Tesco and Carrefour strike deal over buying might

By Dominique Vidalon

Europe’s largest supermarket groups Carrefour and Tesco have agreed to form a global purchasing alliance to demand better terms from major suppliers in the latest attempt by the industry to drive down costs.

With combined annual sales of €145.5bn, the partnership is designed to secure a better deal from the likes of Nestle, Procter & Gamble, Unilever, Danone, and others to help the French and British groups to compete hard on price.

Such alliances are becoming increasingly common in Europe’s retail sector as supermarkets battle to keep prices down to counter the German-owned discount groups Aldi and Lidl and the looming shadow of US internet giant Amazon.

Carrefour has been struggling at home while Tesco could lose its long-held No 1 spot in Britain after second-ranked Sainsbury’s agreed to buy Wal-Mart-owned Asda, the No 3 player in the UK.

Analysts warned the two groups needed to avoid triggering a 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.

To be formally agreed over the next two months and to run for an initial three years, the alliance will cover the joint purchasing of own-brand products and goods used by the companies, as well as marketing and data collection.

It is unlikely to include fresh food as both companies will still work with suppliers at a local and national level.

“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, a former Unilever executive.

Carrefour, which started talks with Tesco last autumn, stands to benefit from Tesco’s expertise in own label products, Morningstar analysts said. 

These account for around 50% of Tesco sales against 25% for Carrefour.

According to Euromonitor International, a combined Carrefour and Tesco will hold an 8% share of the Western European grocery market, ahead of Lidl’s owner on 6% and Aldi Group on 5%.

Reuters

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