The Competition and Markets Authority (CMA) has provisionally cleared the proposed merger of Tesco and Booker following an in-depth investigation.

The CMA found that the merger does not raise competition concerns on the basis that “Tesco as a retailer and Booker as a wholesaler…do not compete head-to-head in most of their activities”.

“In particular, Tesco does not supply the catering sector to which Booker makes over 30% of its sales,” it said in a statement today.

The competition authority considered the impact of the merger in every local area where a Tesco and a Booker-supplied store co-existed. It concluded that, in a scenario in which the merged company raised prices or reduced service levels in retail or wholesale, the level of competition would be sufficient to defeat such a strategy.

The CMA found that 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 could pass on some of the benefits of these savings to the shops that it supplies. 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.

Chair of the inquiry group Simon Polito said: “Millions of people use their local supermarket or convenience store to buy their groceries or essentials. Strong competition in the market ensures that shoppers can choose the best deal for them.

“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.”

The CMA is now inviting further comment and evidence before coming to a final view, which is expected by the end of the year.

Industry reaction

Reacting to the news, Today’s Group managing director Darren Goldney said: “While we are disappointed in the provisional CMA position regarding Booker and Tesco, our growing and diverse membership has a track record of continually evolving and adapting to change.

“The desire and increased capabilities in building long term, sustainable partnerships with both customers and suppliers has and will remain our focus.”

But Landmark Wholesale managing director John Mills issued a stark warning about the impact of approving the merger. “We are incredibly disappointed with the CMA’s decision. This move will not increase competition, it will destroy it,” he said.

“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.

“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.”