G&G struggles with spending slump
with larger counterpart Carrefour over the years, but in today's
climate of weak consumer spending, the French company is suffering
a result of its focus on the relatively high-cost hypermarkets.
G&G has been one of Carrefour's two franchise partners (the other being Hyparlo) for many years, and for most of that time it has benefited from the strong growth of its compatriot.
But the parlous state of the French economy - with almost zero growth, high unemployment and low consumer spending levels - has led to a sea change in shopping patterns, away from traditional hypermarkets towards discount stores and, to a lesser extent, convenience stores.
Carrefour has been able to offset some of these factors by opening more of the popular smaller store formats - although with a considerable impact on its margins - and has begun to cut prices across its hypermarket portfolio as well, but smaller companies, and especially those focused solely on hypermarkets such as G&G, have much less room for manoeuvre and have struggled as a result.
This inability to bend with the wind is reflected in G&G's latest figures, which show sales down 4.1 per cent on the first half of 2003 at €609.8 million, below even the company's pessimistic predictions. May was a particularly poor month - with a negative calendar effect compared to the previous year caused by two major public holidays on Saturdays - and while the situation improved somewhat in June, it was not enough to drag first half sales up to the level of the previous year.
While G&G's wholly-owned Carrefour stores managed to keep the declines to a minimum (sales dropped -1.2 per cent in the half), its joint venture with Carrefour, Sogara, fared less well, with sales down 5.8 per cent. Both units felt the impact of price cuts, which took an inevitable toll on turnover.
But the company nonetheless remained optimistic for the second half, with the lower prices expected to generate increased consumer spending and a number of store developments expected to lead to higher volume sales. Further price cuts - obligatory under the terms of a recent agreement with French finance minister Nicolas Sarkozy who is determined to kick start the economy - should also help the second half performance.
Nonetheless, the best the company is expecting is a full year performance in line with that of the previous year.
