Tesco, Booker deal draws fire from Parfetts, amid supply-chain concerns

26 June 2017 1:33pm

21 June 2017. By Andrew Boyce. 

Tesco argues that its takeover of Booker Group, the UK's biggest food wholesaler, won't harm competition.

The reason for this, Tesco says, is that while Booker supplies plenty of retailers, it only actually owns a few of its stores. Almost all of the shops Booker supplies — trading under the names Budgens, Family Shopper, Londis and Premier — are independently owned.

But that argument appears to have fallen flat with at least one of Booker's rivals.

Parfetts, a wholesaler which supplies around 13,000 stores in Britain, says Booker has a significant amount of control over the products stocked in its independent stores. As a result, Parfetts says Tesco's suggestion that the acquisition of Booker would have no competition implications is wrong.

The company's Chairman Steve Parfett, told MLex that the takeover would have "very severe" consequences for the retail and wholesale grocery markets in the next five to 10 years.

Parfett, the son of company founder Alan Parfett, said he thought it would be "incredibly disruptive" if the acquisition were to go through because other supermarkets would respond by pursuing other wholesalers.

He pointed to reports that J Sainsbury was in talks to buy independent convenience store chain Nisa. The Co-operative Group had previously shown interest in Nisa before Sainsbury's stepped in.

Tesco filed the 3.7 billion pounds ($4.7 billion) takeover to the Competition and Markets Authority in London on May 30. The CMA has until July 25 to rule on the deal, which would combine Britain's biggest supermarket chain with its No. 1 food wholesaler.

Parfetts, which owns six cash-and-carry warehouses across the north of England, has been in touch with the CMA to voice its concerns.

Steve Parfett told MLex that he believed British competition officials had failed over the years to tackle the market power held by the "big four" supermarkets Tesco, Asda Stores, Sainsbury's and Wm Morrison Supermarkets.

He said the big four's market power gave them significantly better terms on the products they bought from suppliers. If Tesco was allowed to acquire Booker, Booker would then gain those preferential rates.

And if Tesco decides to stop stocking a product, it can have an impact on the share price of the supplier, he said, adding that smaller companies like Parfetts don't wield that same kind of power.

Parfett predicted that within five or 10 years Britain's grocery market would become almost entirely controlled by the big four, Co-op, Aldi and Lidl.

Tesco, of course, could argue that purchasing Booker doesn't significantly increase its share of the grocery market. The supermarket chain currently owns around 28 percent of the market, according to shopping analyst Kantar Worldpanel. Independent stores control only two percent of the market, Kantar says.

Parfett said he doubted Tesco's suggestion that Booker didn't control its independent shops. Booker has a "high degree" of control over the products stocked in its franchise stores, he said. Booker also manages the promotion of those stores, he said.

The boss of Bestway, another UK wholesaler, is also reported to have questioned how independent Booker's stores are. Although McColls Retail Group is understood to not be overly concerned.

Tesco plans to complete the deal by the end of the year, or in early 2018. That provides enough time for the CMA to conduct an in-depth review, although one option might be for Tesco to offer to divest assets in hope of securing a phase I clearance.

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