European grocery giants Tesco and Carrefour have partnered to “create a long-term strategic alliance” designed to improve product quality and choice and to lower prices for consumers.
The agreement will allow both companies to strengthen their negotiations with their suppliers and create “significant opportunities” for them, according to a joint statement. It will cover joint purchasing of own-brand products and goods not for resale, such as cleaning products or pallets. Each company will continue to work with their supplier partners at a local and national level.
The partnership will last three years, but financial terms of the deal have not been disclosed.
The move comes as European supermarkets continue to consolidate. Sainsbury’s purchased Asda from Walmart for approximately $4.1 billion in May, giving the UK grocers a combined footprint of 2,800 stores. Sainsbury’s held 15.9% of the UK grocery market in the 12 weeks ending April 22, 2018, while Asda accounted for 15.5%, according to Kantar Worldpanel. Combined, this market share would beat Tesco’s 27.6% share in the UK. Tesco acquired Booker, a UK-based food wholesaler and convenience store operator, for $4.7 billion in November 2017.
In the wake of the merger, Sainsbury’s said it plans to cut prices on many popular products by 10%. Price decreases at Sainsbury’s and Tesco-Carrefour could create a “price war” similar to that in the U.S. between Amazon, Walmart, and other grocers such as Kroger and Albertsons, especially since low-price competitors Lidl and Aldi have rapidly expanded throughout Europe. While lower prices would be a win for the consumer, both retailers (and their supply chains) would feel the pressure of lower profit margins.
The Tesco-Carrefour partnership could bring total savings of £400 million ($528 million), with Carrefour standing to benefit more given its lower margins, according to Jefferies analyst James Grzinic.
The partnership will be formalized within the next two months, according to the statement.