Europe's largest supermarkets team up to cut better deals from suppliers
- Two of Europe's largest supermarkets, Carrefour and Tesco, are forming a global purchasing alliance in order to negotiate better deals with their suppliers (like Nestlé, Procter & Gamble and Unilever), according to Reuters.
- The two grocers are still negotiating terms, but once those are solidified, the alliance will last three years, according to Bloomberg.
- The alliance could put greater pressure on food brands to acquiesce to the grocers' terms (technically there will be less competition), helping grocers maintain a more competitive edge. Suppliers have not yet commented on the alliance.
German discount grocers, like Lidl and Aldi, are pushing traditional grocers all over the world to rethink their inventory management and procurement strategies.
Tesco has been fighting to maintain a competitive edge for some time now: the grocer has recently seen sales decline while Aldi and Lidl continue to grow, but last year it acquired a wholesale business to bump up its e-commerce presence and pricing control.
Tesco isn't the only one seeking new ways to compete. A few months ago, Wegman's cut the prices of some of its brands down to comparable Aldi levels in order to lure consumers away from Aldi.
But slashing prices for consumers may not be enough to keep traditional grocers' profit margins from shrinking.
According to Reuters, European grocers already boycotted supplier Nestlé earlier this year over its high prices. Thus, this new alliance between Carrefour and Tesco could help limit supplier disputes and improve supplier relationships. Good supplier relationships can make a huge difference in a company's financial health and profitability, especially in highly competitive industries like grocery.
But the alliance could also frustrate some suppliers and send them running to competitors. Food brands like Nestlé are quickly developing and strengthening their own logistics and distribution strategies and won't hesitate to cut better deals with less pushy grocers.
If a purchasing alliance like this is going to work, Carrefour and Tesco will need to make sure their terms are attractive to suppliers.
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