PARIS (Reuters) - Privately-held French supermarket operator Systeme U is discussing a possible grocery supply deal with Amazon AMZN.O, its chief executive said, amid growing speculation over the U.S. online retail giant's intentions regarding the French market.

FILE PHOTO: Serge Papin, Systeme U group Chief Executive Officer, poses after an interview with Reuters in Paris June 16, 2014. REUTERS/Gonzalo Fuentes

Amazon’s purchase of Whole Foods in the United States last year has prompted speculation that it could be targeting the European food and supermarket sector next.

“Discussions with Amazon to become their supplier of consumer products are under way. We are not the only ones and it’s far from being finalised,” Systeme U chief executive Serge Papin told Le Figaro newspaper.

Asked if Systeme U would supply Amazon with food products, Papin later told BFM TV on Wednesday: “Yes, because today our friend Amazon is a small player at purchasing level...It can be an opportunity for Systeme U, just as it can be an opportunity for Amazon.”

A major deal between Amazon and a French retailer has yet to materialize.

Amazon has, however, made small forays in that direction and the U.S company has been steadily building up its presence in France, where it has run its Amazon Prime Now express delivery service in Paris since 2016.

In 2016, Amazon partnered with luxury food group Fauchon, organic food chain Bio c’ Bon and wine merchant Lavinia to extend the product range of its Prime Now service.

Earlier this month, Amazon also said it would create 2,000 new jobs in France.

“Amazon’s biggest challenge is that they aren’t seen as a food destination...What good is one-hour delivery without a compelling range of stuff?” said Natalie Berg, founder of retail consultancy firm NBK Retail.

Last month, French supermarket retailer Leclerc said it would launch a food delivery service in Paris this year to fight off competition from Amazon, even though Leclerc itself has been seen a possible future partner of Amazon in France.

Faced with the challenge from Amazon, France’s incumbent retailers have been looking to improve their online offerings.

In November, Casino CASP.PA said it would use British online retailer Ocado's OCDO.L e-commerce platform to expand its business.

Last month, Carrefour CARR.PA also unveiled plans to boost its E-commerce investment and said it would seek a partnership in China with Tencent 0700.HK, in order to tackle the challenges posed by Amazon.