Best one? Supplying Costcutter would be a big win for Bestway, who operates its own symbol group, Best-One

Bestway has emerged as a frontrunner to pick up the Costcutter supply deal. At the same time, the cash & carry giant still harbours the bold ambition of acquiring buying group Nisa Retail.

Is this a pipe dream or can Bestway really pull off what would be one of the biggest coups in the history of wholesaling?

How does the land lie?

Bestway is understood to be negotiating a deal that would see it take over the supply of groceries to Costcutter. The 2,200-strong Costcutter Group is currently three years into an eight-year supply arrangement with troubled distributor Palmer & Harvey. However, this arrangement has been beset by availability problems - something directly addressed by Sir Michael Bibby, MD of Costcutter owner Bibby Line Group, in a letter to Costcutter members in August. It was in this letter that Bibby floated the idea that Costcutter was in talks with other parties over a consolidation play, and dealing with the availability concerns would be a key factor in any future arrangement.

Supplying Costcutter would be a big win for Bestway - but the bigger prize would be Nisa.

The major barrier to that ambition is the Co-op, which had its £143m offer for Nisa recommended to the buying group’s membership two weeks ago. The Co-op and Nisa held the first round of regional roadshows selling the offer to Nisa members this week. More follow in the next two weeks ahead of a vote in November.

Should Nisa members vote for the Co-op deal, the Co-op would then likely hone in on picking up the Costcutter supply deal, which it could then service via the Nisa supply chain. In the process, it would deal a fatal blow to both of Bestway’s plans.

While Bestway is pitching for the Costcutter contract based on its current business model, it understands that if it landed Nisa, its ability to service big contracts such as Costcutter would be more compelling.

Does Bestway currently have the capacity to service Costcutter?

Bestway believes it has the infrastructure to handle Costcutter. While traditionally a cash & carry specialist, it has steadily grown its delivered business, and in the past couple of years has invested heavily in its supply chain in a bid to improve its delivered capacity.

It currently uses 15 distribution hubs to deliver ambient products. Chilled and fresh orders are placed directly through Bestway’s chilled DC, where they are collated and sent to a retailer’s local depot for ‘last mile delivery’. It delivers to 1,369 of its Best-One symbol stores, which get a minimum of two deliveries per week (though many actually get three or four). Its bigger Xtra Local stores and larger independent customers can also get deliveries.

There are no figures for its current availability and service levels, but the wholesaler is thought to be confident of offering Costcutter retailers an improvement on what they have had over the past few months.

The key question being asked in the industry is whether delivering to Best-One stores, which are typically smaller with a more limited range, shows it has the capability to deliver to Costcutter, whose stores tend to be bigger, offering a fuller range. Bestway also lacks a presence in Northern Ireland, where Costcutter is strong and its stores are often mini-supermarkets.

“It’s a non-starter for me,” says one senior industry source. “What about Northern Ireland? For a start I don’t think the frozen and chilled offer is as good as Nisa. Ever since the Tesco-Booker deal, Costcutter has been shopping around and I think they are grasping at straws.”

So is Bestway still a serious buyer for Nisa?

This depends on the Co-op next month. As one source explains, “it doesn’t hurt Bestway to have its name out there as a potential bidder while Nisa members are mulling over the Co-op vote”.

Feedback from Nisa members who attended regional roadshows for the deal this week suggests Co-op Food CEO Jo Whitfield was impressive in setting out the case for the deal but that many members have yet to be fully convinced.

There is also concern around the terms of the deal, which will see payments to Nisa members spread out over four years and even possibly reduced, depending on how Nisa performs following completion. Some members are hopeful the Co-op could move on the payment dates, but The Grocer understands any significant changes are unlikely.

With this in mind, Bestway clearly believes it is far from a done deal, but equally there is no guarantee that the fiercely independent Nisa membership will embrace a Bestway bid.

Bestway did approach Nisa regarding a takeover earlier this year, but while the terms of that bid are not known, Nisa did not give it as much consideration as it did to either the Co-op or Sainsbury’s, which Nisa favoured before the supermarket cooled its interest in August.

It is thought Bestway’s offer did not meet Nisa’s expectations in terms of price or setting out what it could provide for Nisa members. One Nisa member said this week he would be “terrified by the idea of Bestway taking over Nisa”.

“I joined Nisa because it had a really good fresh range and just don’t think Bestway compares. I am in favour of consolidation, but I want to make sure that what we do is good for my family’s business in the long term.”

However, fellow Nisa member Kishor Patel believes Bestway could be a good option for Nisa members. “People talk about the chilled and fresh offer, but Bestway can develop this with Nisa,” he says. “Bestway is famous for driving a good deal with suppliers and that is something we really need.”

Advantage Co-op, then?

For Patel, it’s not as simple as a straight choice between the Co-op and Bestway. He believes Nisa and its advisor Lazard could still explore other options, including reaching out to major global retailers such as Carrefour.

But for now, it remains advantage Co-op - though Bestway is a serious contender. The next month will likely reveal whether it has left its run too late or timed it just right.