Tesco has warned that hundreds of its stores could be subject to tobacco shortages in the wake of Palmer & Harvey’s collapse into administration.
The retailer said that though it had a contingency plan in place, cigarette and tobacco lines would be hardest hit by temporary shortages in the days to come. It stressed that the number of products was a “very small” part of its overall range.
One retail source said that Tesco was now “bunkered down” in contingency mode and was confident it could minimise disruption.
A Tesco spokeswoman said: “We are disappointed to hear this news, and for all those who work at Palmer & Harvey. We are grateful for the long-standing partnership we have enjoyed for more than 20 years. We will now work to ensure that we can continue to meet our customers’ shopping needs.”
Although it declined to comment publicly, Tesco is understood to be standing by its claims, made in August, that P&H would not be killed off by its merger with Booker, controversially set to be given the go-ahead by the CMA after its provisional decision earlier this month.
In August, in a joint submission to the authority, Tesco CEO Dave Lewis and Booker chief executive Charles Wilson dismissed the threat to P&H from the takeover as “speculation”.
The CMA had previously vowed to launch a “thorough” investigation into the potentially disastrous impact of the merger on Palmer & Harvey, warning the deal could spell disaster for P&H. The wholesaler’s contract to supply and distribute tobacco products for Tesco, as well as all ambient non-tobacco products directly to all Tesco forecourts and all frozen products to Tesco Express stores, was understood to account for around 40% of its turnover.
In its submission to the CMA Tesco said: “It is publicly known that P&H has been suffering financial issues for a number of years and has struggled for capital to keep afloat.
“It is clear that the business is facing a number of ongoing challenges. Nonetheless, Tesco has had a long-standing relationship with P&H for the distribution of a variety of products to its stores, and over the years P&H has gradually increased the scope of the services provided to Tesco and One Stop.
“Tesco considers that P&H is well-placed to offer a combined package of services that Tesco values. P&H provides a good service and has a close relationship with the large tobacco majors, and is well placed to offer a combined package of services that Tesco values.”
The document referenced a quote by P&H managing director Martyn Ward that described Tesco’s merger with Booker as “an opportunity rather than a limiter” and added: “In any event, Tesco considers that the evidence does not support a finding that the merger could have a negative impact on competition in the wholesale groceries market. The wholesale groceries sector is highly competitive with a number of strong and credible players providing delivered services.”
The CMA received complaints from a number of third parties about the potentially crushing impact of the merger on Tesco’s relationship with P&H. Yet despite acknowledging Tesco-Booker would have an incentive to shift sales away from P&H, the CMA ruled in its provisional approval of the Tesco deal that the threat was not enough to result in a serious lessening of competition. It said P&H’s combination of multiple, symbol, multi-site and other retailers including independents, combined with its strength in tobacco, meant it could survive.
Meanwhile Sainsbury’s, which was also supplied by P&H, dismissed the prospect of tobacco shortages. “We can reassure Sainsbury’s customers that we have strong contingencies in place,” said a spokesman.
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