Carrefour's strategy puts pressure on suppliers

- Last updated on GMT

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

Suppliers to Carrefour will continue to be limited on what they can
charge for their products as the world's second largest retailer
fights to boost flagging sales across most of Europe.

The retailer is currently engaged in price wars in many of its markets, including in its base in France, where it is attempting to regain market share from rival chains. As a result margins have fallen. Wal-Mart, the world's number one retailer, is the bear stalking Carrefour's growth markets. Wal-Mart is attacking Carrefour's leading positions in Asia, especially China, and has announced plans to expand in Europe from its bases in the UK and Germany. Carrefour's strategy has been to sell off underperforming assets and buy other retailers. The company has also continued its expansion into Asia and Latin America. A new management team, a move towards more joint ventures in foreign markets and a more collaborative relationship with key suppliers also underpin the group's push to drive growth. The pressure on price, low sales growth and consolidation are the top trends affecting the group's market in Europe. Carrefour is the top retailer in the French market, number one in Europe and is a leader in Asia. Food accounts for 60 per cent of the group's sales worldworld wide. One strategy has been to gain a foothold in the discount retail market. Consumers have been spurning the hypermarkets format in favor of discount chains such as Germany's Aldi and Lidl. Last week the group completed the buyout of French low-cost supermarket Penny Market from Germany's Rewe. The company also sold catering supplies group Prodirest to transGourmet, a joint venture between Rewe and Coop, a Swiss company. So far this year Carrefour has acquired hypermarkets in Brazil and Poland, and acquired majority stakes of chains in Cyprus, Turkey, Italy and Romania. It has also sold 13 shopping malls and 19 hypermarkets under a leaseback agreement in Poland, the Czech Republic, Slovakia and Turkey. At the end of 2004, the group traded from 42 hypermarkets, 77 supermarkets and 239 discount stores in the four countries. Carrefour said the €376m raised from the transaction will be used to finance new stores in a region where it opened 68 outlets in 2004. Since the beginning of this year, Carrefour has divested its businesses in Mexico, where it was being badly beaten by Wal-Mart, and in Japan, where it was struggling. Financial figures for the second quarter of 2005 show the group is still treading water. For the quarter Carrefour reported a 0.3 per cent growth from existing operations, a fall once inflation is taken into account. Expansions and acquisitions accounted for another 2.8 per cent of sales growth. Currency exchange rates added in another one per cent of "growth". The group characterised its European markets as "very challenging" and promised more of the same environment. "We have seen deflation and weak market volumes across most of Europe since the end of last year," the group stated on 12 July. "In the second quarter, however, these trends have been even more apparent. In this tough environment, our goal has been to consistently out perform the competition and win market share. To this end, we have made progress in the quarter." The company said its investments in France, particularly at its hypermarkets, have delivered results. The number of customer transactions at French hypermarkets grew by 1.4 per cent in the quarter and, as a result, market share increased. The group achieved these results through heavy discounting. Overall, Carrefour Group in France grew market share over the first half, the first increase by the group as a whole since 2000. "We are on track to exceed one million square metres of new space in 2005 through organic growth and through tactical acquisitions," the group stated. Overall sales in Europe grew by 0.1 per cent at existing operations and by 3.7 per cent once expansion is taken into account. Meanwhile sales in Latin America increased by 3.6 per cent at existing operations and by 8.5 per cent once expansion is taken into account. Sales in Asia grew three per cent at existing operations and by 16.3 per cent with expansion. In the second quarter, Carrefour opened 208 new banner stores, accounting for 201,000 sq m of new space. This included eight hypermarkets, 12 supermarkets, 129 hard discount stores and 54 convenience stores. The company now has 11,432 stores under its aegis. In addition, the acquisitions in Poland, Italy, Turkey, Cyprus and Brazil added 425,000 sq m of new space. Leading Retailers in IGD’s European Retail Index European Retail Index (ERI) Score Retailer 2005 2004 2003 2002 Carrefour 88 88 86 86 Metro 79 79 79 78 Lidl & Schwarz 71 68 65 64 Auchan 70 69 66 64 Tesco 64 63 61 58 Rewe 62 62 53 53 Aldi 61 61 59 61 Casino 52 52 51 48 ITM 51 50 54 54 Spar International 51 51 - - Ahold 47 52 58 64 Wal-Mart 45 45 45 44 Leclerc 44 44 44 37 Tengelmann 41 41 41 38 Source: IGD Research

Related topics: Market Trends

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