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Published: Sat, January 28, 2017
Economy | By Melissa Porter

Tesco To Merge With Wholesaler Booker In Major UK Deal

Tesco To Merge With Wholesaler Booker In Major UK Deal

The group's like-for-like sales (excluding tobacco) for the H1 increased by 0.1% with operating profit also up 9% to £81.4m.

Booker operates a cash and carry network through 200 branches. The group comprises Booker Wholesale, Makro, Booker Direct, Classic Drinks, Ritter Courivaud, Chef Direct, Premier, Family Shopper, Budgens, Londis and Booker India. It also claimed that it would improve efficiencies and be an opportunity to work more closely with its suppliers to strengthen its own-brand and fresh food ranges.

Booker sells food to 450,000 outlets, including chains such as Wagamamas and Carluccio's.

Why does Tesco want to buy Booker?

An even larger proportion of the synergies (55 per cent) are expected to come from procurement.

As Tesco's CFO Alan Stewart frantically checked his iPhone for updates on the supermarket's shares in the front row, this morning's (27 January) press briefing saw his boss Dave Lewis confidently talk up the acquisition.

The deal is likely to attract the attention of the competition authorities.

Tesco already controls almost 30% of the United Kingdom grocery market - almost twice as big as its closest rival, Sainsbury's.

Tesco puts in a very strong performance in the IRUK Top500 2017 index, now on its way to readers, and stands out for a highly effective service that spans delivery and mobile as well as the store and online trading.

The share and cash merger, already agreed by both groups, will create the UK's leading food business and "delight consumers with better availability of quality food at attractive prices across retail and eating out locations". The Co-op, its nearest rival, has a 15% market share.

"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 nearly 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".

"The advantage for small stores is that they could benefit from Tesco branding/quality and better pricing".

It may also be hoping that the regulator will look at the grocery market as a whole, rather than separating out the convenience sector.

On the one hand the deal could help Tesco push suppliers to keep their prices down. But its view may have changed. "Tesco's enormous buying power could bring the benefit of these economies of scale to all these key high street brands". But the disadvantage could be less competition in the market and less choice for small stores.

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