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)


US eases restrictions on China’s Huawei to keep networks, phones operating

Updated 21 May 2019
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US eases restrictions on China’s Huawei to keep networks, phones operating

  • The company is still prohibited from buying American parts and components to manufacture new products without license approvals
  • Out of $70 billion Huawei spent buying components in 2018, some $11 billion went to US firms
WASHINGTON: The US government on Monday temporarily eased some trade restrictions imposed last week on China’s Huawei, a move that sought to minimize disruption for the telecom company’s customers around the world.
The US Commerce Department will allow Huawei Technologies Co. Ltd. to purchase American-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets.
The company is still prohibited from buying American parts and components to manufacture new products without license approvals that likely will be denied.
The US government said it imposed the restrictions because of Huawei’s involvement in activities contrary to national security or foreign policy interests.
The new authorization is intended to give telecommunications operators that rely on Huawei equipment time to make other arrangements, US Secretary of Commerce Wilbur Ross said in a statement.
“In short, this license will allow operations to continue for existing Huawei mobile phone users and rural broadband networks,” Ross added.
The license, which is in effect until Aug. 19, suggests changes to Huawei’s supply chain may have immediate, far-reaching and unintended consequences for its customers.
“The goal seems to be to prevent Internet, computer and cell phone systems from crashing,” said Washington lawyer Kevin Wolf, a former Commerce Department official. “This is not a capitulation. This is housekeeping.”
Huawei, the world’s largest telecommunications equipment maker, declined to comment.
The Commerce Department said it will evaluate whether to extend the exemptions beyond 90 days.
On Thursday, the US Commerce Department added Huawei and 68 entities to an export blacklist that makes it nearly impossible for the Chinese company to purchase goods made in the United States.
The government tied Huawei’s addition to the “entity list” to a pending case accusing the company of engaging in bank fraud to obtain embargoed US goods and services in Iran and move money out of the country via the international banking system. Huawei has pleaded not guilty.
Reuters reported Friday that the department was considering a temporary easing, citing a government spokeswoman.
The temporary license also allows disclosures of security vulnerabilities and for Huawei to engage in the development of standards for future 5G networks.
Reuters reported Sunday that Alphabet Inc’s Google suspended business with Huawei that requires the transfer of hardware, software and technical services except those publicly available via open source licensing, citing a source familiar with the matter.
Google did not immediately respond to a request for comment on the new authorization.
Out of $70 billion Huawei spent buying components in 2018, some $11 billion went to US firms including Qualcomm Inc. , Intel Corp. and Micron Technology Inc.
“I think this is a reality check,” said Washington trade lawyer Douglas Jacobson. “It shows how pervasive Huawei goods and technology are around the globe and if the US imposes restrictions, that has impacts.”
Jacobson said the effort to keep existing networks operating appeared aimed at telecom providers in Europe and other countries where Huawei equipment is pervasive.
The move also could assist mobile service providers in thinly populated areas of the United States, such as Wyoming and eastern Oregon, that purchased network equipment from Huawei in recent years.
John Neuffer, the president of the Semiconductor Industry Association, which represents US chipmakers and designers, said in a statement that the association wants the government would ease the restrictions further.
“We hope to work with the administration to broaden the scope of the license,” he said, so that it advances US security goals but does not undermine the industry’s ability to compete globally and remain technology leaders.
A report on Monday on the potential impact of stringent export controls on technologies found that US firms could lose up to $56.3 billion in export sales over five years.
The report, from the Information Technology & Innovation Foundation, said the missed opportunities threatened as many as 74,000 jobs.
Wolf, the former Commerce official, said the Huawei reprieve was similar to action taken by the department in July to prevent systems from crashing after the US banned China’s ZTE Corp, a smaller Huawei rival, from buying American-made components in April.
The US trade ban on ZTE wreaked havoc at wireless carriers in Europe and South Asia, sources told Reuters at the time.
The ban on ZTE was lifted July 13 after the company struck an agreement with the Commerce Department that included a $1 billion fine plus $400 million in escrow and replacement of its board of directors and senior management. ZTE, which had ceased major operations as a result of the ban, then resumed business.
(Reporting by Karen Freifeld in New York and David Shepardson in Washington; Additional reporting by Diane Bartz in Washington and Angela Moon; Editing by Lisa Shumaker and Cynthia Osterman)