Tesco's convenience push comes a cropper?

Related tags Convenience store Tesco

Budgens, the UK convenience store operator, has called on the
regulators to investigate Tesco's proposed takeover of T&S on
the grounds of its affect on sales rather than simply marekt share
- an analysis which it claims makes far starker reading.

Tesco, already the UK's leading food retailer, last month made a significant step towards becoming one of the country's main convenience store operators as well with the proposed acquisition of the T&S group.

But Tesco's ambitions - to extend the number of Tesco Express convenience outlets from around 100 to more than 550 over the next three or four years, mainly by converting stores from the various T&S fascias - could be stopped in their tracks, at least temporarily.

Budgens, another convenience store operator in the UK, yesterday called on the country's Competition Commission to investigate the T&S deal, arguing that it would lead to a reduction in competition and margins.

In a meeting with the Office of Fair Trading, Budgens argued that the regulators needed to look at the proposed acquisition in terms of the value of the sales generated by the stores rather than their size.

"Tesco simplistically claims it would only come to control 5 per cent of the convenience store market, as defined by size of outlet,"​ Budgens said in a statement. "However, the reality is far more complex: with top-up shopping an increasing feature of supermarket shopping (Tesco says that 40 per cent of purchases made at its stores are top-up shopping) it will have a greatly increased position in the market.

Budgens is calling for the Competition Commission to determine precisely what Tesco's share of this market will be, should the acquisition go ahead.

But it is not just market share which could be affected by the acquisition. Budgens is also urging the Commission to examine the potential erosion of suppliers' gross margins.

"With Tesco having approximately a 90 per cent supplier overlap with T&S, suppliers' margins are likely to be squeezed considerably as Tesco imposes its terms and conditions in place of those of T&S stores. This could cost suppliers up to £78 million (€122.2m) - a cost which will inevitably be passed on by suppliers to their smaller customers, particularly smaller multiples and independents operating in the top-up market."

Neither the OFT nor Tesco have commented on Budgens claims.

Eoin McGettigan executive chairman of Musgrave, the group which owns Budgens, said: "We have asked the OFT to recommend that Tesco's proposed acquisition of T&S stores be reviewed by the Competition Commission, because at present there are too many unknowns about its impact. We are raising questions not complaints.

"The authorities need to be clear about how much market power Tesco will have in the 'top up' shopping market. They need to be clear about the likely effect on suppliers. At the moment we feel there is insufficient analysis of these effects to be confident that the proposed acquisition will not operate against the public interest."

He continued: "We are asking that the OFT's definitions of the markets for grocery shopping reflect the rapidly changing commercial realities. The focus needs to be on basket size not outlet size.

"The seductive short-term view of the proposed acquisition is that it will lead to lower prices: however, the long-term prospects are that certain suppliers will be faced with the prospect of a muscular buyer - this is likely to lead to higher prices for consumers, and even some suppliers going out of business."

Budgens, which was bought by the Irish retail group Musgrave in July, operates 227 convenience stores in the UK and would be one of the companies most affected by any major change in the dynamics of the UK convenience store market.

The Co-op group, which is the leading convenience store operator in the UK with over 600 outlets following its recent acquisition of the Alldays chain, is also likely to be affected by the arrival of Tesco in the convenience sector.

Related topics Market Trends

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