UK supermarket Tesco has agreed to acquire wholesaler Booker for £3.7 billion, creating one of the largest combined food businesses in the country.
Booker owns the Premier, Londis and Budgens convenience stores, as well its own cash-and-carries, while Tesco will also benefit from its access to independents and the foodservice sector. The company said that wherever food was consumed, either ‘in home’ or ‘out of home’, the new combined business would be well-placed to take advantage.
Tesco said that the acquisition would improve the availability of quality, affordable food to consumers. It also claimed that it would improve efficiencies and be an opportunity to work more closely with its suppliers to strengthen its own-brand and fresh food ranges.
After completion, Booker shareholders will hold approximately 16% of Tesco’s shares.
The deal is likely to be seen as a return to strength for the once-struggling supermarket chain, along with its plan to resume dividend payments to shareholders next year, having recently struggled with its traditional retail business both at home and abroad.
Tesco’s share price jumped from £1.89 to £2.02 in the immediate aftermath of the announcement, and has since risen by more than 10% in all.
Tesco chief executive officer Dave Lewis said: “Tesco has made significant progress in turning around our UK retail business. This merger with Booker will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital. Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available.”
Booker chief executive officer Charles Wilson said: “Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve. We believe that joining forces with Tesco offers the potential to bring major benefits to end consumers, our customers, suppliers, colleagues and shareholders.”
Tesco recorded strong performance in food sales during the festive period, with shoppers driving a 20% increase in sales of its Finest wine range and a 24% growth in sales of its party food. The deal for Booker will still have to go through the Competition and Markets Authority, but there are fears that the monopoly a combined business will have on the convenience retail sector will either break the industry, or break the deal.
James Lowman, chief executive of the Association of Convenience Stores, was less troubled by the prospect of a Tesco-Booker merger and claimed that the acquisition reflected the strong fortunes of the convenience industry.
“Convenience stores are becoming more important to consumers’ daily lives, as they look to shop little and often, and to access products and services close to where they live and work. Consolidation in the supply of goods to independent retailers has long been predicted.”
Indeed, Booker bought a major wholesale competitor in Musgrave less than two years ago.
Charles Wilson, the company’s CEO, will join both the board and executive committee of the combined business.
Andrew Cole, joint managing director of category and shopper management specialist Bridgethorne, told FoodBev: “This is the coming together of two very smart businesses and in Charles Wilson from Booker, Tesco has access to one of the most respected and admired figures in the industry.
“Already it’s clear that the emphasis is going to be placed on fresh and own label, and similarly e-commerce; it will give Tesco access to a network of up to 8,000 neighbourhood click-and-collect points around the country and this could be significant. Suppliers should ask themselves what reason their products are going to have to be stocked across all available channels, from big stores and convenience to wholesale and online.”
The acquisition marks a significant and strategic step from Tesco, and comes after rival Sainsbury’s bolstered its click-and-collect offering with the acquisition of Home Retail Group, which owns Argos. Sainsbury’s already operates its own click-and-collect service but has since begun installing Argos kiosks within its stores, seen as a response to changes in the consumer landscape.
Andrew Cole continued: “There are inevitably going to be winners and losers. Suppliers who want to be among the winners need to start planning their strategies now. We would say don’t simply try and defend your existing position, but embrace the opportunity and go on the front foot in trying to demonstrate how you can help the new combined business grow as well as your own.”
Retail delivery expert David Jinks from ParcelHero thinks that the deal could potentially reinvigorate Tesco’s business and save the UK’s struggling high streets.
“Tesco clearly needs to diversify,” he said. “Don’t forget it was the first company ever to sell a product online in the world back in 1984, and is the UK’s second largest e-commerce retailer after Amazon. It makes £2.9 billion a year online. But Tesco’s high street supermarkets are in a far less rosy position; and you could argue that its online success is at the expense of high street shops, cannibalising brick and mortar sales.
“Booker supplies 450,000 caterers, 120,000 retailers and 700,000 small businesses including Wagamama, Rick Stein and Carluccio’s. Tesco’s enormous buying power could bring the benefit of these economies of scale to all these key high street brands.’
© FoodBev Media Ltd 2017