Wed, Jul 04, 2018 - Page 10 News List

Tesco-Carrefour alliance to be hard gig for suppliers

The Guardian

Food retailing seems to have turned into a game of choose a partner, or as boardrooms would see it, an exercise in high-level maneuvering. Here comes Tesco PLC, using NATO-style language to unveil its “long-term, strategic alliance” with French retailer Carrefour SA, complete with a three-year “operational framework” to guard against corporate secrets falling into the wrong hands. All it is really talking about is combining buying clout to demand lower prices from suppliers.

STRATEGIC TALK

Grand strategic talk is in fashion in the age of Amazon.com Inc. Retail executives talk of the industry evolving into a handful of global alliances, as happened with national airlines. Walmart Inc is spending US$16 billion to buy the Indian e-commerce leader Flipkart Pvt Ltd.

In the UK, Sainsbury’s PLC is also to enter the US retailer’s orbit if the merger with Walmart’s Asda is approved by the UK Competition and Markets Authority.

Out in China and Southeast Asia, there is Alibaba Group Holding Ltd (阿里巴巴), the local answer to Amazon. Meanwhile, German-owned discount supermarkets Aldi Einkauf GmbH and Lidl GmbH are already global players. The Tesco/Carrefour deal creates a new sphere of influence.

It is too soon to speculate about a formal merger between Tesco and Carrefour, but such a script is clearly possible if the buyers cohabit happily. Tesco was long ago forced to abandon its go-it-alone approach to global expansion after flopping in the US and China. Getting cozy with Carrefour, a company with which it competes only in eastern Europe, sounds safer from the point of view of its shareholders.

THE LOSERS

The open question is who loses from the process of organizing food sourcing into a handful of leading global chains. Big consumer goods companies such as Nestle SA, Coca-Cola Co, Unilever PLC and Kraft Heinz Co are the official targets, as they achieve 15 percent-plus profit margins while the supermarket trade gets by on about 3 percent, which is the nub of why Sainsbury’s thinks it should be allowed to combine with Asda.

Yet, the share prices of big branded companies are not obviously trembling in fear of a retailers’ revolt. The market thinks that Unilever and the others will be perfectly able to look after themselves if the fighting over prices turns rougher.

If so, the worries should be for small suppliers and providers of own-label products. Selling to a retailer that sees itself as a part of a supranational alliance, created to find supply chain efficiencies, sounds like a very tough gig for them. Tesco, like Sainsbury’s and Asda, says that local producers are not in its sights, and that small businesses should think fondly of the opportunities to sell to a bigger customer.

Treat that claim with skepticism. Life has rarely worked out pleasantly for the little folk when the squeeze is on.

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