What the Tesco-Booker deal means for small businesses
Will Tesco buying-out Londis and Budgens stores kill-off competition?
Tesco is buying-out wholesaler Booker and its subsidiary brands in a landmark £3.7 billion deal.
Shares have risen 9% since the announcement was made, with Tesco’s market share set to jump from 17% to 28%.
It's good news for shareholders, but not for small business owners. They're worried that as the supermarket expands its reach into in the convenience store and wholesale markets, smaller competitors will be muscled out of the supply chain.
Every Londis helps
As it stands, Booker supplies 5,463 franchise convenience stores. In the UK Tesco owns 3,569 shops, including 2,839 small stores and over 700 One Stop shops – its subsidiary convenience brand.
A takeover of such proportions is likely to trigger an investigation by the Competition and Markets Authority (CMA). The industry watchdog will want to investigate the specific details of the deal over concerns that the move monopolises the market.
Tesco is already the clear market leader, but the acquisition of Booker and its brands Londis, Budgens, Premier and Happy Shopper puts it in a league of its own.
What we know so far
Exactly how the deal will affect independent stores isn’t clear.
Tesco CEO Dave Lewis has been quick to downplay competition concerns, explaining that taking on Booker’s franchised stores means that his firm isn’t actually gaining more stores. The additional shops mopped up in the deal will still technically belong to the independent owners that franchise them now.
For the time being then, there is no suggestion of more local competitors.
But it's Tesco’s jacked up buying power that business owners are worried about. Commanding the supermarket, wholesaler and convenience sectors of the market will give it a strong hold over the supply chain. Independent traders which do not franchise their businesses through Booker and in-turn Tesco, may struggle to compete with those that do. Rivals Spar, Nisa and Costcutter are planning to lobby against the deal. They want the regulator to protect them in negotiations and in particular, prevent them from being strong-armed over pricing.
What happens next?
A takeover like this doesn’t happen overnight. It’s reported that the CMA’s Phase Two investigation takes 24 weeks, meaning that any deal is unlikely to close until late this year, or early 2018.
For official announcements, keep an eye on the Tesco PLC website.
And for coverage of the story for small businesses, there’s the XLN Biz Hub.