MX Wholesale Blog
Shortly after releasing its intent to acquire Booker Wholesale UK Tesco has scrapped more than half of its Heineken beer and cider range, after the brewing giant unveiled plans to hike prices in response to the pound's decline following the Brexit vote.
According to the Times, Britain's largest supermarket has reduced the number of Heineken products on its shelves from 53 at the start of the year to 22. Tiger, Amstel, Sol and Kingfisher are among the beers to have disappeared from Tesco's stores.
Sources at The Grocer say, Fosters Gold, Radlers and Rocks have also all been axed.
The review of the Heineken range is said to be part of the supermarket’s programme to replace mainstream brands with craft beers and lager.
Although it is also believed to be connected to price negotiations.
A spokesperson for Tesco was quoted as saying the decision was motivated by the intent to better match the ranger of beers and ciders to customers' needs : ‘We frequently review our ranges to ensure they meet the needs of customers.
‘We continue to offer customers a great range of beer, lager and cider.’
Heineken refused to comment on the matter stating: ‘We don’t comment on commercial arrangements with our customers.
‘Shoppers will continue to find a broad range of our fantastic beer and cider brands in Tesco.’
In January, Heineken said it would raise prices by an average of 6p per pint, blaming its decision on "prevailing economic conditions", chief among them being sterling's 16% drop in the months following Britain's vote in favour of leaving the European Union.
A weaker pound makes imports more expensive and even though the majority of beers brewed in Britain are made with home-grown ingredients, brewers have been hit by higher transport and energy costs.
It is not the first time Tesco and one of its major suppliers has become embroiled in a price row.
In October last year, a squabble blew up between the retailer and Unilever, when the Anglo-Dutch firm raised wholesale prices by 10% forcing the supermarket to cover the rising costs of goods made abroad since June's Brexit vote.
However, Tesco, which has 28% , the largest share of the UK grocery market, refused to accept the increase, pulling popular Unilever products such as Marmite, Ben & Jerry's ice cream and Persil detergents off its online shopping platforms.
The corporate row, dubbed Marmitegate at the time, was soon resolved and Unilever products returned to all Tesco stores but only after the government was forced to intervene.
With their intended takeover of the UK's largest wholesaler what does this market share and buying strength mean for the UK wholesale and retail markets future?
Tesco is to buy wholesaler Booker for £3.7bn, in a deal it claims will create "the UK's leading food business"
UK supermarket giant Tesco struck a deal to buy up wholesaler Booker to create what it claims will be Britain’s “leading food business”, it announced today.
The deal values Booker at 205.3p a share, or £3.7bn, a premium of 12 per cent over its closing price of 183.1p a share on January 26.
The Wholesaler Booker acquired grocery chains Budgens and Londis in 2015 and has over 170 cash and carry locations in the UK. Tesco said Booker shareholders will receive 42.6p in cash and 0.86 in new Tesco shares. The merger will result in Booker Wholesale shareholders owning 16 per cent of the combined company.
This could be seen as a negative acquisition by many independent retailers however as the wholesaler Booker supplies 5,463 Premier, Happy Shopper, Londis and Budgens convenience stores. The shopkeepers own the properties and manage their stores on a franchise basis. This uncertainty will surely leave many retailers worried.
“The Combined Group will bring benefits for consumers, independent retailers, caterers, small businesses, suppliers, and colleagues, as well as delivering significant value to shareholders”, said Tesco.
It is thought that while some shopkeepers are worried others see that there may be a benefit in that the Tesco deal will mean greater purchasing power and lower prices, there are growing fears among rivals about Tesco’s sprawling control of the nation’s grocery supply chain and their power to dictate to suppliers over pricing like in the marmite gate row earlier this year.
Retail property agents have suggested that Tesco will try to sell some stores where there are a number in the same location. One agent pointed out that it makes no sense to supply multiple stores in the same place, suggesting that Tesco would be "cannibalising" itself. Instead, it is likely to watch shoppers' habits over the next few months, and jettison the worst performing stores. While it can’t sell off franchised stores that it does not own, it could choose not to renew agreements with retailers. Could your franchise store be at risk?
If Tesco is true to its word, shoppers will have more choice when they visit their local convenience stores; Booker boss Charles Wilson pointed to the potential offered by the former’s “unbelievable” fresh food offer. The combined business will also have a network of 8,000 click and collect points, making it more convenient than ever to have someone else pick and pack your groceries. It remains to be seen whether the “synergies” promised by the deal will keep a lid on price rises, or whether the takeover will in fact give independent retailers less choice in who supplies their goods - and hand yet more power to Tesco.
Dave Lewis, Tesco’s chief executive said: "Tesco has made significant progress in turning around our UK retail business. This Merger with Booker will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital. Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available".
Charles Wilson, boss of Booker said: "Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve. We believe that joining forces with Tesco offers the potential to bring major benefits to end consumers, our customers, suppliers, colleagues and shareholders."
Could you or your business save more with MX Wholesale?
SMEs taking a haphazard approach to reviewing their suppliers
The study asked 1,000 business decision makers to estimate how much they could save through shopping around for better deals.
Of the small businesses that responded, 28 per cent thought they could save between £5,000 and £20,000, while 15 per cent thought they could save up to £50,000. Based on these average estimates, each SME could save £19,663 each year, which when multiplied across the UK’s 5.4 million SMEs adds up to £106 billion.
Richard Hurwitz, CEO at Tungsten Network, commented: “If British SMEs could realise even a small percentage of the estimated savings identified in the report, profitability would soar and working capital as well as cash flow would be significantly improved, allowing businesses to be more agile and flexible. With a clear procurement strategy, the potential savings are considerable and this research just highlights the value of having good market intelligence.
“Smarter procurement would enable the UK’s SMEs to invest more capital back into their business, so they are prepared for whatever opportunities or risks may come their way. In an age where finance can be hard to come by, bringing efficiencies to the procure-to-pay work stream can be a value enhancing initiative. As SMEs make up 99.9% of all private sector businesses in the UK, the impact on the economy would be considerable.”
The study also looked at the views of decision makers on the importance of procurement. Interestingly, those from small businesses believe it plays a more prominent role than sales or marketing.
Asked how frequently businesses reviewed their list of suppliers, a key measure of the importance of following best practice in terms of procurement, respondents from SMEs revealed a jumbled approach. The majority of businesses - 42 per cent - said they review the supplier base annually but only 29 per cent do so two or three times a year. Meanwhile, 19 per cent say they have a review on an ad hoc basis or when they are dissatisfied.
Hurwitz added: “In order to avoid paying more than they should, buyers need to develop stronger relationships with their suppliers to encourage honesty and transparency. This can have a huge impact on the bottom line.
“The savvy buyer knows that many different factors come into play when choosing a supplier. Price has a strong influence, but quality, whole life cost, security, ethics, values and reputation of a business also hold sway. Besides, with the amount of data now available at businesses’ fingertips and valuable tools like spend analytics, buyers are able to analyse where and how they are paying their invoices, often uncovering significant opportunities to streamline their invoicing system.”
article credit Tungsten Network
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