Tesco adds 45 sites in central London after £54m takeover

Tesco extended its dominance of the British retail landscape yesterday when it paid £54m for the Cullens, Europa Foods and Harts grocery chains.

The deal will boost the multimillion pound fortunes of the Patel families, who have pioneered upmarket convenience store shopping in London since emigrating to Britain some 20 years ago. But it will exacerbate fears about the territorial ambitions of the UK's biggest supermarket chain - £1 in every £8 spent in the High Street already goes into Tesco tills.

Tesco plans to unfurl its red, blue and white banner across the 45 sites it is buying, which are located in some of the capital's plushest areas, such as Holland Park, Chelsea and Kensington. The name of Cullens, one of the oldest in the grocery world, belonging to a group which once rivalled J Sainsbury as the country's biggest food chain, will vanish from London's streets, as will Europa and Harts.

Tesco, meanwhile, plans to quadruple the size of its Tesco Express convenience store estate to 1,000. Yesterday's deal comes just 12 months after Tesco made its first major push into the corner shop market by buying T&S Stores for £377m.

Adminstore, the private company behind Harts, Europa and Cullens, is a partnership between the Kenyan-born brothers Naresh and Mahesh Patel and their unrelated business partner Jitu Patel. The trio joined forces in the mid-Eighties, when Jitu, 51, bought Europa Foods.

They plan to plough the bulk of their £53m windfall into the Hindu temple at Neasden: the world's biggest outside India. Jitu, who arrived in the UK from Zambia in 1978, will still run five London shops, which he plans to re-brand under the Crispins Food and Wine brand - the name of his first convenience store in London's Barbican Centre.

Jitu Patel, who says he has his Hindu faith to thank for his success, said yesterday that Tesco would take the trio's stores to "even greater heights in the years to come".

Although Tesco's move will please those last-minute shoppers and drink-ravaged night owls forced to rely on the exorbitant prices charged by Cullens et al, it will dismay legions of corner shop owners who will be unable to compete with the mighty Tesco's buying power. The cost of a packet of shrink-wrapped pre-washed green beans from a Tesco Express may sometimes seem high, but is actually only 3 per cent more than the very competitive prices the retailer charges in its superstores.

The Association of Corner Stores, which represents 31,500 neighbourhood stores, hit out at the deal, which increases Tesco's near 27 per cent share of the food retailing market. "Forget level playing field - it's completely unbalanced," a spokesman for the lobby group said of the pressure it will place on the other owners of the corner shop world.

David Rae, the group's chief executive, said: "The implications are serious for the sustainability of the industry, especially for the thousands of independent single stores and small groups that still represent the overwhelming majority of neighbourhood retailers."

Iceland's owner, the Big Food Group, added its voice to those calling for the Government to block the deal - or at the very least refer it to the country's top competition watchdog for investigation. "Since 1992 over 25,000 neighbourhood stores have closed as the market has become ever more concentrated. There is a clear case for this acquisition to be investigated," said Bill Grimsey, chief executive of the Big Food Group.

Tesco said the deal needed regulatory clearance and shareholder approval before it would be able to start converting the sites to its Express format. That the authorities waved through its acquisition of T&S's 1,100 sites without a murmur gave its spokesman grounds to declare yesterday that the group was "reasonably confident" of getting the Government's nod for its latest round of acquisitions.

Sir Terry Leahy, Tesco's chief executive, will argue that the UK's largest retailer, with global sales of more than £28bn, is a relative minnow in the highly fragmented convenience store world, with barely a 6 per cent market share.

Contrast that with its 27 per cent grip on the country's overall food retail market, a supremacy that prompted the Government to block Tesco's opportunistic £3bn bid for Safeway. Not bad for a company that, alongside Asda, was one of the country's two failing retailers in the UK 10 years ago.

Started by a war veteran, Jack Cohen, in 1919, Tesco grew rapidly from its market-stall roots to a chain of more than 100 stores by the end of the 1930s. Its name came from the initials of Mr Cohen's tea supplier, T E Stockwell, and the first two letters of his own name. Today it operates around 2,300 stores around the world and employs almost 300,000 people.

RISE OF THE GREAT UNDERCUTTER

Flowers: Tesco sells cut flowers in stores, but has started a delivery service of bouquets in an attempt to rival Interflora. Delivery is free with Tesco orders, undercutting the £4.75 charge by Interflora. But it falls down where disorganised customers are concerned; while Interflora guarantees same-day delivery, Tesco only promises next day delivery on orders before 3pm. A dozen red roses from Interflora costs £72.50 excluding delivery; Tesco offers two dozen roses for £52.25.

Books, CDs and DVDs: The surprise best-seller of Christmas 2003, Lynne Truss's Eats, Shoots and Leaves, is being sold at Books Etc for the cover price of £9.99, while Tesco has it at £6.69. In terms of music, Tesco also manages to undercut the competition: Dido's album Life for Rent on CD is £8.89 at Tesco and £9.99 at HMV. With certain products, such as DVDs, the price difference is less marked: Pirates of the Caribbean on DVD costs £15.29 at Tesco and £15.99 at HMV.

Non-prescription medicines: Banishing a headache is cheaper at Tesco - but only just. Aspirin costs 16p for 16 while at Boots the same amount costs 19p. Cough medicine is also cheaper - Tesco sells cough syrup for £1.07 while at Boots, Lemsip cough medicine comes in at £2.79. St John's Wort Extract, a popular herbal remedy for depression, is £10.45 for 60 tablets at Tesco and £16.50 for 50 tablets at Boots.

Electrical: An Alba 21in colour television from Tesco will set customers back £134.95 while at Dixons a Philips 21in colour television costs £168. Tesco stocks video players at £59 while a Dixons Matsui video player is £69. A trendy Dyson vacuum cleaner bought from Tesco is £136.95 but at Argos it costs £168.

Insurance: Tesco offers a range of insurance products, including cover for home, cars, pets and travel as well as life insurance. Which? analysed 2,700 premiums from 30 insurance companies in October 2002 and found Tesco's among the top five cheapest products on offer.

Internet: Tesco offers unlimited Internet access for £12.49 per month and daytime access (from 2am until 4pm) for £5.99 per month. This undercuts the Freeserve Anytime package over one year by £7.50, under their deal of £7.49 for the first three months, and £14.99 thereafter. Tesco also offers home telephone talk plans to rival BT, aiming to undercut the cost of calls by 30 per cent, and mobile telephone services at competitive rates.