Tesco in Carrefour tie-up as grocery deal frenzy ramps up
SUPERMARKET giant Tesco today unveiled an audacious tie-up with Carrefour, France’s largest grocer, in a bid to lower prices for shoppers and compete with a wave of industry consolidation.
The FTSE 100 retailer said it plans to enter into a “strategic alliance” with the Paris-headquartered firm which has 12,300 stores in more than 30 countries. They plan to source certain products jointly, broadening their offerings.
The partnership, set to be agreed in the next two months, is expected to give both parties more scale in negotiating with suppliers. No financial details were divulged. Tesco chief executive Dave Lewis said: “We will be able to serve our customers even better, further improving choice, quality and value.”
Carrefour’s boss Alexandre Bompard called it a “major” agreement. “It combines the purchasing expertise of two world leaders, complementary in their geographies, with common strategies,” he said.
Shares in Tesco, which bought wholesaler Booker for £4 billion in March, rose 1p to 257.7p. Retail experts immediately speculated the tie-up is a defensive move against rivals scrambling to reduce supply costs.
Today’s update comes two months after Sainsbury’s proposed merger with Asda which would create a supermarket behemoth larger than Tesco in the UK.
Russ Mould investment director at stockbroker AJ Bell said Tesco working with Carrefour “could put it in an even stronger position to cope with the proposed tie-up between Sainsbury’s and Asda, plus ongoing competition from discount supermarkets Aldi and Lidl”. Sainsbury’s-Asda followed the Co-op’s deal for Nisa, a supply deal between Morrisons and McColls and Amazon’s acquisition of Whole Foods.
Neil Wilson, chief markets analyst at Markets.com, added: “Every retailer is looking over their shoulder at Amazon and the potential disruption it could still cause in the grocery sector.”
The latest deal will cover Tesco’s and Carrefour’s relationship with suppliers and include joint buying of their ownbrand goods and goods not for resale (such as store fittings and pallets).
Sreedhar Mahamkali, analyst at Macquarie, predicted it could result in at least €250 million of combined savings. Although each firm will continue to work with supplier partners locally and nationally, there were concerns that
Every retailer is looking over their shoulder at Amazon and the potential disruption it could still cause
Neil Wilson Markets.com
suppliers could be hit hard. Phil Stocker, chief executive of the National Sheep Association, said a number of his members provide livestock to manufacturers that are used by Tesco.
He said: “We have to watch this with some caution that the result is not to put more pressure on what farmers are paid.”
Analysts at Shore Capital said: “We see today’s announcement as an interesting, and potentially very positive move for Tesco adding a combination of further scale and sourcing capability to an already powerful position in the UK.”