Palmer & Harvey, the UK’s number one delivered wholesaler and one of the UK’s largest privately owned companies, was put up for sale at the beginning of May. The business was recently successfully refinanced but its creditors are exploring the possibility of a change in ownership.
In a surprise move, Sainsbury’s has been linked to the wholesaler and there is speculation that the UK’s second largest grocery retailer may make a takeover bid for Palmer & Harvey. Only a year ago, Sainsbury’s bought Home Retail Group which owned Argos for GBP1.4bn (EUR1.71bn).
Whilst talks of Sainsbury’s making a takeover bid for P&H are purely speculative at this stage, it represents another interesting development in the highly competitive UK grocery market. Just a couple of months ago, Tesco and Booker announced their intention to merge in a GBP3.7bn (EUR4.52bn) deal. This bringing together of retailer and wholesaler is surely the common thread in this deal, and as such a defensive move for Sainsbury’s.
Try as it might to reduce its reliance on the category, P&H is primarily involved in the distribution of tobacco. A highly complex operation; and one that is surely more likely to be of interest to tobacco suppliers rather than a food retailer. Furthermore, the business is loss making and whilst its credit facilities have just been extended, its financial results are weak. In this sense, the attraction for Sainsbury’s would seem highly limited.
However, Tesco/Booker has created a wave of uncertainty across the industry and it makes sense that Sainsbury’s would at least consider the implications of joining forces with a wholesaler since its rival is doing so. Tesco – like Sainsbury’s – is a customer of P&H, but the difference is that Tesco accounts for 40% of P&H’s turnover as it is the distributor of tobacco and postage stamps to every Tesco store in the UK, as well as delivering other goods to its network of forecourts and Express minimarket stores. Whilst this agreement has just been extended for a further three years, it would surely make sense for Booker to provide these services to Tesco in the future, assuming the takeover is successful.Given the risk of losing its biggest customer, it makes complete sense for P&H to partner with another big retailer, but does it make sense for Sainsbury’s? Given the declining importance of tobacco; the complexity and limited profitability of the tobacco supply chain; and the poor financial health of its potential prey; we’d suggest that this move would be a distraction that probably does not add sufficient value for Sainsbury’s, which is already focused on leveraging synergies from its recent Argos acquisition.