Tesco and Carrefour team up to create joint buying group

UK supermarket giant Tesco has announced it is to join forces with France’s Carrefour to buy products for more than 19,000 stores, which the retailers claim will result in more choice and lower prices for consumers.  

This is the first time that a British grocery retailer has teamed up with a European counterpart to create a joint buying force, and comes in the wake of the announcement that rival UK supermarkets Sainsbury’s and Asda are to merge.   At the same time, the German discount retailers Aldi and Lidl continue to increase their share of the UK grocery market.

The deal between Tesco and Carrefour could lead to more French products such as wine and cheese being sold in Tesco, and more British products in Carrefour, though details have yet to be firmed up, according to a Tesco spokesperson.  

‘‘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,” commented retail analyst Patrick O’Brien of GlobalData. “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, he added, this is another sign of the battles ahead, with Sainsbury’s and Asda both having 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, claimed O’Brien, while reducing the number of branded products they sell as they increase their own-brand ranges.  

Analysts at Jefferies have estimated that the combined buying power of Tesco and Carrefour is  more than £80bn annually, with an almost equally sized contribution by each to the total, according to a report in the Guardian. They think  the groups could reap total savings of £400m. The Jefferies analysts added that the partnership “may also lead to some speculating whether it is the precursor of a return to cross-border M&A in the space”.  

Philip Benton, a research consultant at Euromonitor International, added: “Tesco may also see this as a safeguarding of risk against possible supplier price rises in the event of a hard Brexit.”  

Under the partnership which will be formally agreed within the next two months, Tesco and Carrefour could further reduce their costs by buying petrol for delivery vans jointly and also share costs for services such as accounting and legal work. clubbing together to buy petrol for delivery vans  

“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 chief executive Dave Lewis.