Tesco and Booker

Merger completed

March 2018

TERMS PROPOSAL COMPLETION PERSONNEL

Following regulatory approval in The process to merge was Booker CEO Charles Wilson December 2017, shareholders of launched in January 2017, with has joined the new combined both companies approved the Tesco plc and Booker Group plc group board and executive deal on 28th February. The announcing an agreed merger. committee, and now has the merger was formally completed role of CEO Tesco UK. on 5th March. The deal valued Booker at Dave Lewis remains as £3.7bn. Approval granted by the Group Chief Executive of Competition and Markets Tesco. Authority was unconditional, with neither party required to make any remedies to progress the merger.

Tesco is an international retailer, based in the UK.

It sells both grocery and non- grocery lines. Dave Lewis It has operations in 11 countries in Group Chief Executive Europe and Asia, although the UK Tesco statistics, latest year remains the largest market.

In most countries, Tesco operates Group sales £55,917m (3.7%) across several grocery channels Group operating profit £1,280m (29.9%) (the India operation is more limited). Group stores 6,789 Tesco also offers retail banking and has a franchise package for UK & ROI sales £43,524m (1.4%) independent retailers, branded One Stop (not all One Stops are UK & ROI operating profit £803m (59.6%) franchises – some are owned and managed centrally by Tesco). UK stores 3,433

Booker is a food and drink wholesale business serving a mixed customer base. Charles Wilson CEO It serves (mostly) small businesses in independent retailing and Booker statistics, latest year catering. Group sales £5,328m (+6.7%) Its primary format is cash & carry, though it has capability in delivery. Group operating profit £176m (+13.5%)

It supports nearly 5,500 symbol No. of trading sites 206 convenience stores under the Premier, Londis, Budgens and Countries of operation UK (200 sites), India (6 sites) Family Shopper fascias. 1,199,000 (117,000 retailers, 441,000 caterers, Customer numbers 641,000 ‘others’) Online now accounts for 22% of Sales by key customer group sales. Retail = £3.4bn Catering = £1.7bn group

© IGD 2018 Source: Company Page 4 The merger has formed a vertically-integrated business, with annual UK Objectives and sales of £47bn (annual UK sales are £42bn for Tesco and £5bn for rationale for Booker). The new business covers both the established “at-home” food market and merger the smaller, fast-moving “out-of-home” market. The merger document According to the merger announcement, the creation of the joint business identifies synergies of offers various benefits for multiple stakeholders: £200m pa after 3 years, ie: £25m of revenue gains and £175m of cost savings (55% coming from procurement).

SHOPPERS CUSTOMERS 1 SUPPLIERS COLLEAGUES SHAREHOLDERS

Better choice of Enhanced ranges Access to more Career growth Revenue growth fresh food in c- distribution opportunities Lower prices, Increased stores channels within a larger obtained through business scale business Lower prices in increased buying More efficient and efficiency c-stores and at scale logistics Experience of a Higher earnings- foodservice multi-channel Cheaper, more Increased scale per-share business More click and efficient logistics and reduced environment collect locations waste, improving Improved IT and for online orders efficiency support services

© IGD 2018 Source: Summarised from merger document issued 27 Jan 2017 (1) In this context, “customers” denotes business clients buying at wholesale from Booker Page 5 Shopper behaviour IGD shopper data illustrates some of the points made in the merger document.

shows why multiple A “full service” grocery business is one capable of serving routes to market may shoppers that split spending across several channels. Just 2% of shoppers claim to have used only one channel be beneficial for food and grocery shopping in the last month.

Claimed number of channels used monthly

2% 6% 16% 22% 54%

1 channel only 2 channels 3 channels 4 channels 5+ channels

convenience Better-serving the convenience retail market is retail central to the rationale for the merger

Convenience is a close match with UK convenience is fragmented and UK shopper needs and the channel highly competitive. has seen consistent growth in recent years. Multiple operators (eg: Tesco Express, M&S Simply Food, £39.2bn Since 2012, convenience sales Sainsbury’s Local) have grown 2017 have grown by £7bn, reaching share in recent years, with a £39.2bn in 2017, or around 21% of modern high-quality offer. all grocery sales. Symbol groups (eg: Booker 45,652 Further growth is expected over Premier, SPAR and Costcutter) the next five years, although play an important role, allowing 22% stores independent retailers to compete 25% growth is slowing, as the channel growth matures. with the offer – and the pricing - growth available within multiples. over over last Other grocery channels, especially last 5 discounting and online, are also UK convenience continues to 5 years years competing with convenience for develop. Important avenues growth. include the provision of food-to-go and use of stores to deliver online shopping.

© IGD 2018 Source: IGD Research Page 7 With 1,744 stores, Tesco’s company-owned Express fascia Booker and is the biggest in the ‘convenience multiples’ segment. A Tesco strong focus on fresh appeals to the mainly ABC1 target shopper.

convenience One Stop is aimed at C2DE shoppers. Sales exceed £1bn with 775 company-owned stores and a further 166 stores operated as fascias franchises by independent owners.

The largest fascia both within Booker Retail Partners and the total convenience channel comprising 3,394 independently owned stores. Shoppers are 39% ABC1 making over 16m visits a week.

Purchased as part of the Musgrave GB acquisition in 2015 Budgens offer a more premium retail package for independent retailers. It has sales of c.£330m from 176 stores. With a strong focus on fresh to appeal to its 71% ABC1 Shoppers.

Also part of the Musgrave deal, the Londis symbol group has 1,829 sites and a strong presence in forecourts. It generates sales of c.£750m from its shoppers who are 49% ABC1.

Now in its fifth trading year, Booker’s Family Shopper brand provides its retailers with a discount format symbol group targeting C2DE shoppers: 61 stores, sales c.£50m.

© IGD 2018 Source: Company reports October 2017 Page 8 With an estimated 70,000 UK retailers amongst its registered customers, Booker: Booker has an unrivalled reach within the independent retail sector, though by no means all are regular, ‘main’ customers. independent But alongside its core independent retail customers, Booker now has a growing customer base of multi-site operators, especially in the forecourt and multiple sector, serviced through its Booker Retail Partners delivery division. This business has been notably enhanced by gaining several significant contracts retail customers left vacant by the collapse of the incumbent wholesaler, Palmer & Harvey, in November 2017.

MFG - 300 stores Shell - 500 + stores MRH - 370 stores

Oil company Shell has the largest Another post P&H win for Booker, Booker gained the contract to supply single ownership forecourt network in MRH is the largest fuel dealership some 300 forecourt stores operated by the UK. A long term customer of operator in the UK with a total of 491 fuel dealership Motor Fuel Group in Palmer & Harvey, Booker gained this stores. 2016. account in December 2017 after P&H ceased trading. While a proportion trade as (and are These stores have been converted supplied by) SPAR, the majority into Booker retail fascias, primarily Shell stores mainly trade under their operate under the Hursts fascia and Londis. own fascias (Select/deli2go), though are now supplied by Booker. bigger sites are being converted to Budgens.

Numerically the largest of Booker customer group is foodservice operators. The company has invested in developing ranges and service in this area. Ambient, chilled and frozen goods are available. Foodservice clients are offered a multichannel service (i.e: delivery or pickup from depot).

Foodservice clients can be divided into three Several Booker brands are aimed at The Ritter Courivaud service broad groups: foodservice customers, in order to specialises in high-quality, low-volume offer a complete business solution, eg: items. • Large / multi-site (e.g: restaurant chains such as Carluccio’s and Wagamama) – • Chef’s Essentials – Entry level This service is focused primarily on London, but is also available in other served through Chef Direct • Chef’s Larder – Standard range selected locations. • Chef Central – Tools, equipment • Small / independent (e.g: pubs) – served Most business is delivered, although through Booker cash & carry depots • Cleanpro – Hygiene products some depots have dedicated sections. • High end / specialist (e.g: premium restaurants) – served through Ritter Courivaud

Tesco offers a wide range of foodservice and food-to-go solutions for shoppers. Foodservice is offered in large stores through in-store cafes. After experimenting with “in-house” concepts, Tesco now focuses on working with well- known external partners to create a branded foodservice offer. In addition, Tesco offers a range of food-to- go solutions for breakfast, lunch and dinner, e.g: Branded coffee and doughnuts on For shoppers in search of a “sit-down” offer at Tesco. foodservice solution, some larger • Chilled sandwiches stores have cafes. Note the “grab and go” signage, meant • Meal deals to appeal to shoppers in a hurry. Note that the fresh coffee offered is still Costa branded. Automated coffee machines require These ranges bridge the gap between food less staff time and less expertise than retail and foodservice. a “barista” style approach.

© IGD 2018 Images: Retail Analysis, IGD Research Shows Tesco at Newmarket, March 2016, photos with permission Page 11 The combined group will seek synergies in Online online services ordering and Tesco is the largest online grocery retailer in the UK. fulfilment Online ordering is available via multiple UK online grocery retail platforms and delivery is offered to-home or on a click and collect basis. Value market shares, 2017 During 2017, Tesco began to roll-out one-hour grocery delivery across parts of London. Most order fulfilment is through in-store picking, although six dark stores are also in operation. Grocery delivery is supported through other online services (eg: the Real Food meal inspiration website). Non-grocery items are available through the Tesco Direct service.

Like other wholesalers, Booker offers online ordering for clients, with annual sales of £1.1bn.

Tesco Asda Sainsbury's Note that online ordering in wholesale is not necessarily via a browser – many clients prefer Ocado Waitrose Morrisons a handheld scanner for the purpose.

23 May 2018 ExCeL, London

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