Carrefour stems hypermarket sales decline
business have left France's leading food retailer optimistic of an
upturn in 2005 - although further price cuts are likely to make an
impact in the short term, writes Chris Jones.
After a difficult year marked by deep price discounting and a shift in consumer spending patterns towards the discount stores, Carrefour rallied somewhat in the final quarter.
Total French sales were €10.9 billion in the final three months of 2004, showing like-for-like growth of 0.6 per cent. Hypermarket sales of €6 billion improved to a 0.1 per cent decline in like-for-like sales compared to a 3.6 per cent drop for the first three quarters of the year.
The company's hypermarkets had been hardest hit by the decline in French consumer spending which saw shoppers switch to cheaper discount stores (including Carrefour's own ED banner). After an initially slow reaction, the company announced that it would make turning its domestic business around its top priority for the latter part of 2004, and appears to have made good progress.
The company claims that almost all of its hypermarkets are either the number one or two on price in their catchment area, compared to around a third at the start of 2003, a move which has significantly increased the number of customer transactions. However, the average basket value remained 2 per cent down on 2003 levels.
But there is still much work to be done. Hypermarket like-for-like food sales were still 3.4 per cent lower than in 2003 during the quarter as shoppers continued to opt for the discount channel for their everyday food requirements. Non-food sales at French hypermarkets improved by 0.3 per cent on a like-for-like basis during the quarter, suggesting that corner may finally have been turned.
Price reductions have not been limited to France, however, with Spain, Portugal and Greece all reporting increased customer numbers as a result of lower prices. However, only Spain, where the hypermarkets have been largely unaffected by downturns in consumer spending, showed solid gains (like-for-like sales ahead 5.7 per cent in the quarter) and the weak economy and further price investments in other countries, notably Italy, are likely to impact results in 2005.
Total European sales for the quarter were up just 1.7 per cent on a like-for-like basis at €8.5 billion.
In contrast, the group's Latin American businesses continued to go from strength to strength, although currency fluctuations continued to impact sales in Argentina in particular during the quarter. Carrefour's policy of 'clusterisation' - adapting its store format to the requirements of the local catchment area - has paid off, with total sales ahead 5 per cent on a like-for-like basis during the quarter at €1.6 billion.
Asia, on the other hand, failed to maintain the momentum gained in the third quarter with sales down 2.1 per cent on a like-for-like basis in Q4 to €1.4 billion, with Taiwan alone contributing an 8.3 per cent drop in comparable sales. Chinese like-for-like growth was flat, but the continued rapid expansion of the French group's business there meant that total growth was 20 per cent during the quarter.
Total group sales for the year were €81.4 billion, up 3.2 per cent on a reported basis but just 0.8 per cent ahead in like-for-like terms, and Carrefour will need to continue its move towards investing in prices and reducing costs for some time to come.
In troubled European markets such as Poland, Slovakia, Turkey and the Czech Republic, the company is looking to leverage the value of its property portfolio though a sale and leaseback agreement which has freed up €376 million.
More strategic acquisitions such as that of a handful of Ahold stores in Poland are also likely as the group seeks to increase its market share in countries with good growth potential.
