October 10, 2018 / 2:06 PM / in 2 months

UPDATE 2-France's Monoprix says grocery alliance with Amazon Prime tops expectations

* Initial orders 2-3 times above expectations

* Partnership to cover the whole of Paris in 2019

* Expansion to other big French cities could be on the cards (Adds quotes, context)

By Dominique Vidalon and Pascale Denis

PARIS, Oct 10 (Reuters) - Casino's upmarket Monoprix supermarket chain said the start of its partnership with Amazon Prime's delivery service for Paris had been better than expected - an alliance that could prove crucial for debt-ridden Casino's fortunes.

Monoprix Chief Executive Regis Schultz told Reuters that orders had been beating expectations, and that he hoped the delivery service could be extended elsewhere in France, although the decision was in the hands of e-commerce giant Amazon.

Nearly a month after the launch, the number of orders was exceeding by 2-3 times the expectations of the two partners, he said.

"A first assessment is very, very satisfactory. Our priority is now to expand the service," said Schultz.

Monoprix, which is seen by analysts as being similar to U.S. retailer Whole Foods, started filling orders for subscribers to Amazon's Prime loyalty programme in parts of Paris on Sept. 12 through a two-hour delivery partnership.

The performance of the alliance is being closely watched since Monoprix was the first French retailer to agree in March to sell its products via Amazon, causing a stir in the fiercely competitive domestic French market.

Monoprix, one of Casino's most valuable assets, is also under scrutiny as parent Casino faces concerns over its debts and has been selling assets to cut debt.

The Amazon Prime service currently covers a third of the French capital, generating sales of 10 million-20 million euros ($11.5 million to $23 million), equivalent to the food sales of a Monoprix store. It should cover the whole of Paris next year.

Asked if there were plans to expand elsewhere in France, Schultz replied: "We are ready to follow Amazon's deployment in all big French cities. They are likely to make the announcement when they are ready. It's part of their plans for sure."

Asked if the partnership paved the way to other deals with Amazon, he added: "Today this is not the spirit of our agreements."

The U.S. e-commerce giant, which has run its Amazon Prime express delivery service in Paris since 2016, has made no secret of its desire to launch a grocery delivery service in France as part of its ambitions to expand in food retail.

OTHERS TARGET PARIS MARKET

Amazon's purchase of the bricks-and-mortar retailer Whole Foods Market Inc for $13.7 billion last year, and a deal for Amazon Prime to sell products from the British supermarket chain Morrisons, have led to speculation it could target the European food and supermarket sector next.

Amazon Prime currently offers 6,000 new products chosen by Monoprix. The products are prepared in one Monoprix store and delivered by Amazon. Delivery is free for orders over 60 euros. For those under 60 euros, a 3.90 euros fee is charged.

Monoprix had 2017 sales of 5 billion euros and a margin estimated by some analysts at 5-6 percent. A key contributor to parent Casino's overall profit, it makes over 30 percent of its sales in the lucrative Paris market.

Schultz said the deal with Amazon gave Monoprix access to the 70 to 80 percent of Amazon Prime clients who were not already Monoprix clients, including many offices.

"We clearly are getting new clients from Prime. There are no elements showing a cannibalisation of Monoprix or Monoprix.fr."

However, competition in the sector is looming in Paris.

Leclerc, France's largest grocer by market share and which has built its reputation on low prices, also has its sights on Paris, giving itself three years to establish a solid foothold in the capital.

Rival Carrefour, which has 250 convenience stores in Paris, has launched six pickup points in the capital, where customers can order 15,000 products online and collect them in store.

Shares in Casino - which has also been linked with Carrefour - are down nearly 30 percent this year.

Worries over its debts and the competition it faces in France have led some analysts to speculate that Casino may have to sell Monoprix, but Schultz played this down.

"This is mere speculation. This is not what I focus on."

$1 = 0.8693 euros Reporting by Dominique Vidalon and Pascale Denis; Editing by Sudip Kar-Gupta and Adrian Croft

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