I’m sure the industry journalists are already drafting their opinion pieces on Friday’s news that Bestway will purchase Costcutter Supermarket Group (CSG). Until then, here are some initial views from TWC.
The acquisition makes a lot of sense on many fronts:
- It takes Bestway’s retail estate to almost 3,800 stores. While it’s still smaller than Booker’s, it’s still a hefty estate (c12-14% of all independent c-stores in the UK) and suppliers will enjoy the potential ‘engagement’ scale and scope under one roof. Scale helps a lot – in buying, prices, margins …and industry ‘clout’ (which accounts for quite a lot at any time, but arguably even more so during turbulent times, and Bestway have been vocally very active this year, ensuring the wholesale channel is treated fairly by suppliers, by Government etc).
- The Coop fresh and own-label range continues to be a major asset for Costcutter retailers – critical in the eyes of consumers against the backdrop of increased competition from the mults and discounters. Time will tell whether the relationship continues long-term – if not, a different solution will need to be found. Sainsbury’s might be a solution or Asda could also be a potential partner, but will Bestway want to get closer to the Multiples or find its own solution?
- The Costcutter brand still stands for something. It’s lasted the test of time. Might Bestway want to introduce a tiered retail format / fascia segmentation programme based on good, better, best? Bestway has launched new retail brands (Tippl and bb’s) and so are not afraid to test new formats but with such a wide portfolio of retail brands, some consolidation seems sensible. But the Costcutter retail brand is too big and well established to be under any threat in our opinion.
- Costcutter has focused on becoming pretty data focused in recent years – one hopes this will remain but this will depend on Bestway’s ability to align its digital strategy across its wholesale and retail operations.
Then there are a few things which the new group will want to focus on:
- Clearly integration of the two businesses is the number one priority. Will they get cracking straightaway or let the dust settle and keep the retail divisions separate? Economies exist on day 1 (central buying being the obvious) but different integration strategies exist. Booker integrated fast. Will Bestway? Their previous approach to acquisitions would suggest not, which may delay economies of scale?
- Food-to-go remains a distinct opportunity through both retail estates (although not business-critical during the pandemic).
- Bestway owns a significant pharmacy business. Could there be a long-term vision to create a compelling hybrid offer of convenience + pharmacy on the high street? This is perfectly normal in other parts of the world. And 42% of UK consumers would use hybrid convenience+pharmacy stores in the UK, our most recent consumer study showed.
- A large part of the future will be digital. Retailers will be looking towards Bestway to become industry leading in this area. Bestway has partnered with JISP in recent weeks. Having a scalable cost effective digital online ordering solution would make sense – will retailers of both groups embrace it?
- Does this mean targeting foodservice is put on the back burner for a while.
We congratulate Bestway for its acquisition – at a time when many businesses are battening down the hatches (many out of obvious necessity). Competition often raises standards and more consolidated competition for Booker feels right in this vibrant wholesale sector. The biggest challenge for Bestway is to fully digitally integrate all of their businesses so that their customers get a seamless experience and suppliers gain a single view of performance.