At first glance, Booker's marriage proposal to its cash-and-carry rival Nurdin & Peacock looks a rather odd union. The business of supplying Happy Shopper beans and loo rolls to local corner shops is a shrinking one. Independent retailers are being squeezed by the mighty supermarket operators and the cash and carry companies are finding themselves squeezed alongside them. It is a wonder anyone wants to be in the business at all, let alone expand in it.
The boring old cash-and-carry groups have tried all manner of things to perk up the market. N&P thought it had found the holy grail a few years ago when it launched Cargo Club, an attempt to mirror the huge cut-price grocery chains that were all the rage in America. The idea bombed and after a couple of years was abandoned.
The rationale of this deal is less to do with the market itself than our old friend, cost-cutting and, of course, the advantages of eliminating your closest rival. Both companies are about to invest heavily in technology. Those plans can now be streamlined.
Indeed, Booker's and N&P's combined sales will be north of pounds 4bn, which is comparable buying power to a very substantial multiple. The combined group will also have stronger buying power and a stronger position in own brands.
In other respects, too, the companies look a neat fit. Booker is stronger in the North while N&P's stronghold, such as it is, lies in the South. Booker has a stronger position in supplying the catering trade while N&P has been struggling along with its convenience store partners. While this is undoubtedly a case of managing decline and using the cash thrown off by a mature business to invest in other areas, there's nothing necessarily wrong with such a strategy.
Booker has already established cash-and-carry businesses in Portugal and Poland and would like to expand elsewhere in eastern Europe. In these countries the smaller retailer and corner shop are still strong. The superstore operators have yet to gain a stranglehold on food retailing. On the whole, the City likes the deal and the strategy. Unexciting it may be but you cannot fault the logic of it.