The UK’s Competition and Markets Authority (CMA) has announced that it is clearing the proposed merger between Tesco and wholesale group Booker.
A statement by the CMA said that, following an in-depth examination of evidence from a large number of wholesalers, suppliers and retail chains, it has concluded that the deal does not raise competition concerns.
‘Tesco, as a retailer, and Booker, as a wholesaler, do not compete head to head in most of their activities,’ the statement read, ‘however, since Booker supplies shops – such as Premier, Londis and Budgens – that do compete with Tesco, the group considered the impact of this carefully.’
It added that Booker does not own the stores that it supplies, so these retailers are free to set their own prices and decide which products to stock, meaning that Booker cannot directly determine how they compete with supermarket giant Tesco.
The CMA also examined whether the merged company could raise prices or reduce service quality at either a whole or retail level, but concluded that existing strong competition in the sector made this ‘unlikely’.
Competition Concerns
The £3.7 billion deal was first announced in January of this year, with Tesco CEO Dave Lewis saying that the merger would lead to the creation of “the UK's leading food business”. However, the CMA began an in-depth two-stage investigation in June to assess ‘whether the deal could reduce competition and choice for shoppers and other customers’.
The proposed takeover was provisionally cleared last month, but today’s announcement provides the two parties with final approval to proceed with the deal.
The CMA concluded that the UK’s wholesale market would remain competitive in the long term, noting that Booker’s share of the grocery wholesale market was not sufficient to justify long-term concerns of pricing and purchase power. It also noted that if Booker could get keener prices for its goods from suppliers, this might actually intensify competition in the wholesale market, leading to cheaper prices for consumers.
Booker says that it welcomes the decision and expects shareholder meetings towards the end of February 2018, with completion in March 2018.
Wholesale Sector
Last month saw the collapse of UK wholesale group Palmer & Harvey, which was reported to have been triggered by the Tesco-Booker deal.
The group, which supplies around 90,000 stores across the UK, said that it had been hit by challenging trading conditions in recent months, and efforts to restructure the business had been unsuccessful.
In October, a number of UK wholesale companies expressed concern over Tesco’s proposed purchase, saying that the increased buying power would make it very challenging for other wholesalers to compete.
There was also a concern that once the companies had merged, Tesco/Booker would become the ‘preferential customer for suppliers’, meaning that it would have preferential access to seasonal or limited stock. However, the CMA says that it took these concerns into account when making its decision.
“We have carefully listened to feedback from retailers and wholesalers who operate in what are highly competitive UK retail and wholesale sectors,” said Simon Polito, chair of the CMA’s inquiry group.
“Retailers have told us that they shop around for the best prices and service from their wholesaler, and we are confident that this will continue after Tesco buys Booker,” Polito continued.
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Sarah Harford. Click subscribe to sign up to ESM: The European Supermarket Magazine.
