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Tesco and Carrefour plan 'strategic alliance' to buy products Tesco and Carrefour plan 'strategic alliance' to buy products
(about 4 hours later)
Tesco and France’s Carrefour are teaming up to buy products over the next three years, a move the supermarket groups claim will lead to greater choice and lower prices for customers. Tesco and France’s Carrefour are teaming up to buy products for more than 19,000 stores, a move the supermarket groups claim will lead to greater choice and lower prices for customers.
The three-year strategic alliance between Britain’s biggest grocer and Europe’s largest retailer will cover the relationship with global suppliers and the joint purchasing of own-brand goods. While the decision may be good news for shoppers, analysts said the planned three-year strategic alliance between Britain’s biggest grocer and Europe’s largest retailer will squeeze suppliers further.
Tesco and Carrefour say they aim to improve the quality and choice of products in their supermarkets and sell them at even lower prices. Each company will continue to work with their suppliers at a local and national level. Tesco and Carrefour say by buying own-brand products together they aim to improve the quality and choice of products in their supermarkets and sell them at cheaper prices. Each company will continue to work with their suppliers at a local and national level.
The move could lead to more camembert, wine and other French products being sold in Tesco stores, and more British products in Carrefour supermarkets, though details have yet to be finalised, according to a Tesco spokeswoman. The strategy could lead to more camembert, wine and other French products being sold in Tesco stores and more British products in Carrefour supermarkets, although details have yet to be finalised, according to a Tesco spokeswoman.
Both retailers are under pressure, as Amazon has moved into traditional grocery retailing with the acquisition of Whole Foods. Both retailers are under pressure because Amazon has moved into traditional grocery retailing with the acquisition of Whole Foods.
It introduced its online food delivery service, Fresh, in the UK last year after signing a wholesale deal with the British supermarket Morrisons. Amazon also opened its first checkout-free grocery store, known as Amazon Go, in Seattle, Washington, in January.It introduced its online food delivery service, Fresh, in the UK last year after signing a wholesale deal with the British supermarket Morrisons. Amazon also opened its first checkout-free grocery store, known as Amazon Go, in Seattle, Washington, in January.
Under the alliance, to be formally agreed within the next two months, Tesco and Carrefour could also reduce their costs by clubbing together to buy petrol for delivery vans, as well as services such as legal services and accounting. Sainsbury’s has made it clear that if its proposed takeover of Asda is given the go-ahead from competition regulators, it will target its biggest suppliers for cost reductions by flexing its increased buying power.
“Tesco and Carrefour will look to do the same while reducing the number of branded products they sell as they increase their own-brand ranges,” Patrick O’Brien, the UK retail research director at GlobalData, said. “For suppliers, this is another signal of battles ahead.”
Analysts at Jefferies estimate the combined buying power of Tesco and Carrefour at more than £80bn annually, with an almost equally sized contribution by each to the total. They believe the groups could reap total savings of £400m by clubbing together.
The Jefferies analysts added that the partnership “may also lead to some speculating whether it is the precursor of a return to cross-border M&A [mergers and acquisitions] in the space”.
Under the alliance, to be formally agreed within the next two months, Tesco and Carrefour could also reduce their costs by clubbing together to buy petrol for delivery vans as well as services such as legal services and accounting.
The Tesco chief executive, Dave Lewis, said: “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, further improving choice, quality and value.”The Tesco chief executive, Dave Lewis, said: “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, further improving choice, quality and value.”
The Tesco spokeswoman said a “clean team” would be established between the two companies, to ensure they did not see each other’s pricing or other commercially sensitive information. The Tesco spokeswoman said a “clean team” would be established between the two companies to ensure they did not see each other’s pricing or other commercially sensitive information.
It is the first such cross-border purchasing partnership involving a major UK retailer. The deal comes just days after France’s Auchan Retail, Casino Group and Schiever Group teamed up with Germany’s Metro, internationally and in France. It is the first such cross-border purchasing partnership involving a major UK retailer. The deal comes only days after France’s Auchan Retail, Casino Group and Schiever Group teamed up with Germany’s Metro, internationally and in France.
Neil Wilson, the chief market analyst at Markets.com, said: “An entente cordiale between the two giants of British and French retailing is yet another sign that squeezing the cost base is the biggest priority for supermarkets as they seek to contain the discounters and protect margins.Neil Wilson, the chief market analyst at Markets.com, said: “An entente cordiale between the two giants of British and French retailing is yet another sign that squeezing the cost base is the biggest priority for supermarkets as they seek to contain the discounters and protect margins.
“On both sides of the Channel, rising costs are putting pressure on margins. Meanwhile every retailer is looking over their shoulder at Amazon and the potential disruption is could still cause in the grocery sector.” FMCG suppliers can't seem to catch a break - supermarket consolidation, Amazon stepping up private label efforts and now a buying alliance between two of the world's largest food retailers.
In January, Carrefour announced plans to cut costs and jobs, beef up investment in e-commerce and seek a partnership in China. “On both sides of the Channel, rising costs are putting pressure on margins. Meanwhile, every retailer is looking over their shoulder at Amazon and the potential disruption it could still cause in the grocery sector.”
Carrefour is slashing thousands of jobs and other costs, and ramping up digital investment after suffering falling profits for the second year in a row.
Tesco has fared better recently, recording its strongest sales growth in seven years, boosted by its acquisition of the Booker wholesaler, but is also under pressure from the German discounters Aldi and Lidl.
The independent retail analyst Natalie Berg tweeted: “Interesting collaboration. Buying alliances are common in Europe but unusual to see two of the largest global food retailers join forces. Everyone’s choosing sides before Amazon strikes.”
Referring to fast-moving consumer goods, she added: “FMCG suppliers can’t seem to catch a break – supermarket consolidation, Amazon stepping up private label efforts and now a buying alliance between two of the world’s largest food retailers.”
GlobalData’s O’Brien said: “Tesco is obviously concerned by the increased potential buying scale of a combined Sainsbury’s and Asda, and both it and Carrefour are worried by the idea of Amazon making more ambitious moves in European grocery retail.
“However, it should be noted that a key focus of the tie-up is to reduce prices on own-brand products and this is more of a direct response to Aldi and Lidl, whose offers are heavily weighted towards own-brand. Tesco and Carrefour have both struggled to match the discounters on quality and price, and the alliance should help it compete.”
Tesco
Chief executive Dave LewisNumber of employees worldwide 440,000Annual revenues £51bn (£64.5bn estimated post-Booker)Annual profits £1.6bnNumber of countries 10Number of stores 6,800
Carrefour
Chief executive Alexandre BompardNumber of employees worldwide 374,500Annual revenues €88bnAnnual profits €2bn Number of countries more than 30Number of stores 12,300
TescoTesco
SupermarketsSupermarkets
Retail industryRetail industry
FranceFrance
EuropeEurope
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