Tesco has won approval to acquire Booker, a UK-based food wholesaler and owner of convenience stores Londis and Budgens, for $4.7 billion (£3.7 billion).The deal would turn the UK’s largest retailer and grocer into a major supplier to small retailers, serving 125,000 independent convenience stores as well as 468,000 restaurants and pubs.
The Competition and Markets Authority (CMA), a UK government watchdog department designed to ensure that business competition benefits consumers, cleared the takeover, saying that it would not result in higher prices or poorer customer service.
The CMA first investigated the potential deal in January 2017, since there was overlap between a combined 12,000 Tesco and Booker-supplied stores in more than 350 local areas across the UK. This caused concerns that shoppers could possibly face tougher terms when buying their groceries.
On a positive note, there was lack of overlap in the supplied catering division, which accounts for 30% of Booker’s sales. The CMA noted that any price competition would be beneficial for consumers and wouldn’t push other players out of the market.
But make no mistake about it, the supermarket-wholesaler supermerger certainly will affect the UK’s grocery landscape. Booker’s wholesaler competitors, including Spar, Bestway and Bidfood, have been major critics of the impending takeover, worried that retailers will have less choice in their supply-related decisions. Booker will be able to buy its products at Tesco’s prices as it leverages the supermarket’s wider purchasing power.
The takeover sparked a recent trend of UK grocer-wholesaler consolidation in 2017. The Co-operative Group (also known as Co-op) recently purchased Nisa, a chain of independently owned convenience stores for $188 million (£143 million), while supermarket Morrisons entered a long-term wholesale deal to supply produce and grocery to convenience store chain McColl’s in August.
“The food and grocery market should be worried, but it won’t be impossible to survive given that product differentiation, food service, other services and location are key in the convenience market,” said Molly Johnson-Jones, Senior Retail Analyst at GlobalData in commentary provided to Retail TouchPoints. “Tesco-Booker will be unlikely to be able to expand materially, given its existing store portfolio, but it will drive down margins with its sourcing advantage, and be able to invest in stores with the synergies released from the deal, and create a ubiquitous UK brand across food wholesale and retail.”
Shareholder approval from both Tesco and Booker is all that is needed for the merger to be completed early in 2018.