Tesco Goes for External Growth with Booker… | tutor2u Economics
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Tesco Goes for External Growth with Booker Takeover

A classic example here of backward vertical integration as retailer Tesco has agreed a takeover of wholesaler and logistics business Booker Group.

Booker Business in Focus

The takeover is Tesco's first major external growth move since CEO Dave Lewis joined.

Tesco is already the UK's largest supermarket retailer. With this takeover of a large business operating earlier in the supply chain, Tesco (by owning Booker) will become a major supplier to competing small retailers, serving 125,000 independent convenience stores as well as 468,000 restaurants and pubs.

The key part to the deal seems to be Tesco's drive to increase market reach to the out-of-home food market. They will have have market reach across stores, Booker's national Cash & Carry network, their home/business delivery capacity and Tesco's own Click & Collect.

The competition authorities will doubtless be scrutinising the proposed takeover to check that the enlarged Tesco + Booker business is not in a position to damage competition in the food industry.

Horizontal & Vertical Integration - Explained

Graham Watson adds:

Another interesting angle on the Tesco-Booker tie-up: food suppliers are concerned that the new food giant may have greater negotiating power and be in a position to abuse its monopsony power. In the past, supermarkets have been accused of pushing the price of milk below cost, for example.

This will be one thing that the Competition and Markets Authority (CMA) might have its eye on.

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