David Rees: Editor's comment

All posts from: February 2017

Exchange rates

Posted by: David Rees Tue, 21 Feb 2017

The pernicious impact of business rates, for a long time a cause of irritation among retailers, has been taken up by the national media as a cause worth fighting for.

It’s welcome (and it’s about time) as it will add further pressure on the government to look at the whole system, but the fact that the consumer press are getting involved at all should be taken as a strong indication that the current system is unjust and broken. To base a business tax on the rental income of the property is bizarre to start with, and to revalue it after seven years means that you inevitably get huge disparities between winners and losers.

Those to lose out are small businesses in the South East, where property prices have climbed, and those to fare better are generally in less-affluent areas, including, of course, some very large warehouses for very large online retailers. And what is worse, to lessen the exposure of appeals on cash-strapped local authorities, the appeals system has changed so it’ll be harder to get any money back.

We’ve said it before and I’ll repeat it here: there’s only so much that tinkering with business rates can achieve. We need a new system of business taxation altogether.

The old labels don't apply

Posted by: David Rees Fri, 10 Feb 2017

While the announcement of the ‘Besco’ merger took pretty much everyone by surprise, on reflection perhaps we should have seen it, or something like it, a mile off.

The blurring of channels has become a feature of the UK food and drink market in recent years so it was just a matter of time before big retail and foodservice combined in a structured and strategic way. And, as a well-run, cash-rich and profitable firm, Booker would always be a takeover target for any large organisation able to make the right deal.

Booker’s earlier acquisition of Musgrave was highlighted as a fast-track to better fresh food and more efficient distribution to independently-owned stores. A strategic partnership with Tesco brings the same set of benefits, multiplied by about 100.

For many store owners, there is excitement at the prospect of linking their main supplier to the UK’s largest food retailer. With the cost base rising for all businesses, the bigger the scale of your supply partner, the better, or so the argument goes. But there are doubts about the linkage. For some, the prospect of being supplied by your toughest competitor sits a little uneasily.

There is also the question of store data. If you are a Budgens retailer, for example, you might have been competing hard against Tesco for a decade. How can you be sure that they won’t be able to view your sales figures? Admittedly, this might be fixed by the CMA as part of a regulatory assessment of the merger. Booker doesn’t have a direct data link to most of its customers anyway, and at Tesco-owned One Stop the franchisee data is formally separated from the company-owned stores as a legal requirement of the franchise operation. But I suppose if you were so minded you could form a reasonable picture of how stores in a particular area were performing from orders, delivery loads and schedules, and this would be theoretically possible under Besco as well.

For this merger to work for independent retailers, the key is trust. According to the notes accompanying the merger document, most of the value that the deal creates will be through synergies in buying and distribution, and if that turns out to be the case retail customers have every right to expect a share of these benefits. But down the line, say 10 years, is Charles Wilson still going to be there, or Tesco’s Dave Lewis? And what if the Tesco board at the time decides that supplying independent retailers is a low priority? Hence the uncertainty in the independent retail trade: this deal provides a lot to be excited about, but there is a lot to be taken on trust as well.

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