Bestway ups the ante

Anyone familiar with Booker’s recent history will not be surprised that just when there seemed grounds for some guarded optimism about the future, fate intervened to make an already cut throat business environment even tougher.

After all this is the company that took over Nurdin Peacock to become the undisputed king of UK wholesaling, followed months later by a near fatal collapse as the pressures of integrating the two businesses and re-engineering its entire infrastructure caused it to implode.

Then there was the false dawn as the odd couple, Booker chief Stuart Rose and Iceland boss Malcolm Walker, teamed their two businesses together, talking of tens of millions of pounds of synergies that could be extracted. Months later Rose and Walker had both left, the synergies were a fraction of the predicted figure, and Iceland began to look like a millstone around the neck of Booker.

So when Giant Bidco, a consortium lead by the Icelandic retailer Baugur, announced that it was buying Big Food Group, and planned to free Booker from its ties to Iceland, there was uncertainty about the future but also the possibility, maybe even the likelihood, that things might improve.

But even before the deal was completed, Booker’s biggest and toughest rival Bestway upped the ante by announcing it was buying its next biggest rival, the well respected cash and carry group Batleys. And just in case anyone thought this might take some excess capacity out of the market, Bestway emphasised that it would not be closing any depots, even in the handful of cities where there was overlap between its depots and Batleys.
While mergers, even of two successful companies, are fraught with danger, those involved in the cash and carry market are unanimous in the view that Booker’s management team will have a far more difficult task turning round that business than Bestway will of integrating Batleys.

First, they say, the management must tackle a lack of morale among the staff caused by neglect, and the new regime appears to agree.

A spokesman for Bauger said: “Booker is a sound business but it has suffered because management of the group were concentrating on the problems at Iceland. We want to simplify the structure and move the focus back to the depot managers.” Little else has been revealed of its plans other than it too does not intend to close depots. It will run Booker and the foodservice group Woodward and carry out a strategic review which is likely to take somewhere between six months and a year, before any far-reaching decisions are made.

As one rival says: “It could and should be a huge player, but a huge turnaround job is needed and they shouldn’t underestimate the size of the job they are facing. It will need someone quite special in charge to achieve that.”

Bestway too, is proceeding slowly, announcing that all the Batleys depots will continue to trade under their current name and even saying their operational structure will not be changed to mirror that of Bestway. Account managers at Batleys’ suppliers have been assured by Bestway that it will continue to trade as a separate company for at least 12-18 months while the back office systems are integrated.

Bestway is wise to take its time though, because even well-run successful businesses have become bogged down in difficult mergers, as is demonstrated by the plummeting fortunes of Morrisons since it tied the knot with Safeway

Although everyone agrees the two businesses are highly complementary in many ways, the biggest hurdle will be the different cultures of the two businesses.

Batleys is viewed as a paternalistic, conservative and even slightly old-fashioned company, while Bestway is a much more driven, results-oriented business. At some point in the future Bestway will surely want to begin influencing events in the Batleys depots, and how skillfully it achieves this will go a long way to deciding how successful the takeover is.
Some competitors, perhaps a little over optimistically, also wonder whether the management time required to oversee the union of the two companies may mean the two businesses temporarily lose a bit of edge.

But most of its rivals expect that Bestway will emerge from the takeover as an even more formidable competitor than it currently is. If it can graft on to Batleys its expertise as the recognised cash and carry leader in selling alcohol, and if it can learn from Batleys’ expertise in the more traditional grocery arena, it will have an even more attractive offer for customers.

And then there is the not insubstantial addition of more than £600m to spending power that already exceeded £1bn. Bestway is renowned for driving hard bargains and suppliers expect it will want to see some extra margin for the extra spend. One rival predicted Bestway would look to grow its own brand and would be looking for greater margins to invest in the business.

At the Today’s Group annual conference last month, MD Rodney Hunt observed: “The Bestway purchase of Batleys moves them up to an almost £1.75bn turnover with depot numbers going up from 31 to 49. There will, of course, be synergy savings and perhaps a greater spread of fixed costs as a result – but Batleys was trading down despite Bestway’s plus position, and that is something they will seek to rectify quickly.”

He added: “No doubt pencils will have to be sharpened again. New instruments of torture will be created for use on suppliers to extract improved terms for the new owners. I don’t think there is any doubt that the competition will become more fierce and as a group we are ready to deal with that situation as it unfolds.”

So with an even stronger Bestway, and possibly even a recovering Booker to cope with, where does that leave other cash and carry operators? There are now three options facing them, one said. “You can sell up, you can diversify, or you can raise your game.”

What does seem likely is there will be more consolidation. It’s happened in retail with the bigger players buying up the smaller ones, it’s happened to the manufacturers and now it is the wholesalers’ turn. But in this case it may be in the form of looser alliances rather than straightforward takeovers.

With companies the size of Blakemore and Dhamecha finding benefits in membership of Landmark and Today’s respectively, it may be that more smaller companies look to pool their buying power in order to compete.

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