Supermarkets enter alliance
• Tesco and Carrefour agree to join forces for better terms from suppliers
Europe’s largest supermarket groups, Carrefour and Tesco, have agreed on a global purchasing alliance to demand better terms from major suppliers.
Europe’s largest supermarket groups, Carrefour and Tesco, have agreed on a global purchasing alliance to demand better terms from major suppliers.
With combined annual sales of $170bn, the partnership is designed to secure lower prices from the likes of Nestle, Procter & Gamble, Unilever and Danone to help the French and British groups stay competitive.
The announcement marks the latest reinvention in an industry grappling with a rapid move online, competition from discount groups such as Aldi and Lidl and looming US internet giant Amazon.
Analysts said the combined firepower should help Carrefour, which has lower margins than Tesco, but warned it could lead to a spiralling price war. Suppliers said it posed a threat to their survival.
“This ... combines the purchasing expertise of two world leaders, complementary in their geographies, with common strategies,” said Carrefour CEO Alexandre Bompard.
The alliance will cover strategic relations with global suppliers in marketing services and data collection and the joint purchasing of own-brand products and goods used in their own businesses, Carrefour said.
The alliance, which will be formally agreed within two months, is unlikely to include fresh food products as each company will continue to work with supplier partners at a local and national level.
Financial terms were not disclosed. The companies said it would be governed by a “threeyear operational framework”.
“By working together and making the most of our collective product expertise and sourcing capability, we will be able to serve our customers even better,” said Tesco CEO Dave Lewis.
Lewis joined Tesco from Unilever where he ran its personal care division.
Analysts at Jefferies estimated the deal could lead to initial total savings of £400m.
“More generally we wonder whether the advance of players like Amazon and the German discounters [businesses underpinned by truly global supply chains] will continue to force a drastic change in sourcing processes,” they said.
European groups Auchan Retail, Casino, Metro and Schiever agreed on their own purchasing partnership last week. Tesco faces a threat to its market leadership in Britain after second-ranked Sainsbury’s agreed to buy Wal-Mart-owned Asda, the No 3 player. It said in June it would cut food prices to stay ahead of rivals.
Some analysts speculated the Carrefour-Tesco alliance could even be the precursor to a merger of the two.
Carrefour and Tesco have limited overlap and the partnership excludes the two countries where they do — Poland and China. Carrefour, Europe’s largest retailer, makes the bulk of its €88bn worth of sales in Europe and Brazil.
Tesco operates in Britain, Ireland, eastern Europe, Malaysia and Thailand, and has a wholesale presence in India.