Tesco and Booker A report on the anticipated acquisition by Tesco PLC of Booker Group plc 20 December 2017 © Crown copyright 2017 You may reuse this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government- licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. Website: www.gov.uk/cma Members of the Competition and Markets Authority who conducted this inquiry Simon Polito (Chair of the Group) Gavin Robert Robert Spedding Tim Tutton Chief Executive of the Competition and Markets Authority Andrea Coscelli The Competition and Markets Authority has excluded from this published version of the provisional findings report information which the inquiry group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Some numbers have been replaced by a range. These are shown in square brackets. Non-sensitive wording is also indicated in square brackets. Contents Page Summary .................................................................................................................... 3 Findings .................................................................................................................... 16 1. The reference ..................................................................................................... 16 2. The Parties ......................................................................................................... 16 Tesco .................................................................................................................. 16 UK grocery operations ................................................................................... 17 Other operations ............................................................................................ 18 Booker ................................................................................................................ 18 3. The Merger and its rationale ............................................................................... 22 The Merger ......................................................................................................... 22 The rationale for the Merger ............................................................................... 22 4. Jurisdiction .......................................................................................................... 24 5. The counterfactual .............................................................................................. 26 Parties’ submissions ........................................................................................... 27 Our assessment .................................................................................................. 27 Parallel transactions ...................................................................................... 27 Status of P&H ................................................................................................ 28 Conclusion on the counterfactual ........................................................................ 29 6. Market definition.................................................................................................. 29 Grocery retail services ........................................................................................ 30 Product scope ................................................................................................ 30 Geographic scope ......................................................................................... 33 Grocery wholesale services ................................................................................ 38 Product scope ................................................................................................ 38 Geographic scope ......................................................................................... 45 Procurement of groceries .................................................................................... 48 Product scope ................................................................................................ 48 Geographic scope ......................................................................................... 49 7. Introduction to our competitive assessment and existing competition................. 49 Introduction to our competitive assessment ........................................................ 49 Competition in grocery retail services ................................................................. 52 Introduction .................................................................................................... 52 Retail competition .......................................................................................... 54 Competition in grocery wholesale services ......................................................... 65 Introduction .................................................................................................... 65 Variety of grocery wholesale services ........................................................... 66 Key competitors ............................................................................................. 68 Expansion within grocery wholesale services ................................................ 74 Purchasing habits of retailers and volume switching ..................................... 76 Switching symbol groups by retailers ............................................................ 78 Local conditions of grocery wholesale competition ........................................ 80 Effect of P&H entering administration ............................................................ 83 Conclusion on conditions of wholesale competition ....................................... 89 8. Efficiencies and buyer power .............................................................................. 90 Introduction ......................................................................................................... 90 Efficiencies .......................................................................................................... 92 Introduction .................................................................................................... 92 Parties’ submissions ...................................................................................... 93 1 Third party submissions ................................................................................. 96 Our assessment ............................................................................................ 98 Innovation and own-branded goods .................................................................. 108 Range effects .................................................................................................... 110 Application of the Groceries Code of Practice .................................................. 111 Conclusion on efficiencies and buyer power ..................................................... 112 9. Vertical effects: wholesale to retail .................................................................... 112 Introduction ....................................................................................................... 112 The theory of harm ...................................................................................... 112 The framework for assessment ................................................................... 114 National foreclosure strategies ......................................................................... 115 Local foreclosure strategies .............................................................................. 115 Ability ................................................................................................................ 116 Parties’ submissions .................................................................................... 117 Third party submissions ............................................................................... 118 Our assessment .......................................................................................... 119 Incentive ........................................................................................................... 121 Factors relevant to incentives assessment .................................................. 121 Framework for incentives assessment ........................................................ 123 Results of incentives assessment ................................................................ 124 Conclusion on vertical effects: wholesale to retail ............................................. 126 10. Vertical effects: retail to wholesale .................................................................... 127 Introduction ....................................................................................................... 127 The theory of harm and the framework for assessment .............................. 127 Ability ................................................................................................................ 128 Parties’ submissions .................................................................................... 128 Our assessment of local targeting ............................................................... 129