Christ­mas has come early for Tesco and Booker chiefs

The Daily Telegraph - Business - - Business Comment - Ash­ley Arm­strong

Full marks to Tesco and Booker and their army of highly paid le­gal ad­vis­ers. It just goes to show that if you’re the big­gest re­tailer in the land, get­ting even big­ger is no prob­lem. That at least seems to be the bizarre mes­sage from the com­pe­ti­tion watch­dog, yes­ter­day re­branded as the “com­edy mar­kets au­thor­ity” by wags at Shore Cap­i­tal.

It’s fair to say that maybe only Tesco and Booker’s “Chas and Dave” were so cock­sure about the deal sail­ing through reg­u­la­tors with­out any con­di­tions. The rest of the in­dus­try was an­tic­i­pat­ing the CMA de­mand­ing either the sale of hun­dreds Tesco Ex­press shops or a rem­edy to dis­pose of Tesco’s One Stop chain. The boss of ri­val con­ve­nience chain McColls was pos­i­tively lick­ing his lips about snap­ping up lots of shops in the highly an­tic­i­pated fire sale.

But no. While the CMA found it nec­es­sary to drag its heels over Pound­land’s takeover of 99p Stores, re­quest dis­pos­als in Lloyds Phar­macy’s £125m deal for 277 Sains­bury’s phar­ma­cies, and asked Vi­sion Ex­press to sell three sites in its ac­qui­si­tion of Tesco’s op­ti­cians, it has given a pro­vi­sional green light to the £3.7bn Booker deal that will turn Bri­tain’s big­gest re­tailer into the UK’s “lead­ing food provider”. Bosses Dave Lewis and Charles Wil­son can now pass “Go” on the monopoly board and col­lect the mil­lions of pounds in share re­wards they will reap.

The is­sue with this pro­vi­sional green light from the watch­dog is that the CMA seems to have swal­lowed Tesco’s line that there’s no prob­lem with the takeover be­cause it “doesn’t add stores”. The bulk of Booker’s con­ve­nience shop brands of Booker, Londis, Pre­mier and Happy Shop­per are in­stead run by fran­chisees. So, on a sim­plis­tic prop­erty anal­y­sis, the CMA said there are only two neigh­bour­hoods where there was a Tesco con­ve­nience shop over­lap­ping with a Booker’s owned shop, rather than look­ing at the other 5,000 shops with a Booker brand above the door.

The CMA says that Booker’s fran­chisee shop­keep­ers have the free­dom to switch their sup­ply chains if they don’t get a good deal from Booker. But the CMA has min­imised the level of in­flu­ence an en­larged group will have on pric­ing and buy­ing ar­range­ments, which re­quire shop­keep­ers to or­der a cer­tain per­cent­age of goods from Booker to use one of its brands. And af­ter this deal those shop­keep­ers will be sup­plied by Tesco, the very re­tailer that has threat­ened liveli­hoods by open­ing rashes of Tesco Ex­press stores across the coun­try.

In­stead, the CMA fo­cused its anal­y­sis on an il­log­i­cal the­ory that Tesco might be in­cen­tivised to worsen Booker’s of­fer to di­vert shop­pers to the su­per­mar­ket’s stores. Un­sur­pris­ingly, Tesco bat­ted that away by ar­gu­ing there would be lit­tle com­mer­cial logic in low­er­ing sales in one half of its busi­ness.

Mean­while, the CMA reck­ons that Booker’s 20pc share of the whole­sale mar­ket is not enough to trig­ger con­cern. Even when put to­gether with Tesco’s 28pc share of the gro­cery mar­ket to cre­ate a food gi­ant with £60bn of sales. That’s be­cause, ac­cord­ing to the CMA, the whole­sale and re­tail mar­ket is very dif­fer­ent. But have they not heard of Tesco’s plans to put Booker’s cash and carry coun­ters at the back of the su­per­mar­ket’s vast Ex­tra stores? That’s a blur­ring of mar­kets right there. The CMA says there’s enough com­pe­ti­tion in the whole­sale mar­ket to sur­vive the shake-up from the deal, and cites Mor­risons’ re­cent deal to sup­ply McColls and the Co-op’s bid for Nisa as ev­i­dence of the chang­ing mar­ket. They didn’t in­clude the fact that both those ar­range­ments have been struck in the wake of Tesco’s Booker an­nounce­ment as the in­dus­try scram­bles to re­act.

What’s odd is how silent sup­pli­ers have been dur­ing the CMA’s in­ves­ti­ga­tion, giv­ing the im­pres­sion that they’ve given two thumbs up to the deal. Firstly, I’m told by two branded sup­pli­ers that they don’t want to risk their re­la­tion­ship with their big­gest cus­tomer, Tesco, by speak­ing out. The level of power Tesco has over them just got big­ger with the ad­di­tion of Booker, but the CMA doesn’t seem to mind that. Sec­ondly, sup­pli­ers to Booker are ac­tu­ally hop­ing that the deal means the whole­saler will be reg­u­lated by the Gro­cery Code Ad­ju­di­ca­tor, like the su­per­mar­kets, which could im­prove strained re­la­tion­ships and sup­ply terms.

To give the reg­u­la­tor an ounce of credit, it has, for the first time, in­cluded dis­counter Aldi and Lidl into its anal­y­sis of the gro­cery mar­ket rather than their pre­vi­ous think­ing that the cut price chains were in a sep­a­rate uni­verse. This shows at least the un­der­stand­ing that not only do shop­pers now make small, fre­quent trips to con­ve­nience stores rather than weekly pil­grim­ages to vast stores, they are also en­tirely fickle about where they shop to get a bar­gain. Su­per­mar­ket loy­al­ists are a dy­ing breed.

This is good news for fu­ture con­sol­i­da­tion ef­forts in the su­per­mar­ket sec­tor. With profit mar­gins un­der in­tense pres­sure from ris­ing costs and a race to in­vest in on­line and con­ve­nience of­fers, we could see more tie-ups. Now the com­pe­ti­tion watch­dog un­der­stands that Aldi and Lidl – who to­gether con­trol 11pc of the gro­cery mar­ket – play in the same field as the “big four”, more deals could be on the way.

‘Only ‘Chas and Dave’ were so sure about the deal sail­ing through reg­u­la­tors’

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