The Adminstore deal has been waved through. Brace yourself, says John Wood

The steady trickle of takeovers in the c-store sector has long been a concern to independents and their advocates, but the OFT’s decision to wave through Tesco’s takeover of 45 Adminstore sites is threatening to unleash a tidal wave that could drown the unwary.
Analysts believe Tesco will already have several other c-store chains in its sights, and other major entrants to the neighbourhood sector, such as Sainsbury, won’t be left behind in the rush.
According to new Verdict research, Tesco is the fourth largest c-store operator behind Spar, the Co-op and Londis. Even before it acquired Adminstore’s London sites, it had major expansion plans using its current portfolio and in partnership with Esso.
Senior retail analyst Steve Gotham predicts that, unless the OFT intervenes, Tesco could be vying with Spar for leadership in the sector within five years.
“Rural stores will be more insulated but more and more independents in urban areas will find themselves competing against Tesco,” he warns, and with Tesco’s financial muscle ranged against them, independents will always be at a disadvantage.
Announcing its decision on March 5, the OFT acknowledged concerns about Tesco’s size and future growth, but the killer blow for independents was the conclusion: “These are not significantly affected by this merger.”
In other words, when a £23.4bn turnover company swallows up even the largest c-store chains, it makes so little difference to its overall market share it doesn’t matter. Or as Spar MD Jerry Marwood puts it: “Tesco will be free to grow in increments and the affects on micro markets will be ignored.
“It looks as if we are going to have to get used to competing in an unfair market. This is something we in Spar have been preparing for, and we have strategies in place which will ensure our long-term growth.”
The OFT’s endorsement of this “unfair” market is a particular disappointment for those who opposed the Adminstore deal, and believed OFT scrutiny offered hope.
Although Tesco’s acquisition of the much larger c-store chain T& S was waved through by the OFT, and this might have suggested Adminstore was a formality, the situation has now changed. The T& S deal galvanised the small store sector with Bill Grimsey of Big Food Group and Eoin McGettigan of Musgrave warning that, unchecked, Tesco would wipe out independents.
The Adminstore deal was an opportunity for them to lobby the OFT for a change in direction, and would also be a test of the Enterprise Act 2002 as it would be the first acquisition of a c-store chain to be considered since it came into operation.
But when the decision came its main conclusion was clear and a major disappointment, but it has also left a fair degree of confusion in its wake. It will be a week or two before the full text is published, but it is hoped it may resolve some conflicts in what the OFT has revealed so far.
A notable aspect of the announcement on March 5 was that, although it said the approach was consistent with previous OFT and Competition Commission investigations, it made no mention of the distinction between top-up outlets and one stop stores which the Competition Commission and the OFT have used in previous decisions.
By looking solely at Tesco’s share of the top up market when considering T&S, rather than the total grocery market, the OFT was able to argue Tesco would only have a 12% market share and there was no case.
These definitions were hotly contested by the independent sector who insisted the grocery market, and Tesco’s share of it, should be considered as a whole. In its March 5 announcement the OFT did talk about the entire market. It conceded Adminstore constituted a “relevant merger situation” - in other words, said an OFT spokeswoman, it accepted Tesco controlled more than 25% of the grocery market. This meant Tesco exceeded the 25% market share threshold above which the OFT can refer a deal to the Competition Commission. But the OFT reasoned the deal was tiny in relation to Tesco’s overall turnover.
But there is one last throw of the dice. The Federation of Wholesale Distributors is now investigating whether it may have grounds for an appeal, under the system put in place by the Enterprise Act 2002. Director general Alan Toft says: “Tesco is using its power to buy small stores against which independents cannot possibly compete. OFT knows this and does not acknowledge it.”
Many independents will be hoping something can still be salvaged.