The Auchan-Système U buying alliance is facing an investigation by French competition authorities that could have wider ramifications.

A first-phase study has identified 400 locations where Système U and Auchan both have outlets, which could potentially pose competition problems.

Importantly, the authorities have stated they intend to take the issue of cross-border shopping into account, recognising that this is now a European rather than a solely French phenomenon.

This investigation may well raise questions as to the viability of numerous other buying alliances in Western Europe that have come about as retailers fight to keep prices down and compete with hard discounters.

Any derailing of European buying alliances – which began in France, but have now reached other markets such as Spain – would seriously hamper mainstream retailers’ ability to keep prices as low as they are without impacting profit margins.

Alliances are now commonplace in Portugal – such as the link between Intermarché and Dia – Spain (Eroski/Dia) and, of course, in France, where there are a myriad similar partnerships.

Regulation risk

We at Planet Retail have always viewed these unions as carrying a risk of regulatory intervention – considering that alliances in effect shift the balance of power in favour of the retailer, potentially resulting in unfair conditions for suppliers.

Regulators will, of course, have to respond to ensure the European grocery market remains fair and competitive.

The quest for ever-greater buying power in Western Europe among mainstream retailers is totally understandable considering the growth of hard discounters across the continent.

Moves by these discount retailers to become more like mainstream supermarkets are already playing a big part in their growing appeal.

”These alliances help retailers keep costs down and negotiate harder with suppliers, thereby stifling discount growth”

David Gray, Planet Retail

Lidl, for example, is increasingly introducing fresh bakeries, more branded products, facilities such as customer toilets and a lobby and more promotions – all of which take it closer into the realms of a mainstream player.

Aldi has been moving in a similar direction, introducing more branded products, fresh bakeries and the like.

In response, some European mainstream retailers have looked to join the discount trend – with Carrefour launching Supeco in Spain, for example – but for the most part buying alliances have been the solution.

These alliances help retailers keep costs down and negotiate harder with suppliers, thereby stifling discount growth.

But the current investigation of the Auchan-Système U merger threatens the buying alliance phenomenon in Europe.

  • David Gray is a senior retail analyst in grocery at Planet Retail