Recent developments in the global retail landscape, such as Couche-Tard’s takeover approach to Seven & i Holdings, highlights growing pricing risks for consumer brands in Asia. As Couche-Tard seeks to expand its influence, this move significantly impact pricing strategies, potentially leading to further customer consolidation and a net pricing race to the bottom. While consolidation and centralisation are clear trends, the immediate concern for consumer brands is managing the net pricing risk that typically come with these macroeconomic shifts.
Consolidation Trends and Pricing Risks in the Retail Sector
Couche-Tard’s proposed acquisition of Seven & i holdings reflects a broader trend towards consolidation within the retail sector. This move could signal an expansion strategy that may expand into other markets, presenting significant pricing risks for suppliers. If successful, Couche-Tard will gain detailed visibility into the pricing strategies of all its retail chain banners, especially in overlapping markets where Circle K and 7-Eleven operate (e.g., Cambodia and Vietnam). This increased transparency could lead to cherry-picking net pricing and intensifying price competition – a trend observed in mergers and acquisitions globally.
Japan’s evolving mergers and acquisitions environment is shifting from resisting foreign takeovers to openness, suggesting that Couche-Tard’s acquisitions could signal broader consolidation. Carrefour’s acquisition of Wellcome Taiwan, for example, significantly altered competitive dynamics and exposed suppliers to pricing risks. A similar scenario could unfold if Couche-Tard continues acquisition in Japan, reshaping the retail landscape and increasing price competition.
This move underscores the growing prevalence of centralisation in retail negotiations, a shift also seen in European retail alliances. In Europe, buying and retail alliances have increasingly centralised negotiations, focusing on price harmonisation and reducing the emphasis on joint business planning and value creation. Couche-Tard’s approach, aiming to gain control over a major player in convenience retail, exemplifies this consolidation trend, leveraging scale for better pricing and terms.
Couche-Tard’s Takeover Bid vs European Retail Alliances: Key Differences
While Couche-Tard’s bid for Seven & i Holdings shares some similarities with European retail alliances, there are some key differences:
Ownership vs. Collaboration: Couche-Tard’s approach is a direct acquisition strategy, seeking to take ownership of Seven & i Holdings and its extensive retail network. This contrasts with European alliances, where independent retailers collaborate without changing ownership structures. Retail alliances like Everest involve independent retailers pooling their buying power to negotiate collectively with suppliers, focusing on collaboration and coordination rather than outright ownership.
Strategic Focus: Couche-Tard aims to expand its global footprint by absorbing another significant player in the convenience retail sector. In contrast, the European retail alliances focus on leveraging collective bargaining power to secure better terms from suppliers while maintaining operational independence. These alliances aim to create economies of scale and improve efficiency without merging or acquiring the involved entities.
Market Impact: A takeover like Couche-Tard’s typically leads to significant changes in the acquired company’s operations, leadership, and market strategy. Retail alliances, on the other hand, strive for stable integration, allowing each member to retain its identity while benefiting from collective negotiations and shared resources.
Implications for Consumer Brands in Asia
As Asia begins to see similar consolidation of customers, FMCG suppliers must adapt to the new operating environment. Suppliers need to rethink how they approach negotiations, customer engagement, and overall business strategy to adapt effectively. Key lessons from European retail alliances include:
Leveraging Technology & Data: European alliances have effectively used AI and advanced technology to scale operations and gain deeper shopper insights. FMCG companies in Asia should invest in similar technologies to remain competitive, especially as regional retailers gain procurement power.
Adaptation to Centralised Negotiation: The centralisation of negotiations in Europe has created a more complex and challenging environment for suppliers. For consumer brands in Asia, traditional decentralised operating models may no longer suffice. Companies need to establish strong governance frameworks, clear engagement principles, and effective decision-making processes. Upskilling organisations to handle the complexities of multi-market engagements and ensuring value creation should be at the forefront of their agendas.
Power Dynamics and the Role of Innovation: As procurement power centralises, European retailers have secured more favourable pricing and terms of trade. However, brand power – particularly when paired with innovation tailored to local needs – remain crucial. Consumer brands in Asia should shift their focus towards enhancing value beyond pricing, catering to local market demands and build stronger retailer partnerships.
Internal Processes and Governance: Adapting internal processes and governance structures is essential for navigating centralised negotiations. This requires a multi-year change journey, including rethinking of commercial guidelines and guardrails to incentive structures. Asian FMCG companies will need to embark on a similar journey, ensuring that their internal processes are aligned with the new operating environment.
Conclusion
Couche-Tard’s bid for Seven & i Holdings serves as a practical example of the consolidation trends affecting the global retail landscape. By drawing lessons from European retail alliances, consumer brands in Asia can better prepare for similar shifts in their market. Embracing technology, and strategically managing power dynamics will be key to thriving in an increasingly centralised and competitive environment.
