European retail buying alliances have now been a force in European retailing for decades. More recently they are proliferating and growing in strength.

Why the increase?

The latest wave began with the advent of omnichannel and the threat this created for traditional bricks-and-mortar retailers. It has been further intensified by the strength and internationalization of powerful retail competitors and discounters.

As the balance of power shifted, suppliers had more choices - sometimes forced choices – around where to spend their promotional money. Additionally, due to the reach of online retail, digital pricing highlighted discrepancies that existed in consumer packaged goods across borders and between neighboring countries.

Retail margins were becoming increasingly squeezed, so the retail buying alliance was born. They are not unlike the cooperatives that have operated historically in many territories, but the biggest difference is that they exploit the fact that the retailers who club together are not in geographical competition with one another.

In fact, the retailers that join buying alliances have strength in different countries or states. This allows them to analyze the terms that are offered by the same supplier for the same branded product in each location.

It’s important to bear in mind that these are not a few small mom-and-pop stores getting together. They can be the biggest retailers in each country or state building the alliance. Epic buying alliance is made up from the number one retailers in Germany and Poland, with Switzerland and Portugal’s number two retailers. Each has its own local power and relationships at top level.

Their primary target is branded goods. Eurelec (Rewe, E.Leclerc, and Ahold Delhaize from 2025) state on their profile, “Our purpose, as European wholesaler, is to negotiate and buy FMCG products from the big multinational manufacturers for the Austrian, French, German, Portuguese and Polish markets of our retail clients.”

What’s the impact?

The proliferation of buying alliances, and the constantly changing landscape within which they operate, has been exposing and damaging for consumer goods companies. They have had to overcome multiple obstacles to meet the challenge, and successfully track and manage exposures.

The primary challenges have been related to legacy decision-making and different approaches to local P&Ls. It is surprising how much drift there can be in the same organization when negotiating with like-sized counterparties.

Bringing the leaders of the affected business units together is the start of the solution, but this is where the situation can become complicated. There can be an unwillingness to relinquish decision-making to a wider group. Defensiveness can creep in and, sometimes, just achieving a like-for-like comparison of trade terms or country P&Ls is difficult.

The situation is exacerbated by the fact that negotiation planning within the supplier is often initiated reactively in response to the buying alliance making their demands after completion of an extensive comparative analysis.  At this point the balance of knowledge and power is firmly with the buying alliance.

In our experience, retail buying alliances operate on a divide-and-conquer approach, with retailers tending to be more agile compared to suppliers who face into more complex, locally driven or matrix decision-making. It takes significant energy to help challenged leaders to align, despite working for the same organization with common goals, strategy and structures. Decision-making becomes fraught, because with pressure comes emotional responses, and we know that emotional decision-making is rarely optimal.

Imagine this…

A buying alliance is generally made up of four to six retailers, who are geographically dispersed, with differing P&Ls and margins, different financial structures and measures of success, and different cultures. And yet they have managed to align behind a common cause because the prize is great enough.

Where next?

It is not uncommon for retailer trends to transmit from region to region. We watched the Cost Of Goods Sold (COGS) “ask” sweep around the globe back in the early 2010s. The challenges that retailers face are not going away and, arguably, the balance of data means they now have more immediate shopper analysis at their disposal.

Interestingly, key personalities with significant experience in setting up and running buying alliances appear in new organizations as they form, bringing comparative knowledge and buying alliance expertise with them.

For example, Gianluigi Ferrari became managing director of Coopernic buying alliance on formation in 2006. He then formed Core in 2014. Agecore followed in 2016, and now he is CEO of Epic. Each had greater spread and strength than the last and the business model has evolved from purchasing buying alliances to service buying alliances, extracting value in ever more sophisticated ways.

The new reality and how to manage it

Buying alliances are becoming bigger and more powerful across Europe. The benefits are easy to see. Could they find themselves in your region? How will you prepare?

The Gap Partnership’s experience working across Europe has enabled us to identify six key actions to take in preparation:

ONE Proactively assess your region. Where do you have retailers that operate in discrete territories (i.e. limited overlap) who could collaborate to drive better terms.

TWO Do your research. Check and compare your trade terms, discount levels and pricing across retailers. Look at neighboring states or countries.

THREE Understand the differences and defendability of your situation. Is the comparison valid or is it because you give similar terms through different mechanisms? Effectively you are creating a comparison of retailer P&Ls within your organization.

FOUR Create a governance structure that empowers your project (negotiation) team to highlight and action decisions. This could mean that region or country business units will need to relinquish their devolved decision-making authority for the greater good.

FIVE Develop an action plan to mitigate the highest levels of exposure and develop targets for the sales team to negotiate amended terms.

SIX Consider other mitigations. RGM is a beneficial driver as it obscures year-on-year or regional comparisons with innovation and pricing re-alingment.

Act now

The biggest challenge as the buying alliances formed was lack of preparation and transparency of the relative terms enjoyed by the individual retailers within each country’s P&L, so it is beneficial to get ahead of the game and gain that understanding at a granular level.

Carrying out this exercise makes good business sense because it allows you to understand the relative profitability of the levers that you employ in your negotiating relationships. It will also identify retail partners who have achieved better terms than their share of trade deserves. This can be merely a legacy of the power that they once had. It is also good practice to re-baseline JBPs and annual terms on a regular basis, rather than habitually incrementing from last year’s agreement.

It can take years to adjust trade terms, so developing an action plan while you have time represents sound futureproofing of the business. Even if the buying alliances do not come to a market near you, you will still have a more robust commercial view of your trading structures.

If you are interested in further reading on the commercial and competitive impacts of buying alliances and legislation, Retail Alliances and Joint Purchasing agreements: Evaluating Benefits and Challenges in light of the Revised Horizontal is an excellent insight.

About the author

Chris Atkins heads up the global consultancy practice at The Gap Partnership. He specializes in the development of strategic, commercial solutions across multiple sectors, including cost price increases, mergers and acquisitions, RFPs, trade union negotiations and strategic sourcing. Chris is driven by a passion for overcoming challenges and delivering impactful outcomes for his clients.