Wholesalers ask CMA to block Booker-Tesco merger

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The leaders of seven of the UK’s largest wholesale operations have jointly written to the Competition and Markets Authority (CMA), urging it to block the proposed merger of Booker and Tesco.

In the letter, the group refutes the claim that the merger would enhance competition and promote consumer interests, maintaining that the consequences of Booker and Tesco joining forces for procurement would harm suppliers and result in higher prices for independent retailers and consumers in the long-term.

The letter says; “The transformational aspect of this deal, and the factor that so threatens competition in the sale of groceries in the UK and, indeed, the very survival of the independent retailer, is the prospect that Booker will be able to buy its products at Tesco’s prices.

“With these prices, it will be able to drive its competitors, be they delivered wholesalers, cash and carry or symbol operators, out of business. At the retail level, the combination of Booker’s wholesale prices and Tesco’s deep pockets will present independent retailers with a stark choice: Join a Booker/Tesco symbol or go out of business.

“In the interests of retaining healthy competition in foodservice supply and grocery wholesaling and retailing, we ask the CMA to block the Tesco/Booker merger. This merger will not just result in a substantial lessening of competition but in a complete restructuring of the wholesale and retail of groceries in the convenience and foodservice sectors, to the unquestioned detriment of consumers.”

The CMA is currently concluding Phase 2 of its investigation into the merger, with a provisional decision expected by the end of the month.

The letter was co-signed by Martin Race, managing director, Bestway Wholesale; Andrew Selley, managing director, Bidfood; Nicky White, managing director, Confex; John Mills, managing director, Landmark Wholesale; Debbie Robinson, managing director, Spar UK; Philip Jenkins, managing director, Sugro UK and John Schofield, managing director, Today’s Wholesale Services.

An abridged version of the letter appears below:

 

Dear Sirs,

Opposition to the Tesco-Booker merger

We write in response to the Tesco and Booker CEOs’ letter to you of 3rd August 2017 in which they claimed that Tesco’s acquisition of the Booker Group will enhance competition in the UK and promote consumer interests. We are keen to refute these suggestions and to express how concerned we are about the very future of grocery wholesaling and retailing in the UK, as well as supply to the foodservices industry.

If the merger proceeds, Tesco will have incontestable power over the procurement of all grocery categories in the UK. Suppliers will find it even harder to resist Tesco’s demands.

Some suppliers, particularly of branded products, will fail without access to Tesco stores. Others, aware of this risk, will give in to its demands. The latter go beyond price and include requirements as to preferential delivery times, frequencies, first offer of new products, marketing contributions, rebates, etc. The need to introduce GSCOP was brought about by your predecessor’s findings of existing abuse in procurement by the multiples.

Companies such as ours, that compete for these supplies, are always disadvantaged. We already pay more, not only because we cannot match Tesco’s volumes but equally because of what you have termed the “waterbed” effect. This is not a theory; it is very real. In the same way, when stocks are in short supply, it is the supermarkets that are guaranteed supply and wholesalers supplying the convenience sector go short. This imbalance will get worse if the merger proceeds; Booker will be a beneficiary, rather than a victim, of this behaviour.

The transformational aspect of this deal, and the factor that so threatens competition in the sale of groceries in the UK and, indeed, the very survival of the independent retailer, is the prospect that Booker will be able to buy its products at Tesco’s prices. With these prices, it will be able to drive its competitors, be they delivered wholesalers, cash and carry or symbol operators, out of business. At the retail level, the combination of Booker’s wholesale prices and Tesco’s deep pockets will present independent retailers with a stark choice: Join a Booker/Tesco symbol or go out of business.

Tesco has claimed that gaining synergies from being able to supply the foodservices sector is the main driver of the deal. If this merger proceeds, we anticipate that Tesco will undermine the ability of those of us that supply this sector to compete here also. Tesco will leverage its supermarket buying power into this market by, for example, making its purchases for supermarkets conditional on good terms on foodservice supplies. The result, once again, will be that competitors will suffer poorer terms on price, delivery and availability. Is this fair competition? We say not. This position will have been brought about by the leveraging of Tesco’s dominant supermarket buying power into the wholesale, symbol and foodservice sectors.

Will the consumer benefit? Perhaps in the shorter-term prices will drop while Booker and Tesco attract new wholesale, symbol, retail and foodservice business. Over time, however, as competition is weakened and eliminated, normal economics will prevail and Tesco/Booker will raise its prices to its convenience and foodservice buyers. Once again, though, the harm goes beyond price. Consumers will experience a reduction in choice of store, product range, opening hours, etc.

In the interests of retaining healthy competition in foodservice supply and grocery wholesaling and retailing, we ask the CMA to block the Tesco/Booker merger. This merger will not just result in a substantial lessening of competition but in a complete restructuring of the wholesale and retail of groceries in the convenience and foodservice sectors, to the unquestioned detriment of consumers.

Readers' comments (4)

  • Well done to the signatories of this letter. Do we really need to be bullied as to what price we pay and what range we stock? It’s is a bad day for the independent retailers if this sale is sanctioned by the CMA. The customer will be the final loser.
    No choice, higher prices in the future

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  • No endorsement from Palmer &Harvey i see.They are like turkeys voting for Christmas.

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  • Well done to Costcutter, The Co-op and Nisa for not signing. Not one of the above signatories deserve to serve the customer. They are only serving themselves.

    Two things are going to happen.

    Carlyle will introduce Amazon.

    A hard Brexit is on the cards which will bring 20% - 30% lower Food Prices.

    Competition will Win and the Convenience Market players will reduce.

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  • find the letter self-serving and rather disingenuous in not only its’ content but also its’ reasoning. Three of the largest symbol group, Cost cutter, Nisa and the Co-Op are not signatories to the letter which speaks volumes as they see their future with such mergers for their own survival with the mults. The idea that the new merger will totally dominate the market is also rather farfetched. The German discounters and Amazon are going to be the real threat to the future of retailing in this country and the new merger will, at the very least save many a retailer from collapse simply because the new Tesco/Booker consortium will provide some insurance towards the storm that is brewing round the corner.
    I also struggle to the suggestion that retailers will pay more for their goods in the future which is equally fanciful. The question here is, why would a company deliberately harm its own when there is so much competition around and more to come? The letter has no mention of the German discounters whose share of the market is rising at an alarming rate nor does it mention the dominance of Amazon who has even bigger financial power to wipe a lot of wholesalers out of business never mind the retailers.
    The new consortium will also be in line with market tends and have the ability to suffice the concept of chill, food to go and the rest which future retailers will require. Perhaps the signatories may want to ask if they are in many cases out of sync with what market will require rather than attacking, in my humble opinion, one of the best thing that has happened in saving the future of independent sector in this country.


    Arjan Mehr Londis Bracknell

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