Dive Brief:
- British retailer Tesco announced last week that it had acquired Booker Group, the UK’s largest wholesaler, for $4.6 billion (£3.7 billion), according to FoodBev Media.
- With the acquisition, Tesco gains Booker’s large wholesaling operation, which supplies 120,000 independent stores in addition to numerous restaurants, pubs, and cafes. Tesco also picks up the Budgens and Londis convenience store chains.
- Analysts see the acquisition as a show of strength from the recently struggling Tesco, one of the world’s largest retailers.
Dive Insight:
The past few years have been tough for Tesco. The UK’s largest retailer spent decades profiting off large stores where families went for their weekly shop. When convenience stores and nimble discounters like Aldi muscled in, Tesco’s large stores suddenly became liabilities. Add in an accounting scandal and a failed U.S. venture called Fresh & Easy, and the retail giant was facing the worst returns in its nearly 100-year history.
A new CEO, price cuts, and a big pullback on its international business stabilized the company. With the Booker acquisition, Tesco seems to be signaling its renewed strength and forward-looking strategy.
With a large wholesale business in its stable, Tesco gains buying power that will help it slash prices and compete with the discounters that have put so much pressure on it in recent years. The pub and restaurant business, meanwhile, will further diversify the company and add fresh capabilities that could show up in its supermarkets.
The most important part of the acquisition may be its added e-commerce capabilities. The combined companies supply 8,000 so-called “click and collect” locations where shoppers order food online and pick up in-store. Comprising around 6% of supermarket sales in the UK (compared to 2% in the U.S.), e-commerce is a large and fast-growing channel for retailers.
These same trends are influencing U.S. supermarkets as well. With e-commerce and alternative formats disrupting traditional grocers, companies are desperately looking for ways to grow. In an increasingly crowded industry, creative acquisitions like this one may very well become the best avenue for growth.
