Booker's return to the public market, via a reverse takeover of struggling online wholesaler Blueheath, took the City and the wholesale sector by surprise.
CEO Charles Wilson believes that Blueheath, which with its £150m sales is essentially a bolt-on acquisition, will create a merger that is greater than the sum of its parts. But questions are being asked about whether it can now become a force in delivered wholesaling to challenge P&H or MBL, or whether it is just a cheap and convenient vehicle for Booker to float and allow its major backers, such as Baugur, a chance to make a return on their investment.
Blueheath's chequered past has led many to suspect the latter. Wholesalers at the FWD conference have been impressed with how Wilson has managed to turn Booker round since 2005. They are less complimentary about Blueheath, which last year reported a £4.9m loss.
A senior director at a leading C&C points out that Blueheath has never turned a profit and although it's now close to break-even, according to Wilson, is carrying considerable debt. He also warns the delivered market is a tough nut to crack. "Delivered is all well and good as a sales line," he says, "but it is very hard to make a profit on delivered goods. The company will have to watch costs versus turnover very carefully."
There's also the feeling that by going public Booker Group will face pressure to deliver to shareholders and face greater scrutiny. "Wholesale is not a high-margin sector. They may be lucky to make £100m profit in three years. So what dividends can shareholders expect?" adds the wholesaler
So far these arguments over the group's attractiveness for investors appear moot. After announcing the deal, due to be completed on 4 June, Blueheath's share price almost doubled to 27.5p. It has since stabilised around 25p but it is clear the City is excited. What appear more pertinent are the lingering doubts over Blueheath's systems. "I just can't see it working," says one wholesale MD. "I do not have faith in Blueheath's much-vaunted technology. In the past its online ordering system has led to high levels of wastage."
Another industry leader points out that Blueheath has consistently tinkered with its model without any obvious success. "It initially started out with internet ordering but had to invest in a sales force and telephone ordering. It also abandoned its idea of stockless depots and using the extra space on bread lorries."
Blueheath boss Mark Aylwin, who is to run the delivered side of the business, admits the systems have not always run smoothly but insists its technology will succeed. "The website was way ahead of its time," he argues. "It was always going to work better on a bigger scale and as more retailers get broadband. We can now offer a one-stop symbol shop online. Retailers will spend more time on the site and place bigger orders."
The trade remains sceptical over what benefits Blueheath can bring to Booker, but the regard in which Wilson is held means wholesalers will give him the benefit of the doubt. "If it was anyone other than Charles doing this I wouldn't have great expectations," says one wholesaler. "But I have no doubt he knows what he is doing and will make it work, for Booker at least. On the other hand Blueheath must not be able to believe their luck."
At the end of the day it will be independent retailers, not wholesalers, that will need to be charmed. Wilson says the deal will "offer retailers unrivalled service of national delivery, top-up delivery and C&C". Now he must prove it.n