Suppliers Reel After Tesco, Carrefour Agree To Combine Procurement Powers

Two supermarket conglomerates are teaming up and combining their leverage to get better payment terms from their suppliers. Reports in Reuters on Sunday (July 1) said France’s Carrefour and the U.K.’s Tesco, Europe’s largest grocer groups, are forming a global purchasing alliance that would enable them to obtain better terms with suppliers and reduce costs for end customers.

According to reports, the two companies together see annual sales of $170 billion. Working together could help them secure better terms and contractual terms with suppliers like Procter & Gamble, Nestlé and Unilever. The two decided to team up as competition rises in the supermarket industry, particularly in the face of cheaper emerging rivals like Amazon, ALDI and Lidl.

Tesco, in particular, stands to lose its number-one market spot in the U.K. after its top rival Sainsbury’s agreed to acquire Asda from Walmart. Carrefour CEO Alexandrre Bompard said the agreement “combines the purchasing expertise of two world leaders, complementary in their geographies, with common strategies.”

Reports said analysts are warning that their collaboration could spark a price war, while their suppliers are condemning the decision, claiming it threatens their survival.

“On top of the recent Sainsbury’s — 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,” said FoodDrinkEurope Director General Mella Frewen.

Euromonitor International said Carrefour and Tesco hold a combined 8 percent of the western European grocery market, though their agreement will not apply to Poland and China, the two markets in which they overlap. Some have speculated that their collaboration could signal a merger ahead, reports said.

Cavendish Corporate Finance Head of Consumer and Retail Jonathan Buxton said, “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.”