French retailer Groupe Casino and its Spanish counterpart Dia Group have set up a new joint company, CD Supply Innovation. In detail, it will manage the ordering and supply of private label products for both retailers, as well as logistics and payment services. CD Supply Innovation is also intended to operate as an innovation lab, offering value chain improvement solutions. The entity comes as an extension to the existing agreement for joint negotiation of private label purchasing which was initiated in 2015. CD Supply Innovation will start operating from 15 December 2017.
Dia and Groupe Casino are heavily reliant on their private labels. Own-branded goods in Europe are estimated to account for half of Dia's retail sales; and slightly below half of Groupe Casino's sales volumes across FMCG and chilled products. Consequently, combining the buying volumes for these two heavyweights in Western Europe does make sense, particularly given the lack of geographical overlap. The only difficulty comes in Latin America, where both retailers compete head-to-head in Argentina and Brazil. This explains why despite the international scope of the partnership, it excludes Latin America.
The idea of CD Supply Innovation operating as an innovation lab indicates that the companies might exchange more ideas and provide best-practice benchmarking throughout the value chain. Overall, we feel Dia has been struggling in Spain (see table below) and is betting on its private label lines as a mean of differentiation, to protect margins and leverage a positive price image.
The retailer has indeed already tied up a series of parallel buying partnerships, particularly for private labels. In the same city as CD Supply Innovation – Madrid – is located the buying alliance co-owned by Dia and its fellow countryman Eroski. Beyond A-brands, the organisation focuses on negotiation with private label suppliers with the intention to improve buying terms.
With contributions from Senior Retail Analyst Denise Klug.