Asda B&M bid

Has the Tesco-Booker deal sparked Asda’s interest in B&M?

This weekend there was a flurry of press stories linking Asda to a shock takeover of variety discount chain B&M Retail. I use the word shock advisedly, as in the year that Tesco swooped for Booker and Sainsbury’s is circling Nisa, there is nothing that can really shock in the battle for dominance of the convenience grocery market.

No sooner had reports of Asda’s interest surfaced than they were being dismissed by Asda sources elsewhere in the press. Others were happy to let their imagination run wild, suggesting this would spark a supermarket bunfight, with Morrisons wading in to buy The Range.

These stories, whether they come to anything or not, show just how vital the major supermarkets now consider the convenience sector.

Clearly online is a key battleground as well. Just this week we are seeing the Amazon effect in full force, with Tesco rolling out same-day delivery nationwide. The longer-term ramifications of Amazon buying Whole Foods Market have also yet to be fully explored, particularly, in UK terms, around what the deal will mean for its relationship with Morrisons.

But this year is very much all about control of the convenience sector and its wholesale supply chain.

Before the end of the year we can expect momentous decisions that could transform the sector beyond all recognition.

First and foremost will be the Competition & Markets Authority investigation into Tesco’s £3.7bn bid for Booker, with both parties asking the CMA to fast-track a phase 2 investigation. The watchdog originally published a very sketchy outline of areas of concern. This covered 350 areas where Tesco stores overlapped with those supplied by Booker and a fear that, post-merger, Booker might reduce its wholesale services or terms to symbol retailers.

However, on Friday the CMA posted a much fuller 62-page report explaining the full scope of its investigation. Contained in that was the revelation that it will be accessing the possibility that the deal could force Booker’s wholesale rival P&H to close, thus reducing competition in the wholesale sector.

Impact

This development shows not just how transformational the Tesco-Booker deal will be for the parties involved and the retailers currently supplied by Booker, but the impact it could have on Booker’s rivals. P&H’s own Tesco contract represents 40% of its sales. This deal was recently extended for the next three years but the CMA will clearly be considering what happens if, after this period and with Booker well settled into its own operations, Tesco decides to give it the business currently being handled by P&H.

P&H is obviously the most vulnerable of Booker’s rivals, but the deal could prove damaging to the long-term survival hopes of other wholesale operators as well.

The bad news for P&H is that the Tesco deal is not its only worry right now. On Monday, McColl’s Retail Group confirmed that it was re-tendering its two main supply contracts, which are currently with Nisa and P&H.

As the biggest independent managed convenience retailer still out there, with 1,650 stores, McColl’s finds itself in the odd position of potentially being vulnerable to an acquisitive supermarket player and potentially a kingmaker or deal breaker in a bigger game such as Sainsbury’s takeover of Nisa.

Speaking to McColl’s CEO Jonathan Miller, he indicated there were at least five companies it was talking to regarding the contract re-tender and hinted it was interested in what was on offer from operators it hadn’t spoken to before. “There has been significant interest from a number of parties,” said Miller. “Certainly a lot more than when we tendered the first time.”

McColl’s will update on the outcome of that tender in the second half of the year, although it has refused to give any more specifics, while the CMA inquiry is set to complete in December.

£130m bid for Nisa

In the short term, however, we are expecting to hear if Sainsbury’s will formalise its £130m bid for Nisa in the next few weeks. It is not clear to what extent Sainsbury’s interest in Nisa is dependent on it retaining the McColl’s business. But it would stand to reason that retaining its biggest customer is vital for Nisa’s long-term viability but also a key factor in determining its attractiveness to potential suitors.

This issue runs to the heart of the Sainsbury’s-Nisa deal: what exactly is Sainsbury’s buying? Nisa is a mutual company owned by the members, around 1,400 of them. These members are all individual and independent businesses - they can sell the group to Sainsbury’s, but the businesses themselves are free to follow their own path.

What, therefore, is there to stop a Nisa member agreeing to sell up to Sainsbury’s and promptly move the supply of that business to a rival, which may even be a Tesco-owned Booker?

This goes for Nisa’s smallest member right up to McColl’s. Sainsbury’s may have to buy McColl’s as well if it is to guarantee retaining the business. Should a bid for Nisa be forthcoming, it will have to go before a members’ vote, which will also take place towards the back end of the year.

So it is certainly set to be an exciting time with lots of balls in the air right now. It will be fascinating to see where they all land.