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Green grows the Tesco-o

Robert Peston | 08:51 UK time, Friday, 8 June 2007

The BBC is probably a bit too obsessed with Tesco, so I feel sheepish in drawing to your attention that the great supermarket whale has this morning announced a takeover offer for a Scottish garden centre company (of all things) called Dobbies.

tesco_203pa.jpgBy its standards, Dobbies is just a light snack, a bit of plankton. It is paying £156m for a chain of 21 stores across Scotland and Northern England, which is the equivalent of less than three weeks of its own cash flow.

But it obviously wants this business pretty badly, because it is paying a fairly steep price in relative terms. The offer is the equivalent of more than twice Dobbies’ annual turnover and 17.5 times Dobbies’ earnings before interest, tax, depreciation and amortisation or EBITDA, which – for those not steeped in EBITDA lore – means it is paying 17.5 times this crude measure of operating cash flow.

The point of the deal, according to Sir Terry Leahy, Tesco’s chief executive, is to further reinforce Tesco’s green credentials – not in the sense of “green fingers” but the other more modish “green”.

dobbies_jpg.jpgThis is how Leahy puts it: “The increasing popularity of gardening, and in particular the trend towards environmentally friendly products, makes this an attractive sector for Tesco to invest in. The deal is an important part of our strategy to provide customers with greater access to affordable energy saving and environmental products. Garden centres are ideally placed to support this because for many people gardening is the way they express their desire to be green.”

I’ll be honest, but that’s not how I’ve ever thought of garden centres – but I can see what he means. So to be clear, this is NOT Tesco acquiring a load of freehold sites that might one day be convertible into supermarkets, should the tyrants of British planning allow such a conversion. Nothing could be further from Tesco’s mind: this is diversification.

But I nonetheless think the competition authorities should spend more than a few minutes considering the implications and whether the deal should be allowed. Right now, Tesco is deemed to be far too big to be allowed to buy another supermarket company. It circumvented that restriction a few years ago by buying a big chunk of the convenience store market, running rings around competition watchdogs.

Tesco is now so big in so many different product lines, there is a proper question to be asked about whether it should be allowed to expand at all through takeovers of any kind of retailer in the UK – as opposed to outside Britain, where the same concerns don’t apply.

Dobbies is a fairly small business in an apparently discrete sector. But as part of Tesco, it would be converted into a wholly different kind of economic force, a kind of fertiliser for a whole new form of the Tesco-isation of Britain. Green grows the Tesco-o.

Comments   Post your comment

  • 1.
  • At 11:22 AM on 08 Jun 2007,
  • Martin wrote:

Hmmm, exactly how can the authorities stop this takeover? There are thousands of garden centres and nurseries across the UK, particularly if you include the DIY chains that sell plants, spades, wheelbarrows etc. 15 Dobbies aren't on the radar as even the tiniest blip as a competition concern. Even if in 10 years they have expanded Dobbies to 500 stores it will still not be a competition issue. This is the tall poppy syndrome - Tesco have been so successful we need to cut them down to size. Well maybe they shouldn't be allowed to buy or open more grocery outlets, and maybe if they wanted to buy a clothing chain or a pharmacy chain that might provoke competition concern - but garden centres? that really is diversification and shouldn't be opposed.

  • 2.
  • At 11:59 AM on 08 Jun 2007,
  • Stephen Bradford wrote:

I beleve that Tesco is becoming too big and is entering far too many different market sectors. At this rate we (the consumer) will have no choice but to buy everything from Tesco. Not only food but every product and service you can think of. They are gradually stiffling the competition with their relentless march into every sector they can lay their hands on. I say 'enough is enough'. It's time to call a halt before our traditional town centres completly disappear.

Steve Bradford, West Sussex

  • 3.
  • At 12:01 PM on 08 Jun 2007,
  • Mike Burns wrote:

A very shrewd purchase by Tesco and excellent for the diversification issue to avoid problems with Competition Commision.

Lets think back 10 years ago to the last predominately Scottish Company bought by Tesco - William Low Supermarket chain. With 57 Stores mostly in Scotland and Northern Englad, Tesco gained a foothold in a market it was weakly represented in to become a market Leader North of the Border. At the time most analysts suggested Tesco overpaid for the chain (partly due to a Spolier Bid from Sainsbury for Wm Low) - but Tesco had the foresight of the value of the Bricks and Mortar of Wm Low in aquiring presence in a new market.

History Repeating itself! And it means I can stop piling bags of Tesco Compost into my food shopping and go to a proper Garden Centre which give me my Clubcard points.

  • 4.
  • At 12:20 PM on 08 Jun 2007,
  • Usha Sundaram wrote:

I think the media's paranoia about Tesco is reaching unhealthy proportions. As a customer, while I dont endorse many of Tesco's practices, I feel that it is being unfairly singled out for criticism by the media which does not take into consideration all the beneficial aspects offered by the supermarket sector. Our media is dominated by the middle class who still consider that shopping at M&S is the true test of being British. This is why we never see any stories critical of M&S or Waitrose in the media because it would amount to sacrilege even though the business practices of these institutions are no better than that of Tesco or any other supermarket. If Tesco can get into the garden centre market and give a stiff challenge to people like Homebase and B&Q who sell substandard plants at astronomical prices, then I am all for it.

  • 5.
  • At 12:41 PM on 08 Jun 2007,
  • Neil Print wrote:

This move should definitely be opposed. It may be just 15 stores for now but they'll soon expand those. Because they make huge profits from supermarkets they can afford to lose money in the garden centres offering goods for prices no other garden centre can compete with. When the competition goes out of business, they'll put the prices back up again. They'll repeat it all over the country so there won't be any independent centres left. Just like the 1000s of small shops they put out of business in every town they open a supermarket. Then they will decide to sell just the plants that they can produce the cheapest and for the most profit so you will no longer be able to find the diversity you can at present. And forget any advice that you can get now from intelligent knowledgeable independents, it will be some underpaid spotty oink who knows nothing about the products whatsoever.

  • 6.
  • At 01:03 PM on 08 Jun 2007,
  • Lance Hall wrote:

Good on Tesco, taking on another market. Everyone complains about Tesco, but it is the competition that the supermarkets provide the drive prices down. It is all very well for the middle classes to moan and look down on them, but for most people they provide excellent value.

  • 7.
  • At 01:39 PM on 08 Jun 2007,
  • Ken Fayers wrote:

Had a bright idea the other day on how to solve the housing shortage in the South East. Ban Tesco and the like from building single storey buildings. Just think how many key worker flats Tesco could put on the upper floors of it's Hyperstores! No shortage of resident parking either and very convenient for the shops.

  • 8.
  • At 01:49 PM on 08 Jun 2007,
  • Andrew wrote:

I like Dobbies as it is. Leave it alone TESCO!!!

I can't help but wonder whether the acquisition of Dobbies is as much about access to their property portfolio as about the garden sector itself.

  • 10.
  • At 02:40 PM on 08 Jun 2007,
  • Philip Netherwood wrote:

Although I agree no company should have too much control of any market sector, the criticism of Tesco's continued expansion is overdone and hypocritical. If Tesco brings some competition into what is often the overpriced sector of garden centres, great! If Sainsbury's could own Homebase (since sold to Argos I believe) then Tesco can clearly own Dobbies. As challenging as it may be for some, other garden centres need to decide how they respond and maybe join forces to compete with Tesco. All those who criticise Tesco's success should remember that their pension schemes probably partly invest in the company, so their continued success is in their interest. I live in a town where Co-Op are opposing plans to build a Tesco supermarket, but my gripe is with Co-Op for not competing effectively and building one before and for planners for the way they handled the whole process i.e. I think we miss the real issues by always complaining about Tesco!

  • 11.
  • At 03:20 PM on 08 Jun 2007,
  • Jane wrote:

Good for Tesco.I am really looking forward to get garden stuff at decent prices, good offers and clubcard point too. As for the rest of the DIY, they better get competitive or go bust. These are market forces in action. If Tesco have the guts and innitiative require to succed, good for them.
Regarding the too big complains, nobody forces people to buy from tesco.They do it because tesco offers something people like to buy and consider good value for money.
I wonder how may people complaining about tesco do their shopping somewhere else for ethical reasons!!
I certainly don't!

  • 12.
  • At 04:57 PM on 08 Jun 2007,
  • David Lee wrote:

A surprise move that has caught everyone on the hop.

Tesco sees this very much as a growth market as much as Sainsbury's did in the early 80s when they started Homebase.

However history has shown that Asda made a right mess of its merger with Allied Carpets and MFI in the early 80s, and in the end Homebase saw Sainsbury's take their eye off thier main grocery business.

Will the same happen here? Probably not as Dobbies is effectively small change and could be a market where it can exit without having too much detrimental effect to the worth of the company.

The entry into the US is more likely to be a potential bananna skin. If that goes up the pan, then Tesco will be hit hard

  • 13.
  • At 05:00 PM on 08 Jun 2007,
  • Bedd Gelert wrote:

Tesco will not stop until they reach the vision of it set out by Armando Iannucci.. Truly terrifying..

  • 14.
  • At 05:48 PM on 08 Jun 2007,
  • Paul Wilson wrote:

I'd far prefer Tesco takes this company over, rather than a foreign concern like ASDA - at least the profits and expertise are kept in this country!

  • 15.
  • At 08:00 PM on 08 Jun 2007,
  • Alistair White wrote:

It is totally ridiculous that anyone should write about restricting successful business operations, I firmly expect that most people who moan about the growing size of Tesco spend a considerable amount of money in either stores or those of their large competitors. Business that are successful and give the consumer what they want should be encouraged, and whilst no one wants no competition at all in the market place this cannot happen due to restrictions which are already in place and already work.

If you don’t like what Tesco and their competitors do then don’t shop there – for the rest of us, and looking at it – the vast majority Tesco give us exactly what we want.

  • 16.
  • At 08:35 PM on 08 Jun 2007,
  • Alistair wrote:

TESCO has gotten to where it is today by doing what it does well. Tesco is not the only supermarket around. In recent years I've lived in several different places and there has always been competition to Tesco. People have been able to chose between Morrison’s, Sainsbury's, Asda, Somerfield and Tesco (in some of the places where I've lived and places around those there have often been two or three of the above). In the Grocery Market Tesco holds under 40% of the market, which means more than 60% of the market choose to shop elsewhere. Tesco is one of Britain’s Success stories. They should stop moaning about it - would they rather that it was some big US corporation that dominated our Grocery market or a British born and bread company? I think that latter would be preferred by most. Tesco buying Dobbies is just another way of it diversifying. In business it is common for businesses to diversify into more than one area - it's good business practice to do so. Tesco may be the biggest single supermarket chain in Britain, but it certainly does not have a monopoly - far from it.

“it will be some underpaid spotty oink who knows nothing about the products whatsoever.”

Stop with the stereotypes. In comparison to others in the same market Tesco pays very well, it provides the training required and all the information needed is available - it’s members of the team who bother not to learn it. I work in the produce Department in a Tesco Extra store and know about a lot of my products - especially the exotic range which we get most questions about. And I certainly am not a spotty oink (and nor have I cam across many in the ten Tesco stores that I’ve worked in.

  • 17.
  • At 08:54 PM on 08 Jun 2007,
  • Donald Maclean wrote:

Dobbies used to be an institution to a generation of gardeners and their own staff, sadly now to be lost to the continuing greed of the big retailers. I for one will not be using them again and will find another gardening centre which actually cares about their customers more than their own profits.Given that all my neighbours think the same way, I fear for Dobbies staff and their morale in the future.

  • 18.
  • At 10:40 PM on 08 Jun 2007,
  • Chris wrote:

"This is why we never see any stories critical of M&S or Waitrose in the media"

The reason we dont hear criticisms about them is because they aren´t in every tiny sector they can get their hands on stifling local compeition and because they charge more, they pay their share of responsibility unlike cheaper supermarkets where everything is battery and anti-green - whatever they claim!

  • 19.
  • At 11:13 PM on 08 Jun 2007,
  • Lee wrote:

I just wonder what kind of world the Tesco lovers want to live in?

  • 20.
  • At 11:35 PM on 08 Jun 2007,
  • Tyke wrote:

Tesco had gardening centres until the early 80s so they are actually re-entering this sector.

  • 21.
  • At 12:15 AM on 09 Jun 2007,
  • Steven Pittock wrote:

i think it's a good idea Tesco takeing over Dobbies, least then there might be some competiton at the garden centres, since most of them are overpriced, and Tesco will be able to do it cheaper and get more customers in.

  • 22.
  • At 02:11 AM on 09 Jun 2007,
  • Andy wrote:

Firstly so much for the BBC being impartial, surely personal blogs of BBC journalists should be kept on personal websites so as to ensure the BBC's requirements to impartiality remain.

Now on to my view: Tesco is one of the best British companies out there, can't fault them at all, why should we stop a British company doing well? It's a great idea that Tesco expand in to gardening, it knows it needs to be greener and helps the millions of customers be greener and it also knows that the grocery and non food electrical markets are becoming too full to expand in, especially with the Victorian competition commission trying to stifle British success.

  • 23.
  • At 08:20 AM on 09 Jun 2007,
  • Scott Andrews wrote:

All these people complaining about Tesco, and whilst I may agree with them on some parts, Tesco has only got as big as it has because it has worked out the whims of the British public. The British public are the only people who can be blamed for the success of Tesco.

  • 24.
  • At 11:37 AM on 09 Jun 2007,
  • Steve wrote:

Lets look at this from the small independant garden centre's point of view. If Tesco go for cut price everything it will destroy the market, if they buy more garden centre chains and dominate the sector then there will be no competition, so they can increase prices.

A visit to a well run, family owned garden centre is time well spent, the knowledge and advice is free, the choice of stock is varied and at a fair price, the parking is also free! Tesco will push for higher margins from suppliers, some of whom will go out of business, but will they care, B & Q didn't care too much!

Lets see how long the staff stay at Dobbies once Tesco get hold of them!

Tesco might know retailing, they don't know horticulture!

  • 25.
  • At 08:28 PM on 09 Jun 2007,
  • Neil Saunders wrote:

Actually the proper question to ask is: how did Tesco get so big? The answer: it attained its power by providing consumers with what they want, when they want it and at the price they are willing to pay for it. In other words, they grew because shoppers were willing to spend their money there. The day Tesco fail the consumer is the day that their power wanes: just as happened in the case of Marks & Spencer some years ago.

In this regard the position of Tesco is diametrically opposed to that of the BBC. The BBC is an organization which exists on the basis of compulsion: every consumer who has a television has to pay a set amount for the service, regardless of if, or how much, they use it and regardless of whether they approve of its output. The BBC is a non-commercial entity funded by the threat of force. Of course, that may sound harsh, but when all of the niceties and vague descriptions of the service are stripped away that is the plain truth which is left.

If the BBC and its journalists are really concerned about consumer choice they should take the log out of their own eye before trying to remove the speck from Tesco’s.

  • 26.
  • At 09:43 PM on 09 Jun 2007,
  • Iain MacRae wrote:

What is it about British people,is it not enough that we have a company successful in various country's . But no, we have to shoot them down while rembering Arkwrights cornershop, "when i were a lad".It might be an idea to get Terry on the government BOARD....

  • 27.
  • At 10:34 PM on 10 Jun 2007,
  • James wrote:

If Tesco bring down prices good for them think how much your groceries would be without them? It’s the 21st century we’re never going to go back to local corner shops. This national obsession with Tesco is unhealthy everything it does seems to be scrutinised now. Maybe the reporter should look at his own employer before talking about about competition, at least I can choose shop at Tesco unlike my licence fee. I know this is a personal blog but I thought the BBC was supposed to be impartial if so opinionated blogs should be on a personal website.

  • 28.
  • At 10:04 AM on 11 Jun 2007,
  • Anonymous wrote:

Lets stop Tesco's!

..... And what - allow Wal Mart to do
the same? or move to a more comunist economic model in the UK?

The idea that the independant retailer is being forced out of business and that this is bad for competition is ludicrous. The point is that the independant retailer is being forced into competition. To survice they have to offer a unique selling point that justifies the price that they charge. If they cannot then the percieved benifit that they offer the consumer is not valued by the consumer at the premium that they are charging. Not all competition is based on Price and the consumer market, especially on green products is becoming more savvy, aided in no small part by the green political movement to educate the consumers.

  • 29.
  • At 03:39 PM on 11 Jun 2007,
  • Steve Fox wrote:

Superb Tesco taking on another market, hopefully doing well then going onto replicate that success internationally. Instead of looking for a negative story perhaps the media could give Tesco credit for its international success and encourage over British companies to aim for the same.

  • 30.
  • At 04:02 PM on 11 Jun 2007,
  • Richard wrote:

I live 2 miles from a Dobbies location and am incredibly sad that Tesco plan on buying it. Dobbies have always provided an excellent range of products and services and I know that this will now be reduced to fewer lines of generic products calculated to maximise Tesco's profits.

I have little doubt that within a few years my local outlet will house a 'convenience' store that will have put out of business a number of local village shops whilst also selling TV's, clothes and will be a Tesco store by another name.

It is incredibly worrying how we are sleepwalking into an environment where in a few years we will struggle to buy anything that is not provided by Tesco. I avoid supermarkets as much as possible as they actually provide poor value for money when you analyse it in any detail. Already it is very difficult to buy everything I need without having to visit a supermarket and this situation is only getting worse. Yes, Tesco is incredibly succesful but unfortunately this is at a price that most people have yet to realise.

  • 31.
  • At 04:57 PM on 11 Jun 2007,
  • Tim wrote:

Err why does everyone think Tesco is such a cheap place to buy fruit and vegetables? Supermarkets offer convenience and food provided shrink wrapped. If you want price fruit and vegetables there are often cheaper options in green grocers, or even cheaper farm shops and markets.

That green and pleasant land! Yes we are a nation of plantspeople and it is not a suprise that Tesco wants some of our gardening pennies but this is a Tescofication too far!

England, Scotland, Wales and NI are littered with gentle little countryside businesses selling plants, providing economic lifelines to small communities and providing for many, a community focus and social spaces often integrating art galleries, and crafts activities...

These small businesses employ the backbone of our countryside heritage in plant knowledge and craftmanship.

Tesco will be a blight on this landscape, a fungus that we won't be able to get rid off.... Imagine - 2012 - Tesco's Garden Centres, number 400, selling everything from Value (and diseased plants) to Chocolate Bars and Sandwiches to the kids.... what a horrible thought...

  • 33.
  • At 05:23 PM on 11 Jun 2007,
  • Kenny Saunders wrote:

I just wish Tesco could run the BBC, at least we would get value for money and the management would look for opportunites to save money which in turn can be passed onto the consumer. This has been Tesco's way for sometime now. The BBC have no competion and consumers have no choice. Maybe we should set the competion commision onto the BBC.
Finally, the author of the story should remain independant.....

  • 34.
  • At 08:01 AM on 12 Jun 2007,
  • nick wrote:

the problems of market domination must be placed in the context of customer benefit. if dobbies are now part of tesco, if they offer the same or better standard of service as before then there is no problem as far as customers go. this can be only positive. as one post rightly says, the numbers of outlets selling gardening products makes tescos acquisition of such small significance. maybe if they bought one of the much larger gardening chains it would be more of a problem. in the end it s we who pay for their products and one can save money simply by shopping right, looking for bargains and not simply paying the asking price, , in this sense it will always be the consumer who has last say in these matters.

  • 35.
  • At 09:56 AM on 12 Jun 2007,
  • Richard Smith wrote:

It's good to see so many of you e.g. Donald Maclean (message 17) haven't in any way pre-judged what might happen to Dobbies under Tesco ownership.

If there is one this Tesco excel at it is understanding the need to tread carefully when entering new markets, be that diversification of range or geographically speaking.

Comments such as "I for one will not be using them again and will find another gardening centre which actually cares about their customers more than their own profits" or "Imagine - 2012 - Tesco's Garden Centres, number 400, selling everything from Value (and diseased plants) to Chocolate Bars and Sandwiches to the kids" and "Tesco might know retailing, they don't know horticulture!" all display a heightened level of ignorance about Tesco & their working practices.

  • 36.
  • At 01:22 PM on 12 Jun 2007,
  • James wrote:

I currently work at Tesco and i think they are not to big at all if the competition can not compete with the growth of Tesco they should close there stores as tesco will hiring far more employees than a store like the Co-Op for instance.

  • 37.
  • At 01:23 PM on 12 Jun 2007,
  • Nick Hunt wrote:

It seems that the medias obsession with Tescos dominance is bordering on fever-pitch. What the media repeatedly fail to point out is that it is not in fact Tesco that drive small local businesses out of business! it is instead the consumer and everyones laziness that instead is the main driving force behind the local communities demise.

I live in a small village with it's own butcher's, corner and flower shops, all of which provide good's that are cheaper milk for instance is 20p cheaper, flowers are fresher and wider ranging and as for the butchers, well, it actually supplies meat! cheaper and of better quality. So why doesn't the vast majority take the cheaper option and support their local community?? simple laziness and convenience! why spend 30mins walking store to store and purchase high quality products when you can pull into an enormous car park and get everything under one roof, queue for an eternity and purchase sud standard products. Todays society is all about convenience Tesco offer that and like lambs everyone follows in the vain belief that it gains them more personal time. after the recent scandal highlighted by the BBC whistleblower problem how many actualy care?? not many and those who scream to kingdom come?? well you'll probably find them in front of you in the queue. Nobody really cares we're all suckered into believing that because it's under one roof it saves us time and money and are therefore losing as little personal time as possible. So next time one of these everyone point the finger at Tesco articles appear before complaining and being hypicritical just remember it aint Tesco you should be blaming it's the consumers own idleness!! See a queue join it!!!

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