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Tesco and Carrefour to form ‘strategic alliance’

Supermarket giant Tesco is planning to join forces with French hypermarket chain Carrefour in a “strategic alliance” that will help it cut costs and improve profitability.

Both retailers are hoping to leverage their joint buying power in order to be able to lower the price of their own-brand products and pass the savings on to shoppers. According to the BBC, the partnership will see Tesco and Carrefour share certain own-brand products, giving them more power when dealing with global suppliers.

Employing 440,000 people, Tesco is the UK’s largest retailer and made a profit of £1.3bn last year with sales of £57.5 billion. The retailer recently recorded its 10th consecutive quarter of rising sales and said its growth plans are on track.

Carrefour meanwhile, is Europe’s largest retailer with 12,300 stores in over 30 countries and 2017 sales of £78 billion.

Both retailers have allegedly been in talks for two years regarding the alliance, which is expected to be finalised in the next two months.

“By working together and making the most of our collective product expertise and sourcing capability, we will be able to serve our customers even better, further improving choice, quality and value,” Tesco’s chief executive Dave Lewis told the BBC.

The alliance comes at a time when the big four supermarkets in the UK – Tesco, Sainsbury’s, Asda and Morrisons – face increasing competition from no-frills discount retailers Aldi and Lidl, whose own-brand model makes them hard to beat on price.

Consolidation is becoming increasingly common in the sector, with Tesco buying wholesaler Booker in March for £4 billion, making it the same size as Sainsbury’s, Morrisons, Marks & Spencer and Ocado put together, and Sainsbury’s currently in talks to buy Asda from Walmart.

“Another price war is looming in the UK supermarket sector. The Tesco partnership looks like a direct response to the threat posed by the proposed merger of Sainsbury’s and Asda, who will have access to the global buying power of Walmart as a result,” Laith Khalaf, senior analyst at Hargreaves Lansdown, told the BBC.

The big four supermarkets have been steadily increasing their own-brand ranges as they allow for greater control and the potential for higher margins.

As result, big brands will have to fight harder for shelf space in the coming months and smaller brands risk being pushed out of stores completely.

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