with Tesco was a longstanding relationship based on founder Stephen Tindall's friendship with innovative 46-year-old Tesco chief executive Sir Terry Leahy.

Mr Muir was adamant no final decision had been made to leap into groceries but it appears the option is still being considered.

The Warehouse has picked up some grocery suppliers spurned by the post-merger Progressive as well as some supermarket buyer staff left without a job.

Progressive chief executive Ted van Arkel said he could not imagine those grocery buyers would now switch to buying different products "like fireworks" since joining The Warehouse fuelling speculation The Warehouse would take on the Progressive and Foodstuffs duopoly.

Mr van Arkel said The Warehouse would find it difficult if it came up with a "me-too" offering and questioned whether Mr Tindall's vow never to sell alcohol would be maintained, as wine and beer were now considered an essential part of a supermarket.

Meanwhile, supermarkets are starting to encroach on The Warehouse's turf.

Mr van Arkel confirmed supermarkets were stocking greater levels of general merchandise, this week promoting a special on mini-system stereos, stacked up alongside the baked beans and toilet paper.

"There's an international trend to get into general merchandise as baked beans margins get smaller," Mr van Arkel said.

ASB Securities head of advisory Stephen Wright said a move into the grocery business would make sense for The Warehouse, which had gone as far as it could with many other categories.

Following Foodland's acquisition of Woolworths there was some concern about a lack of competition in the grocery sector.

"That creates an opportunity," Mr Wright said.

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