Carrefour and Tesco in a purchasing alliance to cut costs

Two of the biggest European retailers aim to increase leverage over suppliers

Carrefour shopping trolleys. The firm has sealed a purchasing deal with UK rival. Reuters

Carrefour and Tesco, two of Europe's largest retailers, said on Monday they had finalised a purchasing alliance to increase their leverage with suppliers in the fiercely competitive supermarket sector.

The French and British supermarket giants said in a joint statement that they expect the alliance to become operational in October, according to Agence France-Presse.

Tesco chief executive, Dave Lewis, said in June when the plan was announced that the alliance would enable the supermarket chains to "serve our customers even better, further improving choice, quality and value".

Other European rivals are similarly scrambling to reduce supply costs.

Britain's second and third-biggest supermarket chains, Sainsbury's and Walmart-owned Asda, have agreed to merge.

In June, France's Auchan, Casino and Schiever groups said they will combine forces with Germany's Metro in purchasing.

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While Tesco remains profitable and has seen rising sales, Carrefour posted a loss of $861 million (Dh3.65 billion) in the first half of the year and is undertaking a cost cutting and restructuring programme to reduce its reliance on giant stores.

Last week, Majid Al Futtaim, the Dubai conglomerate which operates Carrefour stores in the Middle East, posted a 13 per cent increase in revenue during the first half, as the company’s regional expansion helped weather the impact of value-added taxation at home.

Sales climbed to Dh17.8bn from a year earlier despite “adverse market conditions,” chief executive Alain Bejjani told Bloomberg TV in Dubai. Earnings before interest, taxation, depreciation and amortisation grew 4 per cent to Dh2.1bn.

The purchasing tie-up with Tesco should help Carrefour in its bid to raise the percentage of own-brand goods on its shelves from around a quarter currently to one-third, AFP said. For Tesco, own-brand goods already account for half of the goods on its shelves.

The three-year purchasing alliance does not include fresh goods.