Following the announcement that retailer Tesco and wholesaler Booker Group will be merging to create the “UK’s leading food business”, the industry has given its thoughts on the impact that the £3.7bn deal will have on the food sector.
Baking industry expert
A leading baking industry figure said: “The merger opens up a larger part of the convenience and out-of-home market to Tesco as well as providing more supply chain infrastructure for the further expansion of online.
“From a bakery perspective further consolidation of the customer base may put pressure on prices but it also may simplify the supply chain and reduce costs.
“It is very much a matter of wait and see what happens next while having a plan for all eventualities.”
Edison: "Smart first mover"
Analysts Edison said that with Booker onside, Tesco will have a smart first mover advantage in tying up the food supply chain in a new world of online shopping.
“Amazon are the main disrupter and a pricing race to the bottom within the core grocery stores market catalysed by Lidl and Aldi, all of which makes shopper loyalty increasingly fickle,” Edison said.
“Tesco CEO Dave Lewis is consciously talking how the deal would not change its retail store footprint ahead of competition regulator scrutiny, but that is almost a double bluff as he will be careful to avoid talking food supply chain where control of the market including competitor retailers is what will make rivals concerned.”
Retail Vision: "The old Tesco is back"
Also commenting on the reaction of the merger, John Ibbotson from Retail Vision said that the old Tesco is back.
“This is an extremely bold move and demonstrates an intent and sense of purpose that has been missing for the best part of a decade. With the acquisition of Booker, Tesco has shown its hand. Its competitors, in particular the discounters, now know they’re in a fight,” Ibbotson said.
"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 also 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. This news will give suppliers and manufacturers real cause for concern.”
Shore Capital: "Sound for Tesco, but far from compelling for Bookers"
Clive Black, head of research at Shore Capital, said that the company’s first initial gut reaction was that it may be sound for Tesco but far from compelling for Booker shareholders.
“Accordingly, whilst we believe that there is a danger that we are a little precipitous, we reiterate our hold stance on Tesco stock, warming in fact as it gains the genius that is Charles Wilson potentially to its board,” he said.
“Whilst suggesting that Booker shareholders take profit and sell into the deal, particularly if the Tesco share price rises.”
Retail Economics: "Game changer in the food industry"
Richard Lim, chief executive of Retail Economics said that Tesco’s announcement will be a game changer in the food industry.
“Its laser-like focus on the core UK food business is cutting deeper down the supply chain. The acquisition will strengthen Tesco’s wholesale and supply chain expertise while its digital capabilities will improve efficiency and provide significant cost saving synergies.
“As shopper behaviour continues to evolve rapidly, the new group will be well placed to capitalise on home shopping and the increasingly important area of eating out which has been the growth driver of the experience economy.”
Thornton’s Budgens: "Fight for all we stand for"
Finally, independent retailer Thornton’s Budgens in London reacted badly to the news on Twitter stating: “Shocked that Tesco is buying wholesaler Budgens. Will fight for all we stand for and to retain our independence.”
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