Tesco and French supermarket group Carrefour’s decision to end its three year alliance does “not come as a big surprise” according to one retail expert.
The agreement, struck in 2018, was supposed to lead to greater choice and lower price for customers. However, it will now come to an end on December 31.
In a statement released today to the stock market the two supermarket groups said they had “benefitted from a number of joint buying opportunities.”
However, “both companies have agreed that they will continue this work independently and focus on their own opportunities, building on the experience and the progress made during the alliance period.”
Clive Black, a retail analyst at Shore Capital, said he believes the there was very little to gain from the agreement.
He said: “For whatever reason, regulatory, cultural, and operational, there would appear to be little notable benefit from the alliance on an ongoing basis.
“Such a view does not come as a great surprise to us, having observed many attempts by major grocery chains to explore economies of scale through amalgamated buying.
For whatever reason, regulatory, cultural, and operational, there would appear to be little notable benefit from the alliance on an ongoing basis.”
“In truth, the outcome is far from clear or impressive for major players; apart from bananas, it was not especially evident in food for Asda in the UK being part of Wal-Mart, never mind other buying groups.”
During the past three years the relationship has seen them take part in a number of joint buying opportunities across food and general merchandise, giving them access to new suppliers, sources and products.
Doubts over agreement to start with
Mr Black said he believed the benefit of the alliance for either parties was questionable to begin with.
He said: “At the time of the announcement of the Carrefour-Tesco Alliance, we questioned whether or not we would ever be able to identify any benefit of the alliance in either groups’ financial statements, and we think the answer is clear.
“As such, we do not have a strong view on the prospective end of the buying alliance as we do not believe that it amounted to a great deal in the first place.”
Possible future merger not out of the question
But Mr Black does wonder if the two could eventually benefit from a formal merger.
He said: “Their respective categories and geographies remain very complementary, especially given Tesco’s retrenchment over the past decade, with the British Isles remaining an efficient and substantial market of approaching 70 million shoppers.
“Such a thought is not likely to be diluted as Amazon, in particular, dips more than its toes into the European grocery market, commencing in the UK.
“As ever, time will tell as to the respective pathways of these major European labels. From January 2022, absorbing their respective collaborative experiences, they will once again be arm’s length.”
By operating in different markets, the companies could avoid competition pressures. In 2019, the UK’s competition watchdog ended the proposed merger between Sainsbury’s and Asda over fears it would raise prices for consumers.
