Auchan and Système U are using their buying partnership to reshape their respective store networks for the changing grocery sector.
With the ink barely dry on their buying partnership, Auchan and Système U are reportedly looking to move to the next level: a jointly organised reshaping of their store networks.
Auchan is to offer franchise agreements to Système U hypermarket owners. In exchange, Auchan’s 250+ integrated supermarkets will be rebranded to the Super U banner.
It is no secret that both retailers are struggling. Auchan France has lost considerable ground over the past two years and its soon-to-be-released sales figures for 2014 are unlikely to make good reading.
Système U is in a similar position, having experienced significant growth deceleration over the past two years and only reporting any growth on the back of expansion of its store network.
Logical step
Capitalising on each other’s core format expertise seems a logical response. Auchan is renowned for its hypermarkets, less so for its supermarkets. The opposite applies for Système U. These historic weaknesses became increasingly visible this year, with Auchan disposing of underperforming small units, while Système U endured a haemorrhaging of hypermarket franchisees to competitors.
Auchan is reportedly conducting two major meetings targeting Système U’s approximately 70 hypermarket owners in January and March. After that, things will move swiftly, as the first rebannerings are expected as early as summer 2015, with the entire network to be converted within three years. But that is very much the ‘blue sky scenario’ - convincing franchisees on both sides is unlikely to be easy.
It is likely that some Système U big-box franchisees will seize the opportunity to leave the fold, seeking to preserve their independence and find refuge in the welcoming bosom of the competition. We would not be surprised if market frontrunners Carrefour or Leclerc were to jump at the chance of adding new recruits to their ranks. To avoid such a scenario, Système U hypermarket owners could be given the possibility of selling their stores directly to Auchan, or being transferred, wherever possible, to the Super U supermarket banner. The same blandishments are expected to be offered to Auchan’s 150+ Simply Market supermarkets operating as franchises.
More collaboration
This latest move is likely to presage further closer collaboration between the two partners. Some degree of back-end integration seems inevitable. The two retailers have geographically uneven (but complementary) networks, and shifting store supply handling from one retailer to the next would not necessarily make a lot of sense financially.
From this perspective, there is more to gain in initiating a joint supply chain convergence, which is what we would expect going forward, should this project be ratified.
But all this assumes non-intervention from the competition authority, which has, somewhat surprisingly, not yet made any comment on the new buying agreements. Whether this remains the case as the two partners cement their relationship in other ways seems unlikely.
- Gildas Aitamer, retail analyst, Planet Retail
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