Marriages of Convenience

“The best defence is a good offence”: this old adage seems to have been taken to heart by French retailers over the last 12 months.

Faced with stiff competition on pricing from the ultra-competitive E. Leclerc, the big players of the French retail landscape have been looking for new and innovative ways to cut costs without upsetting their shareholders. As such, the final quarter of 2014 saw 6 of the France’s 7 biggest national retailers enter into joint purchasing agreements as a means of combatting the country’s incessant price war.

Auchan and Système U, numbers 5 and 6 respectively in terms of market share, led the way, announcing their decision to combine purchasing forces in September of last year. The move, which was initially limited to purchases of branded products supplied by large companies, was intended to give the two companies greater leverage in price negotiations with the giants of the food-production industry.

According to analysts, the move will allow the joint retailers to purchase products for up to 1% less than if each were to buy separately – a substantial reduction in an age where every little helps.

The two protagonists have now gone further in their commitments to this engagement, declaring in May of this year that their purchasing agreement would extend to private label goods as well. While talk of store exchanges and even a potential merger is rife, both parties remain coy about future consolidation.

In riposte to the move between Système U and Auchan, which brought their effective market share up to 22% (n° 1 in France as of September 2014), the Casino and Intermarché groups merged their own buying teams just two months later.

The resultant central buying service INCAA (Intermarché Casino Achats) now represents the largest ‘retail group’ in the French market, with a 26% slice of the cake. This just left Carrefour and the typically-independent E. Leclerc as stand-alone big players in an increasingly concentrated buying space.

However, with all other potential suitors already paired off, the Carrefour empire had to look down the line to 7th placed Cora Group to find a partner for joint purchasing. This match, a seemingly defensive move against the advances of ‘Système A’ and ‘Casintermarché’, did bring the pair’s nominal market share to around 25% however.

The longevity of these marriages of convenience remains to be seen, but their emergence will certainly fan the flames of price war in French retail.