Not long after he took over as chief executive of Tesco, I had dinner with Phil Clarke.
At that moment he was king, master of the dominant force in UK retailing, head of a company that, while it had suffered a blip in California, was on a seemingly relentlessly upward track. But far from exuding triumphalism, he was genuinely worried.
What was bothering him, he said, was Amazon. The US online titan had just begun testing fresh produce deliveries in its home patch of Seattle. It already sold non-perishables. So, said Clarke, it was only a question of when, not if, it decided to take the plunge and go for groceries. And, having seen the havoc wreaked by Amazon elsewhere on the high street, he was understandably nervous.
It was clear that his was no idle fear. The boss of Tesco is surrounded by myriad advisors, analysts and forecasters. He, or they, had seen something – a chart, a spreadsheet – that had provoked alarm.
Come forward some years, to today. Clarke has gone, and his successor Dave Lewis, is entitled to be feeling chuffed. He had a tough baptism, but now Tesco is to merge with Booker, the UK’s largest wholesaler, in a £3.7bn deal, and the regulator, the Competition and Markets Authority (CMA), has given it unconditional provisional approval.
That may change, of course. The CMA’s final decision is due very soon, possibly next week, but having signalled its intent, for the watchdog to change course or to impose onerous remedies this late in the day would be very strange indeed.
It’s possible that the CMA may order Tesco to dispose of some of its convenience stores, but even if that happened, the pain would not be too difficult to bear – McColls, for one, is on record as a willing buyer. Tesco would still have its eye on the bigger picture, of capturing Booker, and the synergies and buying power that would bring, plus the recruitment to the board of the wholesaler’s highly regarded chief, Charles Wilson.
The CMA’s effective green light has rightly caused shock in the industry. Leading retail analyst, Clive Black of Shore Capital, draws the comparison with the “CMA’s singular derailing” of the 2015 marriage of Poundland and 99p Stores. Calling it the “Comedy Markets Authority”, he says: “We imagine that there will be understandable consternation and no little shortage of apoplexy with the hard-to-predict Competition regulator.”
Ex-Asda boss, Andy Clarke, said: “I think we were all surprised by the first phase ruling … I think we all expected [the CMA] to have a number of requests. For it to get a clean bill of health was quite surprising.”
Comparisons have been made, not only with Poundland and 99p Stores, but with Asda’s 2010 acquisition of Netto, and Morrisons’ 2004 purchase of Safeway – which were heavily challenged by the CMA.
While the reaction to the go-ahead has focused on the immediate ramifications for Tesco, and much praise has been heaped upon Lewis and his cohorts for achieving their desired victory, it’s worth pausing, to look at what the decision implies. For it would appear that the CMA is also concentrating on the bigger picture.
That has to be the only explanation for the regulator’s move. And from where Tesco is sitting, the reasoning does not make for necessarily pretty viewing.
The CMA is effectively saying that where UK grocers are concerned, anything goes – that the internet has altered the landscape for good, in a way that no one ever thought likely. According to Black: “What this decision may mean is further material change to the make-up of the UK wholesale market; who will benefit from this? Who will lose? More broadly, unconditional clearance raises the question of what cannot possibly merge in the wider UK food market.”
Previously, it was always thought that the consumer was best served by having four national players. With the Tesco-Booker ruling, that is no longer so.