tesco-booker

The CMA backtracked amid pressure from Tesco and Booker to take the rise of the discounters into consideration in delivering its verdict on their proposed merger, The Grocer can reveal.

Yesterday the watchdog published more details to explain the rationale behind its provisional decision to allow the merger, despite huge opposition from sectors of the wholesale industry.

It emerged that the competition authorities listened to Tesco and Booker’s call for the discounters to be included in its calculations on the impact of the proposed deal on competition in the market.

The CMA had originally left them out of its phase one inquiry, despite their recent huge growth, with Aldi, Lidl and Iceland excluded from the ‘competitor set’.

But the CMA’s provisional findings, released in full this afternoon, said not only had they decided to take the discounters into account, but they approached them to quiz them for evidence on their impact on the convenience sector.

“[Tesco and Booker] submitted that Tesco’s main competitors are the multiple retailers and discounters, and that stores operated by these retailers exert a much greater competitive constraint on Tesco than do Booker-supplied stores,” says the document.

“We asked Aldi, Lidl and Iceland about the extent to which they considered themselves to compete in the convenience segment.

“One told us that it competes with the independent retailers to a degree, certainly in terms of customer catchment. It said that the product range will differ in certain respects in that independent retailers will likely offer more in terms of general grocery items and the likes of newspapers, magazines and tobacco products, but competition was likely on more generic grocery items such as bread, milk, cheese, and other general household items.

“Another told us that in areas where it is located close to convenience stores there is an element of competition. However, its operating model as well as the shopping habits of its average costumer are different from that typically observed in convenience retailing.”

The authority did not name the discounters quoted.

A spokeswoman for the CMA added: “We did take into account Aldi and Lidl but this decision is not just based on that factor, it is based on a whole host of reasons in what has been a hugely detailed inquiry into the market. We didn’t do this just as a reaction.”

However, a supermarket source said: “The CMA at phase 1 had certainly excluded Aldi and Lidl from their calculations. Whether it has been through listening to Tesco and Booker, I don’t know, but the retailer had pointed out how unrealistic that was. The CMA does seem to have acted on that as they are now included.”

In August Tesco appealed for the competition authorities to take into account the major threat to supermarkets posed by the success of Aldi, Lidl and other discounters such as Iceland.

As Aldi and Lidl plan to ramp up store openings, Tesco argued the CMA should have taken the growth of the discounters into consideration in its assessment of the market.

“Tesco and Booker were surprised by the finding that the discounters should not be considered as ‘effective competitors’,” said the retailer. “We consider that there is strong evidence (and industry recognition) that Aldi and Lidl (and Iceland, which was also excluded) are effective competitors in the UK retail groceries sector and provide a strong and credible offering across all customer missions, including convenience.”

Tesco had described the emergence of Aldi and Lidl in its evidence as a ‘revolution’, admitting that the launch of Tesco’s Farms brands range, for example, was forced as a direct response to the discounters’ growth.

As well as having a significant impact on large retailers, it said Aldi and Lidl were adapting their offering to compete more directly with players in the convenience segment and that discounters were projected to account for one in every £7 being spent by 2021.

Just days earlier Lidl had overtaken Waitrose as the seventh biggest retailer in Kantar Worldpanel figures and Tesco said retailers across the sector had “experienced significant losses in consumers” at the hands of the discounters.

“This strong competitive pressure has resulted in the multiples significantly changing their offering to consumers. For example, Tesco introduced its Farms brands range in direct response to discounter growth. As well as having a significant impact on large retailers, Aldi and Lidl are also adapting their offering to compete more directly with players in the convenience segment.”