Carrefour says it will not meet targets

- Last updated on GMT

Related tags: Carrefour, Hypermarket, Wal-mart, Retailing

Being the biggest does not mean being the best, it appears.
Europe's largest food retailer Carrefour has announced that it will
not meet its sales targets for 2004 after a second poor quarter
from its French hypermarket division.

The core French business saw its sales drop by 1.4 per cent on a like-for-like basis to €9.8 billion in the second quarter, with a 3.8 per cent decline at the hypermarket arm the prime culprit. In contrast, Carrefour's discount unit saw a 3.9 per cent rise in sales during the quarter, reflecting the shift in consumer spending patterns as French shoppers tighten their belt.

Carrefour has responded to this by increasing the number of discount stores it operates - indeed, second quarter sales were 16 per cent higher than in 2003 when new stores are included - but has also had to bring down prices at its eponymous hypermarket outlets and its Champion supermarkets in a bid to generate growth (which is yet to materialise).

As a result, Carrefour said that sales growth for the full year was likely to be around 5 per cent rather than the 6 per cent originally expected.

Analysts Goldman Sachs​ suggested that the performance was all the more worrying given that there had clearly been a shift away from simply non-food sales dragging down the overall hypermarket performance. "Now it is food - disappointing as this has been the focus of all of Carrefour's pricing activity."

Thankfully, virtually all of Carrefour's foreign units all improved their performances during the quarter, with European sales ahead 2.6 per cent on a like-for-like basis to €7.3 billion, Latin America recovering strongly (+7.5 per cent) to €1.4 billion and Asia edging up 1.9 per cent to €1.3 billion. Even Taiwan, the only unit which struggled during the quarter, saw some gains, with the 2.9 per cent drop in like-for-like sales a major improvement on previous quarters.

"Carrefour is now committed to turning around customer numbers, whatever it costs in margins, it appears,"​ said GS. "It has promised that its promotional activities will result in a customer traffic-led turnaround in sales in 2H, even if that does mean a reduction in operating margins. This does not bode well for French pricing in 2H in general."

Indeed, prices are due to come down across France after Carrefour and the other leading supermarket and hypermarket retailers agreed with the government to cut prices in a bid to stimulate a recovery in the French economy - or at least in consumer spending.

All of which makes Carrefour increasingly vulnerable to takeover - a fact unthinkable only a year ago. Wal-Mart, the giant US group which is the only retailer in the world larger than Carrefour, has made no secret of its intention to enter the European market, and certainly has the cash to add Carrefour to its wish list. Indeed, it is probably the only company big enough to contemplate a wholesale takeover of all of Carrefour's businesses rather than a piecemeal acquisition of national or regional operations.

With few, if any, competition problems (since Wal-Mart's fortune has been almost entirely built on the US, where Carrefour has no presence), the world's top two store groups could be free to merge, provided Wal-Mart can make Carrefour's founding family shareholders an offer so good even they cannot refuse it.

Related topics: Market Trends

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