Fears that Tesco’s merger with Booker could lead to the collapse of Palmer & Harvey and reduce competition in the sector will be investigated “even more thoroughly” by the CMA, after its decision to fast-track the case, the authority vowed today.
The CMA has released the full text of its decision to refer the merger for an in-depth phase 2 investigation, announced last week, on the request of Tesco and Booker.
The document reveals more details of why the CMA believes the merger could lead to “worse terms” for shoppers in more than 350 local areas.
But it also reveals that the competition authorities have not yet had time to scrutinise another possible barrier to the deal - the impact on Tesco’s relationship with P&H.
The document says the CMA has received complaints from a number of third parties about the potentially crushing impact of the merger on Tesco’s relationship with the P&H businesses.
P&H in particular supplies and distributes tobacco products for Tesco but also ambient non-tobacco products directly to all Tesco forecourts, plus all frozen products to Tesco Express stores.
The relationship between Tesco and P&H was extended for a further three years in a distribution agreement signed in March 2017. It is understood that the Tesco contract represents around 40% of P&H’s overall operations.
‘As such, as a result of cost savings, the parties may have an incentive to reduce or cease purchasing from P&H post-merger,’ says the document.
Although P&H provides wholesale distribution services to all areas of the grocery retail marketplace, including being distribution partner to Costcutter and large multiple retailers, opponents to the merger have warned the CMA that Tesco removing its businesses could result in the ‘foreclosure of P&H leading to a potential loss of competition’.
‘Third parties in particular noted the significance of Tesco’s purchases to P&H’s business model and the importance of P&H as a competitor in the supply of delivered wholesale services,’ it said.
Today a spokeswoman for the CMA said: “The fact that we have agreed to a fast track of this case does not mean that the impact on Palmer & Harvey will not be investigated, in fact the opposite. It will be investigated even more thoroughly. The fact that this is now moving to a phase 2 investigation means that it will be subjected to an even higher level of investigation.”
The text also revealed more details of the stores to face scrutiny in the investigation, with the CMA last week having highlighted more than 350 hotspots.
It reveals the key concern to be 369 local areas where Booker symbol group retailers’ stores overlap with Tesco’s, including owned and franchised One Stops.
“In these local areas, the CMA believes that the merged entity could have the ability and incentive to worsen Booker’s wholesale symbol group offering, such that end-customers may switch to shop at Tesco instead,” said the report.
There are a further 64 local areas, about which the CMA is concerned to a lesser degree.
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