Tesco and Booker merger reignites Marmite war

They say that you either love it or hate it, but Marmite has been at the centre of a dispute between one of the UK’s largest supermarket chains and the suppliers of the distinctly British condiment. The feud escalated last year after Tesco refused to agree to Unilever’s price increases, however the dispute was resolved in October and Marmite was back on supermarket shelves. But now, the supermarket giant’s £3.9bn takeover of wholesaler Booker is expected to reignite Tesco’s feud with Unilever as critics argue the deal will create an incredibly dominant player in the sector.

The wholesaler currently supplies products to convenience store chains, as well as high-street restaurant chains including Wagamama and Byron. The company also generates one fifth of its £5bn annual sales from its Booker Direct online service, which counts cinemas and Marks & Spencer among its customers. While the deal has been celebrated by Tesco’s investors, the reaction from the grocery sector has been mixed. The concern from both Tesco and Booker’s competitors stems from the fact that the relationship between the UK’s largest supermarket chain and one of the top wholesalers will result in a monopoly on pricing.

Although the Competition and Markets Authority (CMA) has not yet stated whether it will investigate the merger, it is expected to take an interest. The Booker franchise model for chains including Budgens, Londis, Premier and Happy Shopper chains are direct competitors of Tesco’s One Stop brand as well as its Metro and Express convenience store locations, and the CMA will be keen to examine the merger’s influence across the supply chain. The franchise model is a particular area of contention, and regulators will have to determine whether convenience stores such as Londis are viewed as a Booker retail outlet or a Booker customer.

Industry experts have speculated that consumer brands, including Coca-Cola and Procter & Gamble are supportive of the deal, whereas Tesco and Booker rivals, including Spar, Nisa and Costcutter, are rumoured to have “strong opinions” and to be planning a “coordinated attack” against the deal, according to the Telegraph.

The deal is unlikely to complete until the end of 2017, or even next year. However the initial reaction suggests that the closing of the transaction is likely to be held up by further scrutiny from competitors and industry experts. Deal making isn’t always straightforward, and businesses quite often face a number of barriers before a merger successfully completes.

Stay tuned to our blog for industry M&A analysis and remember to get in touch with our experienced team with any questions you have about the M&A process and how Benchmark International can help you.

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