From the pages of Produce Business UK

It’s official. Tesco and Carrefour have joined forces, entering into a formal long-term, strategic alliance that is slated to become operational in October. 

In an official release from Tesco, the alliance is said to cover the strategic relationship with global suppliers, the joint purchasing of own brand products and goods not for resale. 

Amid tough competition in the produce sector, the partnership has been strategically formed to reduce the cost of their supply by strengthening key relationships with global suppliers.

This ultimately will give both Tesco and Carrefour exclusive leveraging power to bring product quality, selection and ultimately lower price points to its customers. Each of the two companies is said to continue to work with supplier partners at both a local and also a national level. 

“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," says Alexandre Bompard, Chairman and CEO of Carrefour Group. "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.”

The two retailers first announced the partnership in July, stating that it aimed to improve the quality and choice of products available to its customers. One month later, they have made the deal official. 

The agreement will start as a three-year operational framework, effective October 2018. 

Cutting prices for customers 

Aldi and Lidl are the two leading discount retail stores in the world. They have masterminded buying power with suppliers and exceptionally well-planned logistical operations around the world. The result: unbeatable price points.

Other retailers, including the Big Four — Tesco, Asda, Sainsbury’s and Morrisons — have tried to keep up. Struggling to match the Aldi and Lidl domination has resulted in huge market share loss, as well as customer loyalty for retailers such as Carrefour and Tesco. This latest partnership aims to shake things up, bringing both retailers back into a strong competitive edge. 

Trend in supermarket mergers

The news of the Tesco Carrefour alliance comes shortly after Sainsbury’s £12 billion (US$15.5 billion) mega merger with Asda, aimed at creating a powerhouse with exceptional buying power, and ultimately lower prices. The two retailers openly have stated that suppliers will need to bring down the price of everyday products because of  the merger. 

However, this deal has become largely controversial with The Competitions and Market Authority reviewing the case and beginning an inquiry and invitation to comment, giving interested third parties, such as suppliers, the chance to submit their views and concerns on the deal.

The Sainsbury’s Asda merger follows a similar arrangement between French chains Casino, Auchan and Schieve, as well as Germany’s Metro. 

Tesco’s 2018 strategy:

Despite the fact that Aldi and Lidl are crowned as the UK’s fastest growing supermarket, in terms of market share Tesco is still holding its place as No. 1. With a current market share of 27.1 per cent, according to Kantar Worldpanel’s latest grocery market share report, Tesco has experienced particularly strong growth from its extra superstores. The varied selection of groceries on offer at these larger stores has encouraged customers to return to fuller trolley shops, with average baskets worth £31.09 – currently, the highest value in the bricks-and-mortar market.

Its standing power at the top of the chain is also attributed to several bold moves already enforced this year by the UK retailer. These include its £3.7bn takeover of wholesaler Booker, the United Kingdom's largest food wholesale operator, offering branded and private-label goods to more than 400,000 customers, including independent convenience stores, grocers, pubs, and restaurants.

The UK supermarket is also rumoured as imminently launching the budget supermarket chain Jack’s, with around 60 existing stores slated to be transformed into the low-price supermarket.

Finally, earlier this year Tesco announced the closure of Tesco Direct, its digital non-grocery business arm, which is a direct rival to Amazon. 

French regulators look into the Tesco-Carrefour relationship

In an environment of fierce price wars in France, distributors have multiplied alliances in recent years to better negotiate their purchase prices, strengthen their competitiveness and preserve their margins. France's national competition regulator, L'Autorité de la concurrence (Competition Authority) is investigating the new Tesco-Carrefour deal. 

“The Authority has decided to reinforce its investigations into these purchases in order to evaluate the competitive impact of these reconciliations on the relevant markets, both upstream for the suppliers, and on the downstream for consumers," says the institution, in a statement. 

Other mergers include Casino, which has previously allied with Intermarché, now turning to Auchan for a global merger, while Système U, a former Auchan ally, has joined forces with Carrefour for five years, allowing it to become a leader in purchases in France. 

L’Autorité de la concurrence is thus investigating alliances between France’s Auchan, Casino, Schiever, and Germany’s Metro, and Carrefour and Systeme U.