Wholesalers have reacted with dismay after the Competition and Markets Authority (CMA) announced it had provisionally concluded that Tesco’s purchase of Booker does not raise competition concerns.
A number of competing wholesalers told a CMA investigation that they were concerned 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.
But the CMA decided 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.
It said this might increase competition in the wholesale market, as well as reducing prices for shoppers.
However, it 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.
Simon Polito, chair of the inquiry group, said: “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.”
But Landmark Wholesale managing director John Mills responded: “We are incredibly disappointed with the CMA’s decision. This move will not increase competition, it will destroy it. The combined Tesco/Booker business has sales of £60bn while the rest of the UK wholesale industry amounts to £25bn.
“Other wholesalers will not be able to compete with the buying and distribution power of Tesco/Booker. As a result of this decision Tesco, who currently account for £1 in every £8 on the high street, will dominate the convenience and corner shop market and will undoubtedly now dominate the foodservice/out of home market as well.
“We believe that there is a risk that thousands of jobs will disappear from family-run foodservice wholesalers and independent stores and the net impact will reduce choice for consumers and communities, a point that seems to have been totally lost to the CMA.
“The challenge is now for Landmark, and others, to work harder than ever to find better, smarter and more efficient ways of buying and working. We will continue to work closely with our members to ensure that we provide them with the best possible trading platform to compete in this changing and increasing competitive marketplace.”
Molly Johnson-Jones, senior retail analyst, GlobalData, commented: “To fail in its new-found form, Tesco-Booker will have to do a lot wrong, given the operational scale and buying power that the merger generates, especially with provisional unconditional clearance and the subsequent assumed lack of restrictions on operation. Two excellent CEOs who have commanded a turnaround and successful growth, respectively, of Tesco and Booker are coming together to run a food retail behemoth.
“Despite the CMA saying 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’, Tesco-Booker will fundamentally change the structure and competition in the convenience market.
“The food and grocery market should be worried, but it won’t be impossible to survive given that product differentiation, foodservice, other services, and location are key in the convenience market. Tesco-Booker will be unlikely to be able to expand materially, given its existing store portfolio, but it will drive down margins with its sourcing advantage, and be able to invest in stores with the synergies released from the deal, and create a ubiquitous UK brand across food wholesale and retail.”
The CMA said its current decision was provisional and it was now inviting further comment and evidence before coming to a final view. The CMA’s final report is expected by the end of December.