The provisional report on the Tesco – Booker has been published, a couple of weeks late. The statutory deadline for the final report is due on 26th December, so presumably we can expect it before Christmas. But that leaves the Competition and Markets Authority (CMA) just over 5 weeks to complete phase two.

Wholesalers concerns dismissed

The CMA has rejected the concerns of the wholesalers whose main argument was the impact of Tesco’s increased buying power. They argued that it would be able to put even more pressure on suppliers and that could put wholesalers at an increased disadvantage. Palmer & Harvey’s representation was that it was concerned that it would lose Tesco’s business, with the unstated implication that that would also be the end of P&H.

The CMA report concentrates on the retail implications of the merger. The wholesalers and symbol groups’ concerns have been dismissed. The CMA acknowledges that increased buying power may give Booker better bought in prices but then says that: “we have provisionally found that Booker’s share of grocery wholesaling is less than 20% on any relevant measure and we would not normally expect any firm with these levels of shares of supply to be in a position to substantially lessen competition across the whole marketplace.”

In other words, the CMA thinks that the wholesalers and symbol group operators are overstating their case.

Focus on retailing and the consumer

The CMA has focused on competition, as it must, by definition. It finds no evidence that consumers are likely to be disadvantaged by the merger. It argues that Tesco is unlikely to abuse its increased power in the market place because its symbol group members could always switch to another retailer. Any benefits from increased buying power are likely to be passed on and that would benefit consumers.

The CMA says that it found two areas where there might be an SLC (substantial lessening of competition), but then dismissed both. It is very surprising that there were only two. But not surprising that these two should be dismissed.

Different sorts of C-store

Broadly speaking there are two different sorts of C-store – stores for high footfall locations and those for low footfall places. Tesco Express (and Sainsbury’s Local and M&S simply food and most Co-op stores) trade in the former, symbol groups and Tesco’s One Stop chain trade in the latter.

There’s no doubt that the development of Express and Local has hit the low footfall businesses, but they have proved able to co-exist because they fulfil different needs. The high footfall stores are closer to a superstore in their aims and the ranges they carry. The low footfall stores trade on higher prices and fulfil the top up needs of a local community.

It is usually said of a low footfall C-store that its catchment area is no more than 500 metres. Convenience is the key and people expect to pay more than in a larger store. Small stores cannot allow their prices to get too far out of line and the Booker stores would benefit from the backing of Tesco, but it is hard to see a significant shift of business because of a small drop in prices because the demand for such stores is not price led. (See Convenience stores - UK, April 2017)

Booker and its symbol groups could benefit from Tesco's experience with One Stop because Booker is primarily a wholesaler not a retailer. Whether the combined group would actually need so many c-store fascia (One Stop, Londis, Budgens, Premier) is open to doubt. Nor is it clear that the deal would necessarily be a good one for either side. Tesco wants to get into food service, but even with Booker, the food service business would only be a small part of the group.

Just a battle, not the war

The CMA investigation is not completed with this announcement. There can now be more representations from interested parties and we can be sure that the small store groups and wholesalers will Lobby hard against it. But this is such a clear decision without even the requirement that any parts of the combined business should be divested that it is very difficult to see what could be said to reverse it.

Where next?

It also opens the way for other deals. There can now be no objection to the Nisa Co-op deal (which got the go-ahead from Nisa members over the weekend). Sainsbury's looked at Nisa and then decided against it and Morrisons has set up its own wholesaling operation. But either of those would now feel free to make an acquisition.

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