Carrefour still struggling in French market

First quarter sales in France reached €9.3 billion, a 1.8 per cent decline on a like-for-like basis, due mainly to a 3.7 per cent slump in sales at the core hypermarket unit. These large stores, which stock a wide range of food and non-food products, have long been the most popular for almost all France's leading grocery retailers, and they have been a driver of growth for the likes of Carrefour, Auchan and Casino for many years.

But the relatively high price positioning of hypermarkets has seen them becoming increasingly less popular over the last few years, with the weak French economy and high unemployment levels prompting consumers to tighten their belts.

Carrefour's reaction to this in the past has been to roll out more discount stores under the Ed format - effectively keeping a large chunk of those shoppers who had switched from its hypermarket stores - and while Ed continued to show solid single digit growth rates in the first quarter, the company stressed that it was now focusing more on winning back hypermarket shoppers.

This effectively involved a sea change in its pricing policy, moving from a primarily promotional-driven structure to one based on every day low prices, including an expansion of its own label ranges. This, Carrefour said, had led to an increase in customer numbers, but a drop in the average spend per customer.

Sales were also impacted by the fact that last year's 40th anniversary promotional campaign in February and March was not repeated this year, "in order to clarify our pricing message as we commit to offering customers everyday best value"​, the company said.

While France is the best example of this change in pricing policy, it is clearly being rolled out to Carrefour's international operations as well. The hypermarket operations in Italy, for example, saw their total sales fall by 1 per cent in the first quarter due to price cuts designed to increase store throughput.

The relatively slow reaction to its difficulties in the French market - sales there have been declining for several quarters now - comes as something of a surprise given the success of Carrefour's strategy in turning around its business further afield.

Currency movements have had a major impact on performances in both Asia and Latin America over the last few years, but a number of measures introduced in both regions have helped the French group grow its sales there despite ongoing economic difficulties.

In Latin America, for example, the company has adopted a policy which it calls 'clusterisation' - grouping certain types of store together in certain regions, according to demography and spending power - and this has proved highly successful, with total sales across the region up 9 per cent in the quarter and like-for-like gains in double digits in Argentina, Mexico and Colombia. A significant improvement in the currency situation also helped.

In Asia, where currency fluctuations had a more significant impact, Carrefour's focus has been on low prices for some time, and this helped the group maintain like-for-like sales growth there during the quarter. But most of the company's growth there (20 per cent) came from expansion, in particular in China and Korea, helping to offset the 14.3 per cent negative impact of currency fluctuations.

Carrefour now operates 10,467 stores worldwide, but it is telling that hypermarkets account for only 831 of these outlets and that hard discounters have by far the largest share - some 4,532 stores, of which 101 were opened during the first quarter alone.

Carrefour has frequently highlighted its multi-store format as one of the key reasons for its success, allowing it to adapt to the demands of each individual market. Hypermarkets remain the driver of growth in some regions - notably Asia - while other formats (convenience stores, discounters) are more popular elsewhere, but Carrefour is also putting in place a further level of flexibility, allowing it to adopt different policies within the individual formats.

With hypermarkets dominating its French business - a quarter of all its hypermarkets are in Carrefour's home country - the company cannot allow the performance from these stores to decline, not least because rolling out discount stores may help lift overall sales but does little to protect margins. Cutting prices at the hypermarkets will also impact profitability, of course, but it is likely to be a better policy in the longer term, with increased customer numbers eventually offsetting the fall in per customer sales.