Talking Tesco (Again)

It has been quite a few weeks for Tesco, currently ending in the positive column.  The recent interim results showed quite a lot of commercial progress and the intended restoration of the dividend cheered the City considerably.  The trials of the recent past have been put behind it in trading terms and performance seems to have stabilised and then improved.  There remains a degree of fragility to this and it is a work-in-progress with strong competition and adverse consumer sentiment winds.  But it is a change from the dark days of the not too recent past.

These dark days have been having some sunshine focused on them in the shape of the trial of former Tesco executives around the rather large accounting hole in the company accounts a few years ago.  It is not clear yet how this will play out (and the trial is ongoing and could be for some time), but some of the statements and actions do not show the company in a positive light.  The extent to which this is individual actions or the culture expected, remains to be seen.  For Tesco it is not a pretty sight, made worse by a case of unfair dismissal being brought by a sacked executive, who was not subsequently prosecuted.

What has been much more to their liking however was the, to many, surprise announcement that the Competition and Markets Authority (CMA) are minded to allow the Tesco acquisition of Booker.  Their provisional findings are that there will be no ‘substantial lessening of competition’ in the UK.  The general surprise when the merger/takeover announcement was made is now matched by their provisional findings.  Representations can still be made, but on the surface and current evidence, the deal will happen (though at least one major shareholder remains against the deal on price grounds).

There has been both a sense of incredulity and inevitability about this.  The incredulity comes from the CMA reasoning and its ‘previous’ in blocking local markets/impacts and other mergers etc. e.g. local convenience stores and opticians at a hyper local level.  Yet Tesco with c30% of the food market can be allowed to obtain greater control of more of the market.  The inevitability stems from both a feeling of unwillingness to intervene at such a macro level and from the ‘domino’ effect on NISA (who voted to be taken over by the Co-op), Costcutter and so on.  The desire to ‘do a Tesco’ and get into wholesaling has expanded as the deal became more likely.  If you can’t beat ‘em, then…….

The CMA seems to be concluding there are lots of competitive opportunities and post-merger nothing much will change.  I can accept the former in that there is competition, but the latter is naive. Some Booker supported retailers are pleased about the deal as they feel they will get much keener prices and better support; others though see this as lessening competition in the medium term as independent retailers and other contractual chains will struggle to compete and stay open. The control the new entity will have in the convenience market will be a powerful weapon to further grow and it is hard to see what will oppose it.

A final Tesco thought, but not from these shores.  On my recent trip to Singapore, I visited a new (3 day open) NTUC FairPrice store.  Within it was a delineated Tesco section as shown below.  On investigating further it seems that this deal with NTUC goes beyond the example I saw, covering online product sales (via FairPrice and HonestBee) and an in-store Finest concession in the Bukit Timah store – as shown in the piece from the Straits Times.  Examples of the more innovative thinking that has begun to be seen across the company – and could be coming to a Booker store near you soon.

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About Leigh Sparks

I am Professor of Retail Studies at the Institute for Retail Studies, University of Stirling, where I research and teach aspects of retailing and retail supply chains, alongside various colleagues. I am Chair of Scotland's Towns Partnership. I am also a Deputy Principal of the University, with responsibility for Internationalisation and Graduate Studies.
This entry was posted in Accounting, Booker, CMA, Competition, Competition and Markets Authority, Convenience stores, Finest, Food Retailing, International Retailing, Local Retailers, Market Shares, NTUC FairPrice, Profits, Retail Change, Retailers, Singapore, Suppliers, Tesco, Wholesaling and tagged , , , , , , , , , , , , . Bookmark the permalink.

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