Retailers Carrefour and Tesco join forces in strategic alliance to boost purchasing firepower

The Carrefour-Tesco deal is the latest partnership within the European retail industry, which has seen US Internet giant Amazon make in-roads into the sector in recent months. (Reuters)
Updated 02 July 2018
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Retailers Carrefour and Tesco join forces in strategic alliance to boost purchasing firepower

  • Carrefour and Tesco agree to form a global alliance aimed at cutting costs
  • The move comes as Amazon makes inroads into European market and suppliers are concerned that they risk being squeezed hard

PARIS/LONDON: 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 cut costs.
With combined annual sales of $170 billion, the partnership is designed to secure lower prices from the likes of Nestle, Procter & Gamble, Unilever, Danone and others to help the French and British groups stay competitive at home and abroad.
The announcement marks the latest reinvention in an industry that is grappling with the rapid move online, competition from discount groups such as Aldi and Lidl and the looming shadow of US Internet giant Amazon.
Analysts said the combined firepower should help Carrefour, which has lower margins than Tesco, but warned it could lead to a spiralling 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.
The alliance will cover strategic relations with global suppliers in areas such as marketing services or data collection as well as the joint purchasing of own-brand products and goods used in their own businesses, Carrefour said.
The alliance, which will be formally agreed in the next two months, is unlikely to include fresh food products as each company will continue to work with supplier partners at a local and national level.
Financial terms were not disclosed. The companies said it would be governed by a “three-year operational framework.”
“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,” said Tesco CEO Lewis.
Lewis joined Tesco from Unilever where he ran its personal care division.
Analysts at Jefferies estimated the deal could lead to initial total savings of 400 million pounds or 450 million euros.
“More generally we wonder whether the advance of players like Amazon and the German discounters (businesses underpinned by truly global supply chains) will continue to force a drastic change in sourcing processes,” they said.
European groups Auchan Retail, Casino, Metro and Schiever agreed their own purchasing partnership last week.
Tesco faces a threat to its market leadership in Britain after second-ranked Sainsbury’s agreed to buy Wal-Mart owned Asda, the number three player. It said in June it would cut food prices to stay ahead of rivals.
Some analysts speculated that the Carrefour-Tesco alliance could even be the precursor to a merger between the two.
TOUGH TIMES
Carrefour and Tesco have limited overlap and the partnership excludes the two countries where they do — Poland and China.
Carrefour, Europe’s largest retailer, makes the bulk of its 88 billion euros ($102.5 billion) worth of sales in Europe and Brazil while Tesco operates in Britain, Ireland, eastern Europe, Malaysia and Thailand, and has a wholesale presence in India.
The two groups also face challenges on the horizon.
Carrefour has issued cautious targets for this year after weakness in its home market weighed on sales growth in the first three months of the year.
In January it announced plans to cut costs and jobs, boost e-commerce investment and seek a partnership in China, in an effort to lift profit and revenue and beat domestic rivals in the race to develop digital shopping products.
It has already agreed a five-year purchasing alliance with French supermarket firm Systeme-U to make Carrefour the biggest buyer in its home market where competition has been fierce.
Smaller rival Casino’s Monoprix chain in March became the first local retailer to sell groceries via Amazon in the Paris area. This followed a deal last year between Casino and grocery e-commerce tech provider Ocado Group Plc.
Tesco, with sales of 51 billion pounds ($67.2 billion), has rebuilt itself under Lewis after the discovery of an accounting scandal in 2014 compounded a sharp downturn in trading, which strained relations with its suppliers at the time.
The group has cut costs, invested in stores and bought wholesaler Booker to be able to expand into supplying restaurants, cafes and local stores.
Shares in both Carrefour and Tesco made only modest gains, with European stock markets under pressure.
Mella Frewen, director general of industry body FoodDrinkEurope, warned that the creation of such huge buying alliances threatened her members
“On top of the recent Sainsbury — ASDA alliance, this will have a huge impact on the balance of power along the food chain, to the detriment of all suppliers, regardless of size.”
Jonathan Buxton, head of Consumer and Retail at M&A advisory group Cavendish Corporate Finance, said the partnership was designed to contain discounters, defend margins and counter any future move by Amazon.
“While the partnership stands to partially solve the significant strategic and market issues both retailers face, there is clear logic for the deal to become permanent and could result in a formal merger between the two firms.” ($1 = 0.7595 pounds) ($1 = 0.8587 euros)


Urgency needed to boost Palestinian economy: IMF chief

Updated 26 June 2019
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Urgency needed to boost Palestinian economy: IMF chief

  • The MF has been warning of severe deterioration in the Palestinian economy
  • ‘If there is an economic plan, if there is urgency, it’s a question of making sure that the momentum is sustained’

MANAMA: IMF chief Christine Lagarde said Wednesday that major economic growth was possible in the Palestinian territories if all sides showed urgency, as she took part in a US-led conference boycotted by the Palestinian leadership.
The International Monetary Fund has been warning of severe deterioration in the Palestinian economy, with tax revenue blocked in a dispute with Israel which has also imposed a crippling blockade on the Gaza Strip for more than a decade.
“If there is an economic plan, if there is urgency, it’s a question of making sure that the momentum is sustained,” said Lagarde.
The IMF chief is attending a conference in Bahrain to discuss the economic aspects of a United States plan for Israeli-Palestinian peace, which has already been rejected by the Palestinians as it fails to address key political issues.
Lagarde said for the US plan to work “it will require all the goodwill in the world on the part of all parties — private sector, public sector, international organizations and the parties on the ground and their neighbors.”
Citing examples of post-conflict countries, Lagarde said that private investors needed progress in several sectors including strengthening the central bank, better managing public finance and mobilizing domestic revenue.
“If anti-corruption is really one of the imperatives of the authorities — as it was in Rwanda, for instance — then things can really take off,” she said.
The plan presented by White House adviser Jared Kushner calls for $50 billion of investment in the Palestinian territories and its neighbors within a decade.
The proposals for infrastructure, tourism, education and more aim to create one million Palestinian jobs.
Gross domestic product in the Gaza Strip declined by eight percent last year, while there was only minor growth in the West Bank.
Kushner, opening the conference on Tuesday, called the plan the “Opportunity of the Century” — and said the Palestinians needed to accept it before a deal can be reached on political solutions.
The Palestinian Authority has rejected the conference, saying that the US and Israel are trying to dangle money to impose their ideas on a political settlement.
Washington says it will unveil the political aspects of its peace deal at a later date, most likely after Israel’s September election.