Can Tesco really have announced a tie-up in the style of a buying group? It has worked for three years now to take buying back to the principled old days - only this time with lashings of data support. No longer just a blunt instrument to bludgeon suppliers into loss making decisions, their focus has been on selling more to shoppers.
Sure, most suppliers hated the range resets, but those that made it through understand what a smart move it was to deduplicate and declutter whilst getting prices down. More recently the Tesco/supplier love-o-meter dipped furiously upon the announcements at the IGD Business Update on a ‘sourcing/supplier reset’. The details are not out yet though broadly it’s possible to see - not only the logic of simplifying the supply base but also a justification within principled guidelines of dealing with the remaining ‘supply partners’, especially in own label. Whilst it’s not going to be fun for suppliers, no doubt once again those who make it through will look back with admiration.
But this Carrefour tie-up suggests a turn to the dark side, so it will be interesting to see how Tesco claims a smart, principled interface on this one. There is no doubt the global footprints of the businesses are complementary. No doubt it puts a shot across the JS ASDA deal. And it could be a smart short-term business move. But is it really a ‘strategic alliance’ or basically just another buying group?
Read more: Tesco-Carrefour: who needs to merge when you can forge an entente cordiale?
The latter have had limited success because they have all the benefits of a stone in your shoe. There are no economies of scale for the big suppliers they target for price reduction, just a bigger gun to wave in your face alongside the range threats. But of course, they can’t pull the trigger without compromising the selling proposition across two very different shopper bases - the very reason Tesco has been performing. A blunt instrument with nothing to offer but a self-destructive threat.
The references to a ‘strategic alliance’ must be seen only for the own label side, where I can’t help thinking Carrefour has more to gain. France has the fastest own label declines, down 0.7% in share whilst in the UK own label share is up to 52.5% [IRI] and Tesco’s drive for differentiation has been largely responsible. Carrefour can also learn from the data mining game that Tesco plays better than any. They’ve already been talking about it lately and must have picked up what’s going on in Tesco around the discussion table.
From a Tesco POV there must be a jewel or two in a reciprocal sharing of own label suppliers - after all, I always eat well in France. But contending with the cultural differences, business language, annual negotiation cycle and attrition attitude, I don’t think the juice is worth the squeeze. Perhaps it’s just a PR stunt to take the shine off the Sainsbury’s/Asda deal.
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