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Tesco’s (TSCO) proposed £3.7bn of wholesaler Booker (BOK) is to face intense scrutiny after the deal watchdog referred the merger for an in-depth phase 2 investigation.

The Competition and Markets Authority said this morning that shoppers could face “worse terms” when buying groceries in more than 350 local areas where there is currently an overlap between Tesco shops and Booker-supplied symbol stores.

The CMA was also concerned that following the merger there was potential for Booker to reduce the wholesale services or terms offered to its Premier, Londis and Budgen stores to drive customers to their local Tesco instead.

Tesco and Booker have insisted since the shock merger was announced in February that the symbol stores were each operated and owned independently by the local shopkeeper and therefore presented no competition issues.

The CMA opened its phase 1 investigation into the merger in May, but in June Tesco and Booker requested the process be fast tracked to the next more in-depth stage of the process.

“Other concerns were raised and considered in the CMA’s phase 1 investigation but the CMA has not found it necessary to conclude on all of these concerns given the ‘fast track’ referral,” a statement said this morning

The investigation will now pass to a new set of decision makers – an inquiry group chosen from the CMA’s independent panel members.

This group will assess whether the deal could reduce competition by conducting further research and analysis as well seeking views and evidence from all those potentially affected by the merger.

The statutory timetable for the in-depth phase 2 investigation is 24 weeks, which means the final report will be published before Christmas – following an earlier provisional findings report.

Tesco shares opened up 0.3% to 171.6p despite the announcement, with Booker also gaining 0.5% to 190.4p.

Morning update

B&M European Value Retail (BME) has recorded its strongest first quarter of like-for-like growth in three years as the return of inflation sent shoppers searching for a bargain.

Revenues increased 18.3% to £656.3m in the three months to 24 June, with UK sales up 17.8% and by 7.3% on a like-for-like basis.

As well as the decline in consumer confidence, the discount chain benefitted from a late Easter, which added 1% to the headline like-for-like sales, and the recent hot spell, with “excellent sales” in seasonal categories, particularly garden and outdoor living.

B&M also highlighted strong grocery sales in this morning’s trading update.

CEO Simon Arora said: “This quarter’s like-for like growth represents B&M’s strongest first quarter for three years. It’s driven by customers, wherever they live throughout the regions, becoming ever more receptive to the outstanding value delivered by B&M’s unique business model in relation to the things they buy regularly for their homes and families.

“In these uncertain times, and with inflation returning to the UK market, more and more shoppers are actively seeking out value in our stores and that means our business is strongly positioned to do well and continue its rapid growth.”

B&M opened nine new UK stores in the quarter – with four opened in Germany – to leave the group with 543 outlets trading at the end of the period. It expected to open between 40 and 50 new stores this financial year, with a greater proportion of these opening during the second half, as it targets a portfolio of at least 950 sites.

“We also have a healthy pipeline of new stores for the following financial year,” the business added.

The second quarter started well for the retailer and it is on track to achieve profit expectations for the full year, B&M said.

Shares in the discounter have soared 4.2% to 349p so far this morning.

Revenues at travel concession group SSP (SSPG) have soared in the third quarter despite the impact of terrorist attacks in the UK. Increased passenger numbers at airports around the world helped increase like-for-like sales by 3.6% in the period to 30 June, with a late Easter break also contributing.

Group revenues in the quarter rose 14.6% on a constant currency basis, but the weakness of sterling boosted SSP in most countries where it operates, with total revenues up 21.7% on last year.

SSP said trading in the rail sector had remained softer in the period and added that, more recently, it had seen some further impact from the geopolitical activity in the UK and continental Europe.

“Looking forward, whilst a degree of uncertainty always exists around passenger numbers in the short term, particularly in the current environment, we are well placed to continue to benefit from the structural growth opportunities in our markets and to create further shareholder value,” SSP added.

The SSP share price jumped 3.2% to 499.4p as markets opened today.

Debit cards have overtaken cash to become the number one payment method in the UK. The British Retail Consortium’s (BRC) annual Payments Survey reveals that cards accounted for more than 50% of all retail transactions by volume for the first time. UK customers increasingly using cards for lower value payments has partly driven the shift, the retail body said

Cards have become the dominant payment method as retailers’ investment in payment technology led to greater customer choice over how they pay for their goods both in store and online.

BRC policy advisor Andrew Cregan said: “A growing number of retailers have invested in payment technology to accept cards, contactless payments and new payment applications both online and in store. In part, this has been facilitated by the Interchange Fee Regulation (IFR), which was introduced across the European Union following a successful campaign by the BRC and has led to a significant fall in the cost of collection that benefits retailers and their customers.

“Looking ahead, the government should act to retain the benefits of the IFR for retailers and their customers after the UK leaves the EU and introduce further regulatory action to address the alarming increase in other card fees and charges at a time when the retail industry is facing acute cost pressures elsewhere.”

Yesterday in the City

Marks & Spencer (MKS) suffered its worst day for six months on the markets as investors took flight after a first-quarter trading update. Shares plummeted 4.7% to 323.1p, making it the second biggest faller on the FTSE 100, after the retailer revealed sales in its food division had fallen in the past three months. Its upmarket food offering has been the one bright spot for M&S in the past couple of years as it struggled to halt declining clothing sales. The City didn’t agree with claims by CEO Steve Rowe that the results were in line with expectations and that its turnaround efforts were on track. The share price had been up by almost 20% from the start of 2017 to mid-May, but a decline in consumer confidence has seen value ebb away from listed high street retailers.

The gloom dragged down peers Associated British Foods (ABF), which owns Primark, and Next (NXT). The two stock slid 4.1% to 2,845p and 2.1% to 3,617p.

The FTSE also lost 0.6% of its value to 7,329.76 points as result of the heavy falls of its retail constituents.

Tesco ended the day flat at 171.1p after giving up some strong early gains. Analysts at Exane BNP Paribas suggested in a note that the worst of the grocery market’s struggle appeared to be over. It upgraded the supermarket from ‘underperform’ to ‘neutral’. It also upgraded Morrisons (MRW) to ‘outperform’, citing resilient volumes across the industry amid a broader refocus on food. The Yorkshire grocer rose 0.3% to 243.6p. Sainsbury’s (SBRY), however, was down 0.8% to 244.2p. And Ocado (OCDO) fell 1% to 273.4p.

Greencore (GNC), Dairy Crest (DCG) and WH Smith (SMWH) were all among the day’s losers, falling 2.9% to 231.1p, 2.8% to 547.5p and 1.3% to 1,672p.

B&M European Value Retail also dropped 2.4% to 335.6p ahead of this morning’s results.

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