Tesco to buy Booker for £3.7bn, signals new confidence at the firm

Britain's biggest supermarket Tesco has agreed to buy leading food wholesaler Booker for £3.7bn reasserting its dominance with a bold move into the faster-growing restaurant and pubs market. The move may seem of little relevance to the fashion sector but it is part of a general trend for UK superamrket giants to diversify as they seek expansion opportunities in a challenging market.

Rival Sainsbury's has taken the approach of moving further into general merchandise, boosting its Tu clothing line, buying Argos and opening Habitat mini locations in its stores.

Tesco remains committed to its in-store and online F&F clothing offer, as well as its online general merchandise operation but sees foods as the key expansion channel for now. Its takeover of Booker signifies the supermarket chain's generally growing confidence after two years of turmoil. However, it could mean other moves, such as a Sainsbury's-style expansion outside of the foods sector, in the future.

Chief Executive Dave Lewis's focus has been on reviving Tesco's main grocery business in Britain, and in a joint statement with Booker it said on Friday that together the pair would be able to address more of Britain's growing food market.

"The Tesco of old is back," said John Ibbotson of Retail Vision. "This is an extremely bold move and demonstrates an intent and sense of purpose that have been missing for the best part of a decade."

By adding Booker, Tesco will gain exposure to supplying Britain's cafe, restaurant and pub market, which is growing faster than the eat-at-home market served by its shops. Booker supplies 450,000 catering outlets including chains such as Wagamamas and Carluccio's.

"This merger with Booker will further enhance Tesco's growth prospects by creating the UK's leading food business with combined expertise in retail, wholesale, supply chain and digital," Lewis said in a statement.

The deal sees Lewis, who took the helm at Tesco in 2014 when the firm was in a state of crisis and losing market share rapidly, switch to acquisition mode from his strategy of streamlining the sprawling international business.

Over the last two years he has sold Tesco's South Korean arm for $6.1bn, as well as its Turkish business and the Giraffe restaurant chain.