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The following is a special report filed with MorningNewsBeat from

On November 18th, Auchan and Casino issued a press release on the creation of a 50:50 service joint venture, called International Retail and Trade Services (IRTS), to be located in Geneva (Switzerland). What are the implications?

Two “small” global retailers join forces

In terms of Retail Banner Sales e.g. including group sales as well as 100% sales of subsidiaries and franchised operations, Auchan and Casino respectively rank 16th and 17th in our top 100 of global grocers. They slide down the ranking by net sales because of their alliance strategies (partial consolidation of sales) with Auchan in 20th and Casino in 22nd positions. Woeful investors have often dreamt of a possible marriage between the two groups, which would push them up to the 6th place in our ranking, right behind Metro.

IRTS will allow these two second-tier global grocers to be seen to offer manufacturers similar opportunities to those offered by larger retailers by combining their geographical coverage. With IRTS they hope to become more attractive for the 100 or so key manufacturers they are targeting – these are primarily the “household” names in consumer goods (Nestlé, Danone, Unilever, Colgate, etc.) who can negotiate global contracts and represent a total trade volume of Euros 15 billion for the two retailers; although small and medium size manufacturers are also included in the agreement.

To negotiate more attractive prices

The cooperation will allow Auchan and Casino to compare price differentials across the various countries in which they operate, which will in turn increase their buying/negotiating power. This echoes the fracas caused by Tesco at the end of October when, following its acquisition of the Hit hypermarket network in Poland, the retailer discovered that the Polish supermarket group had secured better prices than Tesco from more than a dozen international suppliers said to include Mars, Unilever, McCain and Heineken.

An added advantage to manufacturers is the fact that the two retailers have very complementary geographical spread and only overlap in a couple of countries (see below). However the partners stress that both companies will continue to do their shopping separately. Price negotiations will be carried out at IRTS headquarters in Geneva but implementation will be left to each individual countries.

Buying implications of the Laurus acquisition for Casino

Casino announced in October 2002 that because of its acquisition of a stake in Laurus it would probably pull out of the AMS (Associated Marketing Services) buying group. Following the conflict with Cora and the dissolution of Opera, Casino’s newly created buying group EMC Distribution has appointed Philippe Gautreau to be the head of international buying operations. The group later commented that international sourcing would be effected closely with the Laurus team with a view to develop own labels and “premier prix”.

Should we read more into it?

Casino has been very much in the news this year, following the collapse of its purchasing agreement with Cora and the dismantlement of their joint buying group Opera, and later when it announced the take over of a 38% stake in debt ridden Laurus. Auchan, for whom press exposure this year has mainly revolved around its bold approach of the eastern European market (Russia, Poland and Hungary), has on the other hand kept a fairly low profile this year.

Whilst rumours of a merger between the two retailers come up time and again, Casino and especially Auchan are both fiercely independent, and any such speculation would prove sterile, at least for the time being. Furthermore, if Auchan and Casino were to eventually establish a joint buying group, Casino's option on the 42.4% stake in Cora currently held by Deutsche Bank might be questioned by the anti-trust authorities in France and Brussels.

This latest venture must be seen for what it is: an opportunistic agreement that will allow two competitive players, who are aware that they lack critical size, to better stand up to large manufacturers, and to compete more effectively with larger groups like Wal-Mart, or Carrefour.
KC's View:
Competing with Wal-Mart and Carrefour is the name of the game, and alliances between companies like Auchan and Casino simply will be inevitable in order to do so.

It’s why, as Albertsons CEO Larry Johnson pointed out the other day, consolidation will continue to affect the food industry on both a domestic and global scale.

And why even companies like Carrefour will be looking for new alliances…to hold off the Bentonville Behemoth.