The UK’s Competition and Markets Authority (CMA) has provisionally concluded that Tesco’s £3.7 billion purchase of Booker does not raise competition concerns.
Initially announced in January, the move would see the UK’s largest grocery retailer purchase the country’s biggest grocery wholesaler.
There has since been concerns that following the acquisition there may be potential for Booker to reduce the wholesale services or terms it offers the ‘symbol’ stores it currently supplies, in order to drive customers to their local Tesco. The CMA consequently began a fast-track probe into the deal in July.
A CMA statement released this morning said that Tesco as a retailer and Booker as a wholesaler – supplying to caterers, independent and symbol group retailers including Premier, Londis and Budgens – do not compete head to head in most of their activities.
It said that in particular Tesco does not supply the catering sector to which Booker makes over 30% of its sales.
The CMA, recognising that Tesco’s shops nevertheless compete with Booker-supplied shops, considered the impact of the merger in every local area where a Tesco and a Booker-supplied shop are both present (over 12,000 shops).
It did this to examine whether, in any of these areas, it might be profitable for the merged company to raise prices or reduce service levels either in retail or wholesale. The CMA has provisionally concluded that the level of competition in the grocery wholesale and retail markets would be sufficient to defeat such a strategy.
A number of competing wholesalers expressed concern that Booker would benefit from improved suppliers’ terms after the merger, making it difficult for them to continue to compete. They argued that as a result, in the longer term, Booker might be able to raise prices to the shops that it supplies.
The CMA found that it was likely Booker would be able to negotiate better terms from a number of its suppliers for some of its groceries, and that it was likely to pass on some of the benefits of these savings to the shops that it supplies.
This might increase competition in the wholesale market, as well as reducing prices for shoppers. However, the CMA also concluded that the wholesale market would remain competitive in the longer term, noting that Booker’s share of the UK grocery wholesaling market – at less than 20% – was not sufficient to justify the longer-term concerns.
Chair of the CMA inquiry group Simon Polito said: “Millions of people use their local supermarket or convenience store to buy their groceries or essentials. Strong competition in the market ensures that shoppers can choose the best deal for them.
“Our investigation has found that existing competition is sufficiently strong in both the wholesale and retail grocery sectors to ensure that the merger between Tesco and Booker will not lead to higher prices or a reduced service for supermarket and convenience shoppers.
“The CMA opened its phase one investigation into the merger in May. At the end of June, the companies requested a fast-track referral to the next stage of the investigation.
“This is a provisional decision and the CMA is now inviting further comment and evidence before coming to a final view.”
Tesco aims to work more closely with its suppliers to strengthen its own-brand and fresh food ranges. Purchasing Booker boosts its access to the foodservice sector at a time when it is under growing pressure from discounters Aldi and Lidl.
Tesco’s shares dipped during the summer following Amazon’s purchase of organic food specialist Whole Foods for $13.7 billion.
Tesco operates more than 3,000 stores across the UK. Booker supplies services to over 5,000 ‘symbol’ stores as well as to thousands of independent retailers and caterers.
The announcement comes just a day after members of convenience retailer Nisa voted to approve the Co-op Group’s offer to buy 100% of the business for up to £137.5 million.
© FoodBev Media Ltd 2017