The Tesco-Booker merger is a real industry Exocet. The focus for the TV channels has been the implications for independent corner shops amid concerns that they will be crushed by a stronger Tesco.
But this is a deal that everyone in the industry will have to consider. And potentially fear. For the idea that this is creating the UK’s leading food business is preposterous. Tesco is already the UK’s leading food business. This is about bolting on the UK’s biggest food wholesaler. And bagging Charles ‘Two Brains’ Wilson in the process.
Wilson is a great signing for Tesco. He’s not just cashing in his chips and running for the hills. He’s ploughing his £200m+ stake in Booker into Tesco - and guaranteeing he will keep it there for five years - a huge show of faith in the merits of the deal. And interestingly he’s been involved in a similar if smaller one before, when Booker merged with Iceland. That deal “didn’t work out the way we really wanted it to”, Wilson admits, but its failure was one of the biggest reasons for his return to Booker. And he’s never lost his faith in the idea of retail and wholesale working together. “It’s very compelling and exciting. That’s why there’s this commitment.”
He also points out that, while rare, there are examples of retailers and wholesalers operating successfully in tandem, including Carrefour, which operate some cash & carries, and Metro, which owns the Real hypermarket chain.
His conviction comes partly from the complementary nature of the two businesses, Tesco in the £110bn in-home market, and Booker in the £85bn out-of-home sector. With the lines between in-home and OOH blurring the fight is on for ‘share of stomach’ and merging the two businesses will equip it better.
He’s also observed an increasing blurring of the lines between B2B and B2C, a development led by the growth of online players like Amazon, “who think of B2B and B2C as synonymous”. “The customer is converging,” says Wilson.
A huge amount of focus will be on the £200m synergies Tesco/Booker hope to achieve from the merger. Tesco CEO Dave Lewis insists job losses will be minimal across the two businesses due to their complementary nature. Suppliers arguably have more to fear as Lewis identified procurement as one of the keys to unlocking savings, promising to “create a broader, multi-channel partner who can work with producers across their full agricultural crop”. In other words Tesco will use the Class 1 carrots in its stores, while Booker can buy, in the same deal, lower-grade carrots for use in foodservice.
And it’s not just about buying power. It’s about “taking carbon out of the equation”, combining and utilising more efficiently the 5,200 Tesco trucks and the 1,200 Booker trucks on the road, as they are very often being used at different times of day. “We’ll have the most efficient network in the country,” adds Lewis.
But as ever with the best deals, the true value comes not only from synergies, but from incremental sales opportunities. “This merger is about unlocking new growth,” was the opening sentence in the media presentation. And growth can come for Tesco not simply by tapping into food to go. Having Tesco on board can help food to go operators too, says Wilson.
“I wouldn’t underestimate the power of digital. There’s a lot of value for our customers in embracing services like PayQwiq, Mobile and Tesco Bank.”
And what about those independents? Wilson admitted there was a selling job to be done, overcoming retailer scepticism, but “from my conversations this morning I’m encouraged by the warm reception”. Wilson envisages new opportunities to enhance not only “choice, price and service” (his familiar calling card) but range and quality, too, thanks to access to the greater product development expertise of Tesco.
“Independents are under more pressure than ever, with business rates and the living wage,” he points out. And that’s before you consider the continuing encroachment of major multiples (including Tesco of course) into convenience, or the competition that the growth of the discounters and the resultant price wars among the big four have had on the price files of independents and their wholesale cash & carry suppliers.
As unlikely as it sounds, the combined expertise of Tesco and Booker could indeed offer independents a helping hand. They’ve already proved that through the growth of the One Stop franchise model. And if anyone can persuade independents to do it on an even greater scale, it’s Charles Wilson.
No comments yet