Suppliers search for clues as Tesco-Booker hints at future strategy

Dave Lewis tried in vain to make today’s presentation of Tesco’s full-year results about the retailer’s impressive recovery three full financial years since his turnaround plan was hatched. It is the last time he will talk about it as a standalone supermarket empire, after all, whether he remains at the helm for the long haul or not.

He had little chance of that.

The Tesco CEO is canny enough to know there is only one subject on the lips of retail analysts – and suppliers of Tesco and its new Booker wholesale empire.

Forget the nine consecutive quarters of growth or fresh food sales up 3.3%, people want to know just two things: How is Tesco going to try to capitalise on its £3.7bn merger and what will the impact be on the rest of the market?

Five weeks into the merger, it appears suppliers are beginning to find out. And there are signs they are already feeling the heat (or the opportunities, as Lewis prefers to put it) the new combined colossus will bring to bear.

Booker boss (and Tesco’s newly installed UK CEO) Charles Wilson, together with Tesco chief product officer Jason Tarry, have held initial talks with 39 of Tesco’s biggest suppliers. They have said they will be summoning their smaller suppliers soon to discuss their plans for the business.

And by all accounts the Tesco team have not been slow to point out price discrepancies – or what Tarry rather sinisterly refers to as “anomalies” – between suppliers common to both its supermarket business and the various parts of the Booker empire.

Tarry was quick to stress that the key focus of those talks was the £2.5bn of revenue growth opportunities Tesco has identified the takeover could generate in the medium term, rather than those glaring differences in the price file.

Others will see this as the start of an inevitable squeeze on suppliers, the prediction of which had some wholesale bosses threatening to throw themselves ‘in front of the tanks’ to try to stop the merger. Their bodies are being slowly peeled off the floor as I write this, presumably.

Lewis, no stranger to tough negotiation with Tesco from his days as Unilever boss, says wise suppliers will realise that while they may have to drop their prices because of Tesco’s financial and sales clout, they stand to share in the rewards.

“When I was at Unilever, Tesco were by far and away the toughest partner in terms of negotiation,” he told analysts. “They got the best deal but they were also my most profitable customer because I was able to change my business to work with them more efficiently.”

So if he were a supplier facing talks with Tesco-Booker now?

“I’d be sitting down thinking ‘how can I align my plans with the opportunities that business affords me and how can I change my business to work with that more efficiently and better?’.”

Lewis, Tarry and Wilson stressed today what Lewis called the “need for speed” and to get on with the job of turning those growth opportunities into reality.

They have even coined a catchy phrase for the job of the so-called Joining Forces executive team set up to oversee the talks with suppliers, based on the old mantra of former Tesco boss Jack Cohen. YCDBSOYA is the name for it, which, Lewis explains, stands for “you can’t do business sitting on your arse”.

No doubt many suppliers will be preparing for talks with Tesco. Whether they will be rubbing their hands at the potential of changing their business model to suit their biggest customer, or cowering in fear at the consequences of the meeting to come, is up for debate.