Tesco have announced their intentions to purchase the food firm Booker in a £3.7 billion takeover.
They could yet face some hurdles over competition – as Booker also controls Budgens and Londis amongst other brands.
Large scale wholesaler
Booker is a very large scale wholesaler for groceries, with 125,000 independent convenience stores on their books. They also supply 468,000 restaurants, pubs, and leisure facilities – including cinemas. In short, they are big news in the food retail sector, as a strong part of the supply chain.
They currently employ 13,000 people, so they are no small fry in the job market either. In the year to March 2016 they made sales of £5 billion with an operating profit of £155 million.
The firm includes the Booker chain, a cash and carry operator which is 172 stores strong, and 30 outlets of Makro. They also control Londis, Premier, Family Shopper, and Budgens, although they do not technically own these shops. There are independently run, but a large proportion of their goods come from Booker. Premier has 3,358 locations, Londis has 1,903, Budgens has 150, and Family Shopper has 52. The firm also helps with marketing efforts, IT services, and a lot of other areas of the overall running of the stores.
Booker Direct is another service owned by the group, which delivers supplies to cinema chains such as Odeon and Cineworld as well as the national prison service and Marks & Spencer. They supply 450,000 caterers which includes Wagamama, Carluccios, Byron burgers, and a further 700,000 small businesses.
Booker is not just based in the UK, but also overseas. They have branches in India along with the Happy Shopper brand since opening there in 2009.
Extending their reach
So why is Tesco making this move now? A lot of it is to do with extending their reach. Shoppers are turning away from supermarkets and looking for smaller stores, but they are running out of locations for Tesco Express and One Stop branches. If Tesco were supplying thousands of small convenience stores as well, they would have more of a grip on the market.
They would also be taken into the catering supplies market for the first time, which is growing as people start to eat out or order takeaways more often (the industry boom is linked to economic recovery since the recession forced a cutback on these habits). They will also be able to arrange other services such as banking, grocery pick-ups, and mobile phone stores at these extra outlets.
Merging distribution and other parts of their supply chain will also cut costs. They actually believe that they will save around £175 million a year as a result of the deal, which will very quickly make the deal a sensible one.
Competition watchdog wary
The only barrier to the deal now is the competition watchdog. Tesco currently has around 30% of the UK groceries market, which makes it twice as powerful as Sainsbury’s, their nearest rival. They have 1,750 convenience stores under the Tesco Express banner and 780 One Stops, not to mention more than 900 supermarket branches.
Adding the Booker name would give them access to 5,400 more convenience stores and increase their market share to 32%, a large boost in comparison to other chains.
In theory, the deal will go through, because Tesco won’t really own those new stores. It will just supply them and help to run them.
One thing is for sure: if you are looking to find your food job at Booker, don’t be surprised to be wearing a Tesco uniform instead within the next few years.