TSCO Tesco Plc

By Saabira Chaudhuri in London and Nick Kostov in Paris 

Two of the world's biggest grocery chains, Tesco PLC and Carrefour SA, have struck a deal to collaborate on how they source from suppliers in an effort to cut prices amid mounting competition from Amazon.com Inc. and other rivals.

Tesco, Britain's largest grocery chain, and Carrefour, the French giant, said they would jointly source certain products to lower prices, raise quality and broaden their product offerings. The agreement, which the companies said would initially last three years, will give the pair more scale in negotiations with global suppliers. It will cover joint purchasing of own brand products and goods not for resale, like cleaning products or pallets.

Financial terms of the deal, which is expected to be formally agreed within the next two months, weren't disclosed. "We are light on detail," said a Tesco spokeswoman. "The details are very much still being worked out."

The deal is the latest in a string of moves by traditional grocers the world over as they race to find new ways to compete with Amazon's growing food ambitions and fast-changing shopper behavior. Online shopping, discounters and meal-delivery services are all eating into once reliable profit margins.

Monday's announcement comes just over a year after Amazon said it would buy Whole Foods for $13.7 billion. Since then, Amazon has slashed prices and used the Whole Foods network of stores to ramp up its online-grocery business.

In the U.K., like the U.S., Amazon has also ramped up its fresh food delivery service, recently expanding outside London. In France, Amazon earlier this year signed a deal with Casino Guichard-Perrachon SA to deliver items from its Monoprix chain.

Amazon's inroads into the grocery sector have struck fear into supermarket chains world-wide and prompted a number of recent deals.

Kroger Co., America's largest grocery chain, in May said it would increase its stake in British online delivery specialist Ocado Group PLC and license its technology to run automated warehouses and process online orders.

Analysts say Amazon's ambitions were also partly responsible for Walmart Inc.'s decision in April to sell its British arm Asda Group Ltd. to J Sainsbury PLC, creating the largest player in the U.K.'s fiercely competitive grocery market. That deal is expected to pressure Tesco in its home market, with the combined Asda-Sainsbury pledging to cut prices.

Both Tesco and Carrefour have moved to beef up their online delivery and technology in the face of growing competition.

A year ago, Carrefour named Alexandre Bompard chief executive, tapping someone who had gone toe-to-toe with Amazon when he ran book, music and electronics retailer Fnac Darty to help close its e-commerce gap. Mr. Bompard announced a new five year growth strategy in January that included a pledge to invest EUR2.8 billion ($3.27 billion) in digital commerce by 2022, and a target of EUR5 billion in sales in food e-commerce in five years -- a six times increase on last year.

Tesco last week said it would trial a checkout-free method of payment for its convenience stores that would allowing shoppers to scan products on their mobile devices and then leave with them. Last year it became the U.K.'s first retailer to offer a same day grocery delivery service across the U.K.

Both companies have also made deals to beef up their purchasing heft. Carrefour teamed up with French competitor Système U to pool purchases in France. Tesco bought British wholesaler Booker.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

July 02, 2018 04:37 ET (08:37 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.