Tesco and Carrefour, two of Europe's biggest supermarket chains, are creating an alliance to wring better deals out of suppliers as traditional retailers battle increased competition from internet traders.

A customer walks in front of the entrance of Carrefour Nantes Beaujoire hypermarket in Carrefour, France, January 15, 2018
A customer walks in front of the entrance of Carrefour Nantes Beaujoire hypermarket in Carrefour, France, January 15, 2018 (Reuters)

France's Carrefour and Britain's Tesco, Europe's two largest supermarket groups, plan to form a global purchasing alliance to cut costs in the face of competitive pressure.

The deal is the latest partnership in a European retail industry into which US internet giant Amazon has made inroads in recent months.

The alliance will cover strategic relations with global suppliers in areas such as marketing services or data collection as well as the joint purchasing of own-brand products and goods used in their own businesses, Carrefour said. 

Excluding fresh food

The alliance, which will be formally agreed in the next two months, will exclude fresh food products, while each company will continue to work with supplier partners at a local and national level.

Financial terms of the alliance were not disclosed. Tesco, Britain's biggest supermarket with sales of $67.2 billion (51 billion pounds), has been rebuilt by Chief Executive Dave Lewis after a 2014 accounting scandal compounded a sharp downturn in trading.

As part of that recovery the group, which has operations in eastern Europe and Malaysia and Thailand, has improved its relations with suppliers, while raising pressure on its domestic rivals with price cuts.

Tesco faces a threat to its market leadership in Britain from plans by second-ranked Sainsbury's to buy Wal-Mart owned Asda, the number three player.

Carrefour, Europe's biggest retailer, makes the bulk of its $102.5 billion (88 billion euros) worth of sales in Europe, while Brazil is its second-largest market after France. The deal with Tesco excludes China and Poland.

In April it gave a cautious outlook for this year after sales growth slowed in the first three months, with continued weakness in its core French market suggesting that the supermarket chain faces a long road to recovery.

Carrefour announced earlier this year a five-year purchasing alliance with French supermarket firm Systeme-U to make Carrefour the biggest buyer in its competitive home market.

Competition in France has been fierce, with smaller rival Casino's Monoprix chain in March becoming the first local retailer to sell groceries via Amazon in the Paris area. This followed a deal last year between Casino and grocery e-commerce technology provider Ocado Group.

Source: Reuters