Tesco and Booker Merger completed - IGD.com
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Tesco and Booker
Merger completed
March 2018
© IGD 2018 Page 1
What has
happened?
TERMS COMPLETION
PROPOSAL PERSONNEL
Following regulatory approval in Booker CEO Charles Wilson
The process to merge was
December 2017, shareholders of has joined the new combined
launched in January 2017, with
both companies approved the group board and executive
Tesco plc and Booker Group plc
deal on 28th February. The committee, and now has the
announcing an agreed merger.
merger was formally completed role of CEO Tesco UK.
on 5th March.
The deal valued Booker at Dave Lewis remains as
£3.7bn. Approval granted by the Group Chief Executive of
Competition and Markets Tesco.
Authority was unconditional, with
neither party required to make
any remedies to progress the
merger.
© IGD 2018 Page 2
Who’s who?
Tesco is an international retailer,
based in the UK.
It sells both grocery and non-
grocery lines. Dave Lewis
It has operations in 11 countries in Group Chief Executive
Europe and Asia, although the UK
Tesco statistics, latest year
remains the largest market.
In most countries, Tesco operates Group sales £55,917m (3.7%)
across several grocery channels
Group operating profit £1,280m (29.9%)
(the India operation is more limited).
Group stores 6,789
Tesco also offers retail banking and
has a franchise package for UK & ROI sales £43,524m (1.4%)
independent retailers, branded One
Stop (not all One Stops are UK & ROI operating profit £803m (59.6%)
franchises – some are owned and
managed centrally by Tesco). UK stores 3,433
© IGD 2018 Source: Company Page 3
Who’s who?
Booker is a food and drink
wholesale business serving a
mixed customer base. Charles Wilson
CEO
It serves (mostly) small businesses
in independent retailing and Booker statistics, latest year
catering.
Group sales £5,328m (+6.7%)
Its primary format is cash & carry,
though it has capability in delivery. Group operating profit £176m (+13.5%)
It supports nearly 5,500 symbol No. of trading sites 206
convenience stores under the
Premier, Londis, Budgens and Countries of operation UK (200 sites), India (6 sites)
Family Shopper fascias. 1,199,000 (117,000 retailers, 441,000 caterers,
Customer numbers
641,000 ‘others’)
Online now accounts for 22% of
Sales by key customer
group sales. Retail = £3.4bn Catering = £1.7bn
group
© IGD 2018 Source: Company Page 4
Objectives and The merger has formed a vertically-integrated business, with annual UK
sales of £47bn (annual UK sales are £42bn for Tesco and £5bn for
rationale for Booker).
The new business covers both the established “at-home” food market and
merger the smaller, fast-moving “out-of-home” market.
The merger document According to the merger announcement, the creation of the joint business
identifies synergies of offers various benefits for multiple stakeholders:
£200m pa after 3 years,
ie: £25m of revenue gains
and £175m of cost
savings (55% coming
from procurement).
SHOPPERS CUSTOMERS 1 SUPPLIERS COLLEAGUES SHAREHOLDERS
Better choice of Enhanced ranges Access to more Career growth Revenue growth
fresh food in c- distribution opportunities
Lower prices, Increased
stores channels within a larger
obtained through business scale
business
Lower prices in increased buying More efficient and efficiency
c-stores and at scale logistics Experience of a
Higher earnings-
foodservice multi-channel
Cheaper, more Increased scale per-share
business
More click and efficient logistics and reduced
environment
collect locations waste, improving
Improved IT and
for online orders efficiency
support services
© IGD 2018 Source: Summarised from merger document issued 27 Jan 2017 (1) In this context, “customers” denotes business clients buying at wholesale from Booker Page 5
Shopper behaviour IGD shopper data illustrates some of the points made in the
merger document.
shows why multiple A “full service” grocery business is one capable of serving
routes to market may shoppers that split spending across several channels.
Just 2% of shoppers claim to have used only one channel
be beneficial for food and grocery shopping in the last month.
Claimed number of channels used monthly
2% 6% 16% 22% 54%
1 channel only 2 channels 3 channels 4 channels 5+ channels
© IGD 2018 Source: ShopperVista, IGD Research, October 2017 Base: 1,700 UK grocery shoppers Page 6
UK
convenience Better-serving the convenience retail market is
retail central to the rationale for the merger
Convenience is a close match with UK convenience is fragmented and
UK shopper needs and the channel highly competitive.
has seen consistent growth in
recent years. Multiple operators (eg: Tesco
Express, M&S Simply Food,
£39.2bn Since 2012, convenience sales Sainsbury’s Local) have grown
2017 have grown by £7bn, reaching share in recent years, with a
£39.2bn in 2017, or around 21% of modern high-quality offer.
all grocery sales.
Symbol groups (eg: Booker
45,652 Further growth is expected over Premier, SPAR and Costcutter)
the next five years, although play an important role, allowing
22% stores growth is slowing, as the channel independent retailers to compete
25% with the offer – and the pricing -
growth matures.
growth available within multiples.
over Other grocery channels, especially
over last
last 5 discounting and online, are also UK convenience continues to
5 years competing with convenience for develop. Important avenues
years growth. include the provision of food-to-go
and use of stores to deliver online
shopping.
© IGD 2018 Source: IGD Research Page 7
Booker and With 1,744 stores, Tesco’s company-owned Express fascia
is the biggest in the ‘convenience multiples’ segment. A
Tesco strong focus on fresh appeals to the mainly ABC1 target
shopper.
convenience One Stop is aimed at C2DE shoppers. Sales exceed £1bn with 775
fascias company-owned stores and a further 166 stores operated as
franchises by independent owners.
The largest fascia both within Booker Retail Partners and
the total convenience channel comprising 3,394
independently owned stores. Shoppers are 39% ABC1
making over 16m visits a week.
Purchased as part of the Musgrave GB acquisition in 2015
Budgens offer a more premium retail package for independent
retailers. It has sales of c.£330m from 176 stores. With a strong
focus on fresh to appeal to its 71% ABC1 Shoppers.
Also part of the Musgrave deal, the Londis symbol group
has 1,829 sites and a strong presence in forecourts. It
generates sales of c.£750m from its shoppers who are 49%
ABC1.
Now in its fifth trading year, Booker’s Family Shopper brand provides
its retailers with a discount format symbol group targeting C2DE
shoppers: 61 stores, sales c.£50m.
© IGD 2018 Source: Company reports October 2017 Page 8
Booker: With an estimated 70,000 UK retailers amongst its registered customers,
Booker has an unrivalled reach within the independent retail sector, though by
no means all are regular, ‘main’ customers.
independent But alongside its core independent retail customers, Booker now has a
and multiple growing customer base of multi-site operators, especially in the forecourt
sector, serviced through its Booker Retail Partners delivery division. This
business has been notably enhanced by gaining several significant contracts
retail customers left vacant by the collapse of the incumbent wholesaler, Palmer & Harvey, in
November 2017.
MFG - 300 stores Shell - 500 + stores MRH - 370 stores
Oil company Shell has the largest Another post P&H win for Booker,
Booker gained the contract to supply single ownership forecourt network in MRH is the largest fuel dealership
some 300 forecourt stores operated by the UK. A long term customer of operator in the UK with a total of 491
fuel dealership Motor Fuel Group in Palmer & Harvey, Booker gained this stores.
2016. account in December 2017 after P&H
ceased trading. While a proportion trade as (and are
These stores have been converted supplied by) SPAR, the majority
into Booker retail fascias, primarily Shell stores mainly trade under their operate under the Hursts fascia and
Londis. own fascias (Select/deli2go), though are now supplied by Booker.
bigger sites are being converted to
Budgens.
© IGD 2018 Source: IGD Research & companies Page 9
Wholesale for
foodservice The merger is also intended to create a stronger
proposition in foodservice
Numerically the largest of Booker customer
group is foodservice operators.
The company has invested in developing
ranges and service in this area.
Ambient, chilled and frozen goods are
available.
Foodservice clients are offered a
multichannel service (i.e: delivery or pickup
from depot).
Foodservice clients can be divided into three Several Booker brands are aimed at The Ritter Courivaud service
broad groups: foodservice customers, in order to specialises in high-quality, low-volume
offer a complete business solution, eg: items.
• Large / multi-site (e.g: restaurant chains
such as Carluccio’s and Wagamama) – • Chef’s Essentials – Entry level This service is focused primarily on
served through Chef Direct London, but is also available in other
• Chef’s Larder – Standard range
selected locations.
• Small / independent (e.g: pubs) – served • Chef Central – Tools, equipment
Most business is delivered, although
through Booker cash & carry depots • Cleanpro – Hygiene products some depots have dedicated sections.
• High end / specialist (e.g: premium
restaurants) – served through Ritter
Courivaud
© IGD 2018 Images: Retail Analysis, IGD Research Shows Booker depot at Enfield, May 2016, photos with permission Page 10Foodservice
and food-to-go
at retail
Tesco offers a wide range of foodservice and
food-to-go solutions for shoppers.
Foodservice is offered in large stores through
in-store cafes.
After experimenting with “in-house” concepts,
Tesco now focuses on working with well-
known external partners to create a branded
foodservice offer.
In addition, Tesco offers a range of food-to-
go solutions for breakfast, lunch and dinner,
e.g: Branded coffee and doughnuts on For shoppers in search of a “sit-down”
offer at Tesco. foodservice solution, some larger
• Chilled sandwiches stores have cafes.
Note the “grab and go” signage, meant
• Meal deals to appeal to shoppers in a hurry. Note that the fresh coffee offered is
still Costa branded.
Automated coffee machines require
These ranges bridge the gap between food less staff time and less expertise than
retail and foodservice. a “barista” style approach.
© IGD 2018 Images: Retail Analysis, IGD Research Shows Tesco at Newmarket, March 2016, photos with permission Page 11The combined group will seek synergies in
Online online services
ordering and Tesco is the largest online grocery retailer in the
UK.
fulfilment Online ordering is available via multiple
UK online grocery retail platforms and delivery is offered to-home or on
a click and collect basis.
Value market shares, 2017
During 2017, Tesco began to roll-out one-hour
grocery delivery across parts of London.
Most order fulfilment is through in-store picking,
although six dark stores are also in operation.
Grocery delivery is supported through other
online services (eg: the Real Food meal
inspiration website).
Non-grocery items are available through the
Tesco Direct service.
Like other wholesalers, Booker offers online
ordering for clients, with annual sales of £1.1bn.
Tesco Asda Sainsbury's Note that online ordering in wholesale is not
necessarily via a browser – many clients prefer
Ocado Waitrose Morrisons a handheld scanner for the purpose.
© IGD 2018 Source: IGD Research, August 2017 Data is for major retailers only Page 12Tesco Business Update 2018
23 May 2018
ExCeL, London
Understand Tesco’s key
priorities and what they
mean for your business at
the 2018 IGD Tesco
Business Update
Find out more
Confirmed speakers include:
Book now »
© IGD 2018 Page 13Want to know more?
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