We’ve clicked!
Tesco boss tells how merger with Booker will boost click-and-collect locations to 8,000
TESCO is planning a major offensive in the online market following its acquisition of Booker, its boss Dave Lewis has told the City.
The deal will more than double the number of click-and-collect locations for internet orders to almost 8,000. And it formed a key part of the strategy that led to the proposed takeover, announced last month.
Booker has annual sales of £5billion, meaning that if the merger is approved the combined group’s turnover will be almost £60billion.
The online strategy, which emerged in Lewis’s discussions with City analysts after the announcement of the merger, provides Tesco with a new weapon in its war against Amazon, as well as rival supermarkets.
The revelation of what could be a significant push into local delivery of orders placed online comes as Amazon steps up its battle to undermine the UK’s grocery retailers with its AmazonFresh offer.
Amazon launched a London-only grocery delivery service in June, but last week said it planned to expand the service to Hampshire and Surrey.
The two counties are among those with the lowest penetration of hypermarkets and discount stores and are fertile grounds for home shopping growth.
Amazon’s launch is widely seen as a test run for a national rollout of the service, which offers everything from Chef and Butcher Dry Aged Mature Cote de boeuf at £30 a kilogram to basics such as milk and cornflakes.
The service offers products from local suppliers as well as big brands, including supermarket Morrisons.
However, Lewis said on a conference call with analysts that the merger with Booker would benefit Tesco by offering customers a greater range of locations to collect orders. He added: ‘Consider the idea that through this merger and through a network of close to 8,000 click-and-collect points we would drive traffic to those independent stores as a way of giving more service from the combined operation.’
Tesco already has 3,500 stores, while Booker supplies 120,000 retail outlets, including 4,000 Premier, Londis and Budgens convenience stores, which it controls.
Many observers initially believed that consumers would see little change to the Tesco business from the deal – and that the bulk of cost savings would come from keener negotiations with suppliers.
Lewis said becoming a click-andcollect point for Tesco deliveries was an opportunity for independent stores rather than a threat.
‘We hope they will see that actually we bring something which makes them much more competitive than they would be,’ he said. Such a network would rival clickand-collect delivery specialist CollectPlus, which has 6,000 delivery points and works with retailers including Amazon, Asos, Marks & Spencer and Very.
One senior executive at a rival supermarket said: ‘The home shopping sector is now all about logistics and fulfilling orders. Tesco suddenly has a network twice the size of the previous one to consider offering its general merchandise or even food.
‘People might think of convenience stores as having limited space – and in big cities that might be true. But many have the opposite problem, or else have space in adjoining car parks which are underused.
‘In areas where Tesco doesn’t have a presence, you might even be able to put automated click-and-collect lockers for food products.’
Siobhan Gehin, managing director at consultancy Kurt Salmon, said click-and-collect is increasingly seen as a more cost effective and faster way to make deliveries, as many shoppers cannot guarantee to be in when a delivery arrives.
She said the average time for standard delivery was almost four days, compared with little more than two for click-and-collect.
‘Over the next year, we anticipate that retailers will be looking even more closely at how they can best meet customer demand and service expectations during peak times, particularly with store deliveries as click-and-collect grows in popularity,’ she said. Online grocery sales were £10.5billion last year, according to the Institute of Grocery Distribution think-tank. It expects that to increase to £17.6billion by 2021.
Tesco agreed to pay £3.9 billion for Booker last month, adding £5billion to its turnover and greatly increasing its bargaining position with suppliers. That could add to suppliers’ concerns as the weakening pound forces up the price of imported goods and raw materials.
The consultancy GSCOP, which advises suppliers on the Grocery Supplies Code of Practice, told The Mail On Sunday that ‘thousands’ of suppliers are financially exposed because they are trading with major supermarkets on a handshake.
Many could face problems when renegotiations under the Tesco deal begin and as other supermarkets look for discounts as the value of sterling falls.
Sainsbury’s chief executive Mike Coupe said last year that he expected suppliers to ‘mitigate cost pressures they might feel through their supply chain’ before asking for price rises.
GSCOP director Ged Futter, a former supermarket buyer, said he expects to meet the Groceries Code Adjudicator this month to raise his concerns over the situation after speaking to hundreds of suppliers over the past two years.
‘Supply agreements are few and far between. Where they are in place, they are often not fit for purpose,’ he said.
Without contracts suppliers have no recourse to complain to the adjudicator.