Tesco and Carrefour to create long-term strategic alliance

FacebooktwitterredditpinterestlinkedinmailFacebooktwitterredditpinterestlinkedinmail

Tesco and Carrefour are announcing their intention to enter into a long-term, strategic alliance.

The Alliance will cover the strategic relationship with global suppliers, the joint purchasing of own brand products and goods not for resale. It will be governed by a three-year operational framework.

The Alliance will enable both companies to improve the quality and choice of products available to their customers, at even lower prices thereby enhancing their competitiveness. This agreement will also allow both companies to strengthen their relationships with their suppliers and create significant opportunities for those suppliers. Each company will continue to work with supplier partners at a local and national level.

It is anticipated that the Alliance will be formally agreed within the next two months. Following formal agreement, both parties will start to work towards realising the benefits outlined above.

Dave Lewis, Tesco group chief executive, said: “I’m delighted to be entering into a strategic alliance with Carrefour. 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.”

Alexandre Bompard, chairman and CEO of Carrefour Group, said: “This strategic alliance between Carrefour and Tesco is a major agreement as it combines the purchasing expertise of two world leaders, complementary in their geographies, with common strategies. This agreement is a great opportunity to develop our two brands at the service of our customers. This international alliance further strengthens Carrefour allowing it to reach a key milestone in the implementation of its strategy.”

Patrick O’Brien, UK retail research director at GlobalData, said the Tesco/Carrefour tie-up would focus on own-brand to fight Aldi and Lidl.

‘‘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,” he said. “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.

“For suppliers, this is another signal of battles ahead. Sainsbury’s and Asda have made it clear that it will target its largest suppliers for cost reductions by flexing their increased scale, and 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.”

Philip Benton, research consultant at Euromonitor International, commented: “The strategic alliance between Tesco and Carrefour is a latest in a series of consolidation between the major grocery retailers in Western Europe. Tesco and Carrefour are equally worried with the purchasing power that German discounters Aldi and Lidl enjoy as the price race to the bottom continues and will likely accelerate when Amazon makes its play on food in Europe.

“Tesco are also concerned of the impact that Sainsbury’s acquisition of Asda could have on their own supply chain domestically so would have felt compelled to act quickly and decisively. According to Euromonitor International, the combined value sales of Tesco and Carrefour gives them a 8% share of the Western European grocery market which dwarfs that of Lidl’s owner Schwarz Beteilgungs (6%) and Aldi Group (5%), providing the scale where they will be able to be aggressive in their pricing strategy for non-fresh food products.

“Tesco may also see this as a safeguarding of risk against possible supplier price rises in the event of a hard Brexit and Carrefour are facing an increasingly competitive sector in their home market of France with rivals Auchan Retail, Casino, Metro and Schiever announcing their own purchasing partnership.”

Company Shares (Global Historical Owner) | Historical | Retail Value RSP excl Sales Tax | % breakdown  
Geographies Categories Companies 2012 2013 2014 2015 2016 2017
World Supermarkets Carrefour SA 1,40 1,40 1,40 1,30 1,30 1,30
World Supermarkets Tesco Plc 0,90 0,80 0,80 0,80 0,70 0,60

Source: Euromonitor International