Tesco’s £3.7 billion takeover of Booker has obtained provisional clearance from the Competition and Markets Authority (CMA), which said that Tesco’s purchase of Booker does not raise competition concerns.
The CMA found that Tesco as a retailer and Booker as a wholesaler – supplying to caterers, independent and symbol group retailers – do not compete head-to-head in most of their activities. In particular, Tesco does not supply the catering sector, which accounts for more than 30% of Booker’s sales.
The group, recognising that Tesco’s shops nevertheless compete with Booker-supplied shops, considered the impact of the merger in every local area where a Tesco and a Booker-supplied shop are both present (over 12,000 shops). It did this to examine whether it might be profitable for the merged company to raise prices or reduce service levels either in retail or wholesale. The CMA has provisionally concluded that the level of competition in the grocery wholesale and retail markets would be sufficient to defeat such a strategy.
A number of competing wholesalers expressed concern that Booker would benefit from improved suppliers’ terms after the merger, making it difficult for them to continue to compete. They argued that, in the longer term, Booker might be able to raise prices to the shops that it supplies.
The CMA said that it was likely Booker would be able to negotiate better terms from a number of its suppliers for some of its groceries, but that it was likely to 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, the CMA 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.
Simon Polito, chair of the inquiry group, said: “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; the final report will be published by the end of December.
Read the full provisional findings of the CMA here: https://assets.publishing.service.gov.uk/media/5a0a943c40f0b60b04839a8c/tesco-booker-summary-of-provisional-findings.pdf
Tel: Booker Group (01933) 371000Published Date: November 14, 2017