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Why 2 of the World’s Biggest Supermarkets Are Joining Together to Buy Groceries

Tesco and Carrefour, the largest supermarket chains in the U.K. and Europe, respectively, announced Monday they would enter a “long-term, strategic alliance.”

The two companies say the link-up aims to cut costs and will help provide better price, quality, and choice to their customers through a global purchasing alliance, that will apply to the joint purchasing of own-brand products, services such as marketing and data collection, and other goods not for re-sale. The deal will initially run for three years.

Combining the purchasing power of two of the world’s largest grocery chains is surely a shot across the bow to competitors as well. Tesco (TSCDY) faces a domestic challenge in the U.K. from Sainsbury’s, which announced earlier this year that it was in advanced talks to buy the supermarket chain Asda from its current owner, Walmart (WMT). Once complete, that merger will demote Tesco to the second-largest grocery store in the country.

From abroad, both Tesco and Carrefour (CRRFY)face threats from new entrants such as Amazon (AMZN), which is making in-roads into the European grocery market. Carrefour in particular has been bullish on cost-cutting and expansion in overseas markets such as China and Brazil in order to counter this threat. Earlier this month, Carrefour became the first retailer in France to partner with Google and by 2019 will be the first grocery chain whose products are available on Google’s interfaces.

European grocery chains aren’t the only ones feeling the squeeze. Last week U.S. grocery chain Kroger (KR) announced a deal with the autonomous vehicle company Nuro to deliver groceries in driver-less cars in its latest bid to edge out rivals.