UK retailer Tesco and French supermarket giant Carrefour, Europe’s two largest retailers by revenue, have announced a strategic purchasing alliance as both companies seek to lower costs in the face of intense competition in the retail sector.

As part of the deal, both supermarkets will jointly purchase own-brand products from suppliers, which they say will improve the quality and choice of product available in their stores at even lower prices. In effect, Tesco and Carrefour will use the weight of their combined buying power to squeeze better deals from their suppliers of own-label products, including food and drink suppliers.

Both supermarkets are trying to rebuild profitability in their business after years of intense competition with German discounters Aldi and Lidl. Tesco and Carrefour have both identified own-label products as central to their strategy to rebuild profits, as own-label products carry higher profit margins.

In 2017, Tesco’s profit margin widened from 1.8% to a healthy 3%, while Carrefour’s profit margin stood at 2.5%.

Tesco, which buys products from almost 500 Irish food and drink companies and exports €655m worth of Irish food and drink, says the alliance with Carrefour will strengthen its relationships with its existing suppliers and create new opportunities for those suppliers.

However, several food and retail analysts have questioned the benefits of this tie-up between Tesco and Carrefour for existing suppliers. Instead, the new purchasing alliance is likely to have a negative impact on food suppliers already being squeezed, particularly from a weak sterling.

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