July 03, 2018
By: Kantar Consulting Research Team

Tesco and Carrefour revealed their intention to form a three-year strategic alliance focused on both direct, major brands and private label, and indirect purchasing. While the move comes on the back of subsequent consolidation of direct purchasing in Europe, it reinforces cost synergies being increasingly sought in new areas, especially on the operational side. The announcement opens a new chapter in both retailer’s history, paving the way to numerous scenarios relating to how their joint future is poised to change the future of retailing in Europe and beyond.

What led up to it?

Fending off common threats: faster disruptors and bigger rivals

A decade on from the major Global financial crisis, the European retail landscape is almost unrecognizable. Discounters have taken the continent by storm, while eCommerce pure-players have ridden the technology advancements, capitalising on shopper appetite for convenience, to gain a place at the negotiating table. This last decade witnessed a new trend emerging, as mainstream retailers started to react, and reshuffle European buying alliances, a dynamic that continues. During this period Carrefour and Tesco have undergone significant transformation, shifting strategies, and leadership, to mitigate new risks. While competitors were forging cross-border, national and category alliances, Tesco and Carrefour focused on defending their leading home market share even at the expense of their international portfolios.

Throughout this period, Tesco and Carrefour maintained their leading home market scale, while constantly being in the crosshairs of competitors, that is, until recently. Both have gradually seen their home market share eroded at the expense of nimble local rivals like Sainsbury’s- Asda or Leclerc, to their mutual international competitors Lidl, Aldi and Amazon; as well as new players like Deliveroo or Just Eat. Both businesses fell under pressure, partly due to increased scale and complexity of their operations, and investor pressure for dividends. These challenges were coupled with delays in deploying relevant counter-strategies in convenience and online. Only recently has Carrefour sought help, having teamed-up with Système U in France around a five-year strategic partnership. Similarly, Tesco, having forged the Booker merger, has regained the upper-hand in the market, enjoying an uplift in investor confidence.

Even such measures remain tardy and reactionary to the accelerated pace of change characterizing the retail industry across Europe. The Sainsbury’s-Asda merger, the ‘Horizon’ alliance between Casino, Auchan and Metro AG along with the ancillary European alliances, are all evolving the relationships between key retail players and main suppliers. The pricing pressures are stronger than ever before. Moreover, the reach of these partnerships has begun to span outside Europe, the legacy cradle of purchasing alliances, into other geographies such as Asia and Latin America.

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