Tesco and Carrefour alliance – bad news for suppliers

London, UK: Behind all the grandiose quasi military talk from big supermarkets such as Tesco and Sainsbury’s is a simple business approach of combining buying clout to demand lower prices from suppliers.

Tesco plans a “long-term, strategic alliance” with Carrefour of France and Sainsbury’s plans to merge with Asda if the deal is approved by the Competition and Markets Authority.

Such deals creating a handful of global chains we are assured will bring lower prices for consumers. although supermarkets are coy about quite how this will happen. Big suppliers such as Nestlé, Coca-Cola, Unilever and Kraft Heinz are the official targets. These businesses achieve 15%-plus profit margins while the supermarket trade gets by on about 3%. But the share prices of big branded companies remain steady despite this supposed threat to profit. Clearly City investors think that giants such as Unilever will not suffer if the fighting over prices turns rougher.

The spotlight shifts now to smaller suppliers and to logistics providers. We are already familiar with the steady churn of logistics contracts changing solely to scrape a few pounds off the price. Selling to a retailer that sees itself as a part of supranational alliance, created to find supply chain “efficiencies”, does not sound promising for regional players in logistics.

Despite all the sweet talk from the boardrooms of Tesco, Sainsbury’s and Asda, logistics companies should brace themselves for some savage cost cutting if they want to serve a bigger customer.

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