The merger of Tesco and Booker is expected to deliver procurement savings of at least £96m each year.
Tesco said the deal offered the potential for “improved purchasing cost efficiencies” and the sharing of best practice across fresh, own-label and branded goods.
Booker, which owns Budgens, Londis and Happy Shopper, operates a food wholesaler cash and carry network with 200 branches, but it also has a delivery network with national coverage.
Millions of pounds of savings are also expected to be found from “improved purchase of goods not for resale” while suppliers would get “broader market opportunities” through the creation of own-label brands “as well as supplying existing products to a wider footprint”.
Tesco said the combined group would open up a broader range of routes to market for suppliers that would mean “fuller crop procurement and utilisation which will help reduce food waste, lower costs of production and increase efficiencies”.
The merger, which involves Tesco purchasing Booker shares in a cash and shares deal, values Booker at around £3.7bn. It is subject to regulatory and shareholder approval.
The move is predicted to deliver total annual synergies of £175m by the end of year three, with procurement making up around 55% of this figure and logistics and delivery a further 35%.
One-off cash costs of around £145m are expected to be needed to deliver the synergies.
“The food market is constantly evolving,” said Tesco. “In-home consumption is significant and stable, but the eating out market continues to grow and evolve with delivery and convenience becoming increasingly important to business customers and consumers.
“The Tesco board recognises the attractive opportunity which exists for the merger to bring together retail and wholesale expertise to create a market leader in products and procurement, with extensive reach, distribution and supply chain capabilities to create the UK’s leading food business.”
Alan Braithwaite, chairman of supply chain and logistics consultancy LCP Consulting, said: “The big win is that it takes Tesco into the food service arena which is the food growth market – people are eating out and institutional catering is still growing. It will give the business the platform to further challenge in that market.
“It will allow the Booker side of the enterprise to leverage procurement and inventory so there is a margin opportunity too. This is especially important in the light of food inflation that is now accelerating with the weaker pound.”
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