Truckload of trouble
Furious wholesaler blasts competition watchdog for failing to curb huge Tesco deal – and tells why it will bring all suppliers a ...
COMPETITION investigators have been attacked for failing to adequately tackle Tesco’s proposed takeover of wholesale giant Booker.
There have been warnings that the merger could destabilise the whole food retail sector.
Steve Parfett, chairman of the £300 million Parfetts wholesale business, said the deal should have set alarm bells ringing at the Competition & Markets Authority and reignited concerns about Tesco’s vast power.
He said the takeover would not only be bad news for wholesalers, but could also be a massive problem for suppliers including household names such as Heinz.
Parfett said the watchdog’s statement on the Tesco-Booker tie-up issued earlier this month had left him ‘furious’ because he believes the planned investigation had ‘badly missed the point’.
Tesco’s proposed acquisition of Booker – which sells goods wholesale to convenience stores and is a rival to Parfetts – will add £5billion sales to the £56billion giant which is already twice the size of its nearest rivals Sainsbury’s and Asda.
The battle for control of the 40,000-strong convenience store market by the Big Four supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – has reached fever pitch this year as the food giants seek new ways to increase scale. That includes striking lucrative wholesale agreements to sell food to convenience chains.
The CMA listed five key points of concern, the first of which was a lessening of competition between stores owned by Tesco and Booker. But Parfett said the possible remedies Tesco could offer to ease through the merger in response to the three primary concerns would be ‘trivial’.
He went on to point out that the CMA’s fifth and final point – the potential negative impact of ‘an increase in buyer power’ – could cause chaos for major suppliers as well as for Booker’s wholesale rivals. Yet remarkably the watchdog said it does not regard this as a primary concern. Parfett said: ‘I believe the CMA has badly missed the point and I’m disappointed that their understanding of the market is that poor. ‘I accept the main points they have highlighted are classic competition issues, but I believe they’re not very significant in this case. The main issue is the failure of repeated competition investigations to deal with abuse of power by the Big Four grocery multiples.
‘Previous inquiries concluded there was a massive and unjustified price differential between what wholesalers buy at and what the multiple retailers buy at – and that was never addressed.’
Convenience store supply group Nisa has previously warned the deal could cause ‘enormous pain’ for the industry. Other wholesalers, including Bestway, have also signalled their deep concern. One in every seven pounds spent at retailers goes into Tesco’s tills, a position of strength which Parfett said should be a serious concern for consumer protection groups.
Parfett, whose firm was turned into an employee-owned company in 2008, explained: ‘The Big Four supermarkets have such power. For example, my organisation could buy a full 40-foot articulated lorry load of baked beans. And yet the price I pay will be significantly – probably in the order of 12 to 14 per cent – higher than the supermarkets will pay simply because of the threat that they will remove brands from their shelves if their demands are not met.
‘At the moment, Booker has a cost price advantage [from being the biggest wholesaler] of half a per cent or 1 per cent. But Tesco cost prices will, on day one, be available to Booker and they will have an enormous price advantage over the rest of the wholesale sector.
He said he expected Tesco, which has already identified cost ‘synergies’ of £200 million from the merger, to initially take the bulk of that as profit.
‘I think [Booker boss Charles] Wilson is too canny to pass on the price advantage immediately,’ he said. ‘They will pass on some of the price advantage and some of it will go towards Tesco profit. But as memories fade over objections to the Tesco deal the effect will become stronger and stronger.’
Earlier this month Morrisons snatched a £2 billion wholesale supply contract with convenience store and newsagent group McColl’s from previous supplier Nisa.
Nisa and another wholesaler Palmer & Harvey have also been identified as potential bid targets by supermarket groups including Sainsbury’s.
Parfett said concerns should not be limited to wholesalers.
‘It will create some tremendous problems for the wholesale market. It will also cause some huge headaches for major grocer suppliers because at the moment they get a much better price for their goods from the wholesalers than they do from multiple retailers.
‘The wholesale market subsidises the multiple retailers. They get back some of the loss of profit from the prices they give big supermarkets in the prices they charge us.’
Tesco said: ‘This merger has always been about growth, and we remain convinced that it will bring benefits for independent retailers, caterers, small businesses, suppliers, consumers, and colleagues.’