Tesco pairs up with France’s Carrefour and says deal will lead to lower prices

Tesco has partnered with French grocery giant Carrefour to create a “long-term, strategic alliance”, which it says will lead to lower prices for customers alongside opportunities for suppliers.

According to Tesco, the agreement will cover the strategic relationship with global suppliers, the joint purchasing of own brand products and goods not for resale. The partnership will be governed by a three-year operational framework.

The supermarket said: “The alliance will enable both companies to improve the quality and choice of products available to their customers, at even lower prices thereby enhancing their competitiveness.

“This agreement will also allow both companies to strengthen their relationships with their suppliers and create significant opportunities for those suppliers. Each company will continue to work with supplier partners at a local and national level.”

The alliance is set to be formally agreed within the next two months.

Dave Lewis, Tesco chief executive, said: “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.”

Carrefour’s chief executive, Alexandre Bompard, said: “This strategic alliance between Carrefour and Tesco is a major agreement as it combines the purchasing expertise of two world leaders, complementary in their geographies, with common strategies. This agreement is a great opportunity to develop our two brands at the service of our customers.”

The agreement between Tesco and Carrefour comes weeks after Sainsbury’s unveiled a proposed merger with Asda, which would create a combined group larger than Tesco in the UK.

Supermarkets are looking to bolster market share as Amazon remains a threat to the sector, with some experts predicting the US tech giant could make a direct move into the space by purchasing Morrisons.

The discounters also remain a threat, with Aldi and Lidl both continuing to grow their share of the market as consumers feel the pinch.

Laith Khalaf, senior analyst at investment group Hargreaves Lansdown, said the partnership would herald a new price war among supermarkets.

“A price war is great news for consumers, but it’s tinged with risk for shareholders,” he added.

“In theory, the big supermarkets can use greater firepower in the supply chains to lower prices, drive more sales, and perhaps even keep a bit more margin for themselves.

“However, the risk is that a tit for tat price war spirals out of control, and ends up lowering profit margins across the industry.

“The sector is already fiercely competitive, in no small part thanks to the emergence of the discounters Aldi and Lidl, and that comes against a background of shifting shopping habits.

“Challenging trading conditions have sparked a wave of reinvention in the UK supermarket sector, and this new partnership between Tesco and Carrefour is yet another stage in that process.”

A possible merger between Tesco and Carrefour was previously the subject of market speculation more than 10 years ago.