Tesco to drive £61m supply chain savings from Booker merger

Tesco expects revenue synergies of £200m within three years and expects the merger to yield cost synergies of at least £175 million, mainly in areas such as procurement and distribution (35%, or £61m).

Dave Lewis, Chief Executive Officer of Tesco said:“This Merger will create the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital. Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available.”

Professor Alan Braithwaite, Chairman of supply chain and logistics consultancy, LCP Consulting commented: “The big win is that it takes Tesco into the food service arena which is the food growth market – people are eating out and institutional catering is still growing. It will give the business the platform to further challenge in that market. It will allow the Booker side of the enterprise to leverage procurement and inventory so there is a margin opportunity too. This is especially important in the light of food inflation that is now accelerating with the weaker pound.”
 
“Looking longer term, if the deal goes through, there are major operational opportunities to integrate fulfilment networks using Tesco’s capabilities for e-commerce but adding services and accelerating response times, enabling click and collect and integrating food service deliveries. So, the competitive advantage could be compelling.”
 
“Booker own or control Londis, Premier and Budgens retail chains/facias – so there may well be a Competition Commission complaint based on Tesco’s high convenience store and market share already. This is contrary to the published statement by Tesco. However, the Competition Commission has historically struggled with the market place segmentation in food and grocery – so it is difficult to anticipate any ruling.”

Steve Burnaby, Director in Colliers International’s Retail Agency, added: “It’s known that Musgrave, Budgens parent company, has been selling their stores over the past few years, however the merger will not have a huge ‘race for space’ impact on the market, and there will be minimal effect on what the customer sees.”

Len Rosso, Head of Industrial and Logistics at Colliers International said: "What will be interesting to see is the outcome, particularly in terms of Booker's 172 wholesale sites, which are due to be brought into the Tesco remit. They are all in good locations but whether Tesco will move them away from here and turn the sites from wholesale into supermarkets will be the question on everyone's lips."

David Jinks MILT, Head of Consumer Research at ParcelHero explained: “Tesco clearly needs to diversify. Don’t forget it was the first company ever to sell a product online in the world; back in 1984, and is the UK’s second largest e-commerce retailer after Amazon. It makes £2.9bn a year online. But Tesco’s High Street supermarkets are in a far less rosy position; and you could argue that its online success is at the expense of High Street shops, and cannibalise brick and mortar sales. Our report predicts High Street supermarket’s market share will slump from 42% to 24% by 2030: and that’s not enough to remain viable. Superstores rely on volume because of their small margins. Tesco needs access to new markets to continue to thrive.

“Unless something radical happens, town centres will become no-go areas after 6pm; full of nail bars, chicken shacks and charity stores. What we need is more homes being built in our High Streets to bring life back, supported by restaurants, convenience stores, specialist grocers and the like. And that’s why the merger is good news. Booker supplies 450,000 caterers, 120,000 retailers and 700,000 small businesses including Wagamama, Rick Stein and Carluccio’s. Tesco’s enormous buying power could bring the benefit of these economies of scale to all these key High Street brands.”