The Warehouse Group has spent years cast as the local contender that might one day crack New Zealand’s supermarket duopoly. This week its chief executive ended the speculation. Alongside the FY26 result, Mark Stirton ruled out the company becoming a third major supermarket after a strategic review of the grocery division he commissioned on taking the job. Grocery will instead be pitched as a top-up shop, a complement to the main weekly trip rather than a replacement for it.
This is the right call. It also leaves a hole in a competition debate that has leaned heavily on someone else volunteering to carry the risk.
Discipline did what expansion never could
The result shows why Stirton had no appetite for a supermarket gamble. The group posted net profit of $11.2 million, up from a $2.8 million loss a year earlier. Net debt fell from $96.1 million to $17 million. Operating cash flow reached $193.5 million, up $121.2 million.
None of that came from bold new categories. Gross margin rose to 32.6% on better buying, tighter inventory and more full-price sales. It was the first year since FY21 that gross margin improved while costs fell as a share of sales.
“We talked a lot about fixing the retail fundamentals all the way from the shop floor right into the buying decisions and how we move stock, and a lot of that hard work is now paying off,” Stirton told the Herald.
The heavy lifting came from electronics and stationery, not groceries. Noel Leeming earned $21.8 million while the red shed still lost $7.5 million, although that loss has narrowed from $12.2 million.
Grocery grew, and it still didn’t add up
The grocery push has not been a failure. Grocery now makes up nearly 30% of red shed sales, up from 18.7% in FY23. Customers clearly want cheap staples when they are already in store. In May the company noted that rising fuel prices were pushing shoppers into fewer, larger trips, exactly the behaviour that rewards a convenient top-up range.
But there is a vast gap between selling milk and cereal next to the homewares and running a full-service supermarket. That means chilled distribution centres, fresh produce supply chains, national logistics and years of wafer-thin margins before any payback. For a business that has just cut net debt to $17 million and still has no final dividend, betting the balance sheet on that would have been reckless.
The policy that relied on a volunteer
This matters beyond one retailer. Back in 2022, a cost-benefit analysis prepared for supermarket divestment discussions floated the re-emergence of The Warehouse as a staple grocery provider as one possible source of change, while concluding that without structural intervention “it seems improbable that these will result in significant structural change”. That judgement now looks prescient.
In 2025, retail researcher Lisa Asher argued against waiting for a foreign entrant, writing that “local, New Zealand-owned competition is” the hero. The most obvious local candidate has now said no.
Meanwhile, the Grocery Commissioner and wholesale access regime have not produced a new national chain. The structural problem remains. New Zealand is a small, spread-out market where the fixed costs of grocery infrastructure are brutal, and no sensible board will absorb that risk just because politicians would like it to.
Where the grocery debate goes now
That leaves reformers with harder options. National’s proposal to split Foodstuffs into two entities has already drawn criticism that duplicating logistics and marketing could raise costs rather than cut them. Forced intervention carries real risks. Waiting for a white knight, however, is no longer a strategy.
For The Warehouse, the path is clearer. Stirton warned the economy will keep “doing it tough” through the election, with shoppers holding off on big purchases. A business that knows what it is, protects its margin and stays out of fights it cannot win is better placed for that than one chasing a political fantasy. Other retailers tempted by adjacent low-margin categories should take note.
The lesson for Wellington is less comfortable. If grocery prices are the problem, the answer will not come from a retailer that has just rebuilt its balance sheet by saying no.
Sources
- NZ Herald: The Warehouse Group rules out third supermarket role after review (2026-09-30)
- RNZ: The Warehouse Group posts $11.2m net profit in turnaround (2026-09-30)
- 1News: Warehouse stores lose money but Noel Leeming leads group back to profit (2026-09-30)
- The Post: The Warehouse Group returns to profit in a difficult market and uncertain Christmas season (2026-09-29)
- NZX: The Warehouse Group provides FY26 third quarter trading update (2026-05-15)
- Cognitus: Provisional supermarket divestment cost benefit analysis (2022-10-04)
- Evening Report: Stop waiting for a foreign hero, NZ’s supermarket sector needs competition from within (2025-03-18)
- RNZ: Why the government backed away from breaking up supermarkets
- NZ Herald: National’s Foodstuffs split plan criticised over costs, scale and competition
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