Tesco and Carrefour align ahead next grocery price war

UK grocery retailer Tesco has announced plans for a ‘strategic relationship’ with French retail giant Carrefour. The partnership will see the two jointly deal with global suppliers as well as sharing own brand products.

The tie-up has been under discussion for more than two years, with both retailers expecting to formalise the deal in next two months, and will create a buyer with significant scale – Tesco is the UK’s largest retailer, while Carrefour is the largest in Europe. Tesco’s workforce totals more than 440,000 people across a network of 6,809 stores, with revenue of £57.5bn in 2017. Carrefour operates more than 12,000 stores in over 30 countries. Sales in 2017 totalled £77.9bn, with headcount over 375,000. 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 move comes during a period of rapid change for the grocery market, particularly in the UK but also more widely. Already in 2018, Walmart all but exited the UK when it sold its controlling interest in Asda to Sainsbury’s, another of the UK’s big four supermarkets. There are also other highly competitive pressures in the market. As in many areas of retail, Amazon is applying pressure to the established grocery players – its acquisition of Whole Foods in 2017 gave it a store network it chose to focus on London, where its Amazon Fresh grocery delivery service also operates. Moreover, discount retailers Aldi and Lidl have taken significant market share in the UK, driving tough price competition.   

This is a move which makes sense for Tesco and Carrefour in a number of ways. Aldi and Lidl, for example, already have large, Europe-wide sourcing and retail networks, which combined with their own-brand focus allows them to leverage scale. To an extent, the partnership’s joint buying and sharing of product ranges will afford its parties similar advantages. Another large UK grocery retailer, Morrisons, is part of the much larger AMS Sourcing group, through which it leverages the buying power of its partners. Again, the Tesco-Carrefour partnership addresses this type of competitive imbalance. In this light, the move to collaborate seems like a no-brainer.

Alongside the advantages both Tesco and Carrefour will gain in buying power comes the efficiency the extra scale should deliver in their supply chains. This will be vital as consolidation in the UK grocery market looks set to drive another price war. Asda and Sainsbury’s merger, Aldi and Lidl’s business model, and Morrison’s established partnerships had to varying degrees given them an advantage in the event a price war broke out. Tesco and Carrefour’s partnership looks evermore vital in this context. Over the next few months it may well be in these retailers’ supply chains – the ‘hidden competitive advantage’ – where the war is won or lost.

Source: Ti


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