Tesco unviled plans to buy wholesaler Booker this morning. We look at how the City and retail watchers reacted.
“The boards of Tesco and Booker have revealed one of the corporate surprises of the retail century so far!
“Whether the integration of Booker is an ideal strategic step is subject to debate to our minds”
“The initial gut reaction, which is usually the best one, is that it may be sound for Tesco but far from compelling for Booker shareholders.
“The £200m of synergies suggested (£25m revenue derived), are probably conservatively set, knowing [Tesco chief executive] Dave Lewis and [Booker boss] Charles Wilson as we believe we do. Such synergies are welcome but do they move the dial for a group the size of Tesco in due course?
“Tesco [has] a lot to do fixing the UK stores, trying to make online sustainably profitable, re-building profitability in Central Europe and generally de-leveraging.
As such, whether the integration of Booker is an ideal strategic step is subject to debate to our minds.”
Clive Black, Shore Capital
“A surprising move, but one not without merits. It takes Tesco much further into wholesale, giving greater certainty of supply and allowing it to extract better terms.
“Dave Lewis was confident of limited CMA interference as Booker doesn’t own the stores (all franchised) and where Tesco will have no influence over pricing.
“However having so much of the convenience market in the hands of a single player is bound to raise issues.
“Charles Wilson [is] seen as a major capture for Tesco and already touted as Lewis’s heir apparent.”
Gary Hobbs, Investec Wealth & Investment
“The combined group will be a powerful combination, given improved buying power and reach in retail and foodservice, and giving opportunities to improve distribution efficiencies and customer service.
“The CMA will inevitably crawl all over the deal, particularly given the greater share in the convenience market”
“Synergies are estimated to be c£200m, of which a significant proportion is likely to come from suppliers.
“The CMA will inevitably crawl all over the deal, particularly given the greater share in the convenience market.
“However, we believe the deal is likely to pass given that it should be seen as positive for the combined group’s customers.”
Charles Hall, Peel Hunt
“Tesco has trumpeted the deal as offering improved availability for consumers, and better choice, price and service for independent retailers.
“It also gets them into foodservice supply, and with households increasingly looking to prioritise spend on eating out, this protects it from the downward pressure on retail spend.
“The deal also gives Tesco the opportunity to sell its own-brand ranges into the convenience stores Booker supplies, enabling it to weaken the power of the big brand suppliers such as Unilever which it had a public spat with over price rises last year.
“The challenge for Tesco is in convincing the regulators that the ownership structure of Booker’s symbol group stores means that competition is not compromised, and persuading the owners of the independent convenience stores that being supplied by their largest competitor will be beneficial to them.”
Patrick O’Brien, Verdict Retail
“The Tesco of old is back.
“This is an extremely bold move and demonstrates an intent and sense of purpose that have been missing for the best part of a decade.
“The message is unequivocal: the UK grocery sector, both retail and wholesale, is ours and we are taking it back”
“It also represents the official end of the global dream. For Tesco, the jewel in the crown is once again the UK.
“With the acquisition of Booker, which owns Budgens and Londis, Tesco has shown its hand. Its competitors, in particular the discounters, now know they’re in a fight.
“The message is unequivocal: the UK grocery sector, both retail and wholesale, is ours and we are taking it back.
“Dave Lewis is very clearly setting out to create Britain’s biggest food business and reinforce Tesco’s leading position not only as a grocer but as a wholesaler multichannel retailer with an unassailable position in the UK food business.
“Its competitors will be deeply concerned by Tesco’s increased buying power, with its dominance stretching further throughout the British food industry.”
John Ibbotson, Retail Vision
“As takeover deals go this is a significant one for Tesco and it has a little bit of everything to it.
“Not only will the deal deliver synergies to Tesco but the wholesale acquisition will help Tesco to move further up the supply chain, increasing the retailer’s buying power with producers and enabling it to deliver more competitive prices to consumers, which is especially prescient given the fears over rising prices and more complicated supply chains that have arisen from last year’s Brexit referendum.
“Booker’s position as a supplier to many small businesses also gives Tesco pricing power further up the supply chain when dealing with smaller competitors who currently rely on Booker.
“It also reiterates the strategic refocus on the domestic market with Tesco acting to entrench itself more deeply into UK retail just as competition from online retailers like Amazon and discounters like Aldi and Lidl continues to intensify.
“But the deal is not without its challenges. Although Tesco chief executive Dave Lewis has stated that this is not a case of Tesco buying more stores it does cause ripples throughout the retail supply chain.
“Not only do Booker’s own retail units like Londis and Budgens represent competitive hurdles, but the position of Booker as a supplier to so many of Tesco’s rivals may raise some difficult questions about the retailers’ power to potentially set wholesale prices and control the flow of goods to a number of smaller competitors.
“While Tesco seeks to simplify its own supply chain and realise wholesale synergies, it is likely that the supply chain of smaller rivals will become more complex and it seems likely that some form of divestment such as the sale of the Londis or Budgens chains may also be required.”
Jon Copestake, Economist Intelligence Unit
“This is good news for Tesco and the grocery sector in general.
“This is good news for Tesco and the grocery sector in general”
“In choosing to tie up with Booker, Tesco is ensuring that it is able to cater for a wider variety of consumers across many different channels.
“This is part of a wider trend for grocers and retailers more generally to seek growth through large mergers and acquisitions rather than through organic store-by-store or smaller acquisitions.
“For instance, we have already seen Sainsbury’s take over Home Retail.
“We can’t pretend that 2017 won’t be a tough year for retailers with headwinds including rising costs and falling consumer confidence, however those that are innovative and customer-centric will remain resilient and prosper and we expect to see further similar activity amongst the big four as they continue to vie for domination of the sector and adapt to the evolving way people shop.“
Tim Vallance, JLL