Tesco, the UK’s biggest food retailer has taken over Booker, the country’s largest food wholesaler, in a deal worth £3.7bn.
The takeover, which is being described as a merger by both companies, is not expected to result in any job losses. It’s understood that combining the two retail giants will result in cost savings of £175m with additional benefits of £25m.
Shares in both companies rose sharply following the news.
The deal, which Tesco chief executive Dave Lewis (pictured, right) described as “low-risk” is subject to approval by the regulator, and is raising eyebrows with industry analysts.
Gary Hobbs, senior equity analyst at Investec Wealth & Investment, said: “Having so much of the convenience market in the hands of a single player is bound to raise issues.” Retail analyst Nick Bubb thought that the Competition and Markets Authority (CMA) will “have a field day” with the merger.
“We do not comment on potential investigations,” a CMA spokesman said.
Dave Lewis said: “This merger with Booker will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital. Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available.”
Charles Wilson (pictured, left), CEO of Booker, added: “Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve. We believe that joining forces with Tesco offers the potential to bring major benefits to end consumers, our customers, suppliers, colleagues and shareholders.”
Today’s announcement took the industry by surprise. Retailers and representative bodies came to terms with the news. The Scottish Grocers Federation chief executive Pete Cheema commented that this is clearly one of the most significant developments in the food retail and food service markets we have ever seen.
“We would urge Tesco and Booker to ensure the sustainability of an independent symbol group operation as an integral part of the new Combined Group,” he said.
The deal will establish a dominant player across the retail and wholesale sector in the UK. Kate Salmon, executive director of the Scottish Wholesale Association, which represents the interests of all food and drink wholesalers who supply and support retail and catering businesses, said: “We are keen to continue our very good relationship with Booker to promote the wholesale industry which is a very important sector to the Scottish industry.”
Iona Carter, director at Shoppercentric!, added: “What this certainly reflects is Tesco’s recognition that grocery shopping habits are changing: big shopping trips are in decline, as shoppers increasingly either drop them completely or move them on-line; conversely, smaller basket shopping trips are on the increase – which is where the convenience sector can cash in.”