Tesco’s takeover of Booker makes perfect sense.
Even though Tesco is getting back on its feet, the retailer’s growth opportunities will be restricted by the weak outlook for the UK grocery market over the next few years. Teaming up with Booker will increase Tesco’s exposure to the fast growing convenience and on-the-go markets, as well as giving it access to lucrative food services. Across all of these areas we see substantial opportunity for innovation. There are many synergies between these complementary businesses and the economies of scale from the deal will help the merged group remain competitive as we enter a period of higher price inflation.
What remains to be seen is how the competition authorities will react because Booker owns the Premier, Londis and Budgens convenience fascias. While these stores are owned by independents, The Competition and Markets Authority will need to assess the potential issues surrounding a single business supplying such as a large estate of convenience stores. Divestment of stores or even fascias may be necessary.
However the deal pans out over the coming months, this news is a major development not only for Tesco, but for the whole market.