Tesco seeks competition boost and price cuts in alliance with France’s Carrefour
The UK grocery firm said it expects to strike a formal deal with Carrefour in the next two months.
Tesco is to form a “strategic alliance” with French retailer Carrefour as part of efforts to cut prices and get a leg up on competitors.
The long-term deal will be covered by a three-year framework and see the two companies form a “strategic relationship” when dealing with global suppliers.
It will also entail the joint purchasing of their own-branded products.
A statement explained 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”.
Tesco and Carrefour claim the agreement would also create “significant opportunities” for their suppliers.
A formal agreement is expected within the next two months.
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 could give Tesco an extra edge against competitors, including discounters such as Aldi, Lidl and Asda.
Recent figures from Kantar Worldpanel show that Tesco’s market share decreased to 27.7% over the 12 weeks to June 17, from 27.9% a year ago.
That was despite sales growing 1.4% over the period.
The sector is also contending with the planned £12 billion merger of rivals Sainsbury’s and Asda.
While Sainsbury’s promised to bring down prices on everyday items after it completes the deal, the German discounters responded aggressively, saying they will remain the cheapest option on the high street.
Aldi and Lidl have both been gaining market share in the UK by undercutting the so-called Big Four supermarkets – Asda, Sainsbury’s, Morrisons and Tesco.
Neil Wilson, a chief market analyst for Markets.com, said: “On both sides of the Channel rising costs are putting pressure on margins.
“Meanwhile every retailer is looking over their shoulder at Amazon and the potential disruption is could still cause in the grocery sector.
“With uncertainty over future trading relations, it may also mitigate some effects of Brexit, although we would need more details on both before making assumptions.
The announcement also comes hot on the heels of Tesco’s recently completed £3.7 billion takeover of wholesaler Booker.
“Management clearly felt that they had to respond to the Asda-Sainsbury tie-up, which promised to lower prices for every day items,” Mr Wilson explained.
“But there is the inherent contradiction of that deal in this partnership too in that they talk about strengthening relationships with suppliers and delivering lower prices at the same time, the kind of logic that is designed to assuage competition authorities but leaves sceptics unimpressed.”
Tesco shares were down around 0.4% in early trading.