The Game Just Changed (Again)

This end of January is generally quiet in the Grocery trade, so imagine my shock when I saw on the news this morning that Tesco were launching a £3.7bn takeover of Booker.

Booker is the UK’s largest wholesaler and supplies over 4,500 independent stores from its 172 warehouses. As with all wholesalers, the have a range of fascias and symbols that their customers subscribe to – around 3,200 using Premier, 1,500 using Londis and 120 Budgens. Throw in 30 Makro stores, plus food service operations, and you can see that this is a major deal for the retail sector.

Needless to say, there are some in the independents “lobby” who don’t like Tesco further extending their influence, and to be fair, the additional buying power this extends to Tesco might cause issues with regulators. However, the impact of that will hurt suppliers far more than retailers, and Booker customers should be hopeful of seeing better margins on the products they buy.

Tesco (and Sainsburys) revolutionised the grocery convenience sector almost 15 years ago when their new formats started to hit our local parades and city centres in large numbers. Co-ops, Nisas and Spars may look great now, but their latest formats which are winning so many plaudits were a response after Tesco forced them to raise their game. This has been happening once again through Tesco’s subsidiary One Stop with their move into franchising. Tesco brought their legendary efficiency and shopper-focus to a world where neither was prevalent and now could the same be about to happen to wholesale and the less compliant independent traders?

The wholesale sector is long overdue an overhaul to help indies get access to better ranges and better advice. Booker themselves have led some initiatives to help them though, such as campaigning for smaller case collations from manufacturers and a dedicated focus on the power of Price-Marked Packs in convenience stores. However, there could be so much more done for smaller retailers in terms of creating best in class ranging and merchandising advice. At the moment, far too much importance is placed on margin, forgetting that you only get that profit on the balance sheet once you actually set the whole case. Category management should make sense to wholesalers- get your customers to sell more and they’ll come back and buy more from your depot!

After the increase in buying power, there are two other opportunities that make this deal look so good. The first of these would be the addition of Tesco own label products to the ranges offered in Booker warehouses. Tesco’s own label brands have quietly undergone an overhaul over the last 18 months and their product development is strong – a superb response to the rise of Aldi and Lidl which is reflected in recent Kantar share data. Getting them out into more distribution points would be mutually beneficial for retailers and Tesco with the indies able to put a trusted brand on their shelves and Tesco to get better volumes into their manufacturing partners.

The other idea that springs to mind is the potential to extend Clubcard out to Booker’s fascia and symbol customers. This would probably be more attractive to convenience stores on forecourts, but as Co-op’s recent relaunch of its Members card suggests, there’s clearly scope to use it as a marketing – and data capture – tool in c-stores too. Rightly or wrongly, more of retail is being driven by data, so a proven tool like Clubcard could prove a game-changer.

It will be interesting to see what happens next. In the same way, that Sainsburys and Tesco mopped up the biggest convenience chains before Asda or Morrisons were even thinking about the channel, Tesco have bought a national player who have 3 times more sites than the next biggest operator (Bestway-Batleys). With this in mind, unless Wal-Mart weigh in with a view to bringing their Sam’s Club format over to the UK, it’s unlikely that Tesco will be followed into this sector by their fellow Big 4 grocers. However, it could spark some consolidation in the sector with the ever acquisitive Bestway group likely to be the most likely to kick that off.

Assuming the regulators let the deal through, this merger of two leaders of their respective sectors should keep the convenience sector as the most dynamic part of the UK retail market. It is a deal as remarkable as the JS-Argos deal last year and shows that our biggest grocers are looking to divest inwardly after a few years of dreaming of global expansion.

Watch this space folks!

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