French supermarket giant Carrefour and Tesco have announced plans to form a long-term strategic alliance to leverage their joint purchasing power with suppliers.
The alliance is set to include strategic relationships with global suppliers, joint purchasing of own-brand products and goods not for resale.
A three-year framework will govern the functioning of the partnership. “The alliance will enable both companies to improve the quality and choice of products available to their customers, at even lower prices thereby enhancing their competitiveness,” said the firms in a joint statement.
“This agreement will also allow both companies to strengthen their supplier relationships and create significant opportunities for those suppliers.”
Both chains are set to continue to work with existing suppliers at a local and national level.
The alliance is set to be formally agreed in the next two months.
Dave Lewis, Tesco Group chief executive, 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.
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.
Dap Wijeyeratne, former principal at Efficio, told SM it was “not a given” that Tesco and Carrefour would be able to find savings by combining spend with common suppliers, as savings delivered by “wielding a bigger stick” are rarely sustainable and erode relationships.
Where Tesco Carrefour can make significant procurement savings is in the whole goods not for resale sector, such as spend on temporary staff, logistics and distribution, store fit-out, marketing, HR services and IT.
Duplication will exist in every area and the company can leverage the significant combined spend with a selection of quality suppliers, delivering savings and improving service to the benefit of themselves and the supply base at large.
While Tesco is the UK’s largest retailer, the French chain is Europe’s largest. Analysts have largely described the tie-up as a response to the tightening of retail markets across Europe.
Tesco is facing increasing domestic pressure from Sainsbury’s, which announced earlier this year that it was in the plans to buy Asda from Walmart.
That merger, once complete, will relegate Tesco to the position of second largest supermarket chain in the UK.
Both Tesco and Carrefour are facing increasing threats from online retailers such as Amazon.
Earlier this year Carrefour announced a partnership with Google.
This article was originally published in Supply Management.