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Carrefour

Carrefour Group (France)

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French group Carrefour is one of the world's largest retailers. It lost its long-held position as the global #2 behind America's Walmart to Tesco during 2013, before overtaking its troubled British rival again in 2014. Yet both companies, struggling to offload their weaker international operations, have in turn been surpassed by other food retailers. Although Carrefour has no presence in the US, UK or Germany, it still has significant interests throughout the rest of Europe. However, it has steadily withdrawn from what was once an extensive presence across Asia and Latin America. The group has been wrestling for years with flat performance in its biggest territory, France, which still accounts for close to half of all revenues. There were signs that Carrefour might finally have begun to resolve these problems in 2006, but that modest progress quickly became bogged down at the end of the decade and a turnaround plan launched in 2010 delivered disappointing results. To appease its increasingly restless shareholders, Carrefour spun off its discount chain Dia as an independent company during 2011. It later bought back the Dia outlets in France. Yet that move has not prevented arch-rival Leclerc from overtaking it as France's biggest grocery retailer.

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Competitors

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Brands & Activities

Carrefour has a substantial global profile but like its German rival Metro has struggled to find a solid formula for growth in its domestic market (although there were fragile signs of improvement between 2006 and 2008, and again in 2014). In the mean time it has taken the decision to exit more challenging international territories, while bulking up its presence in countries where it is already strong. But the main priority remains France, still Carrefour's engine house. In several international markets (such as Brazil and China), the group has begun closing down its supermarket outlets to concentrate on hypermarkets. Its international hard discount chain Dia was spun off to shareholders in 2011; however that chain's 800 outlets in France were bought back again in 2014.

By the end of 2017, Carrefour's network housed 12,300 stores in 30 countries. Around two-thirds of these, in 18 countries, are directly owned, and the rest franchised or licensed. Although the group is involved in most retail formats it is best-known for groceries. It is the #1 hypermarket operator worldwide, and the #1 supermarket operator in Europe. Following merger with Promodes in 2000, the group streamlined its brand portfolio to concentrate on four main formats: hypermarkets, supermarkets, hard discount stores and convenience outlets.

Carrefour is the group's international hypermarket brand, with 1,528 outlets spread across three continents. (The group's hypermarkets in Brazil operate under the Atacadao banner). Each outlet sells a huge variety of goods under one roof, from groceries and apparel to household appliances, bicycles and outdoor supplies. Increasingly, to boost the appeal of its hypermarkets, the group has introduced even more diversified in-store offerings such as financial services, home computer support, travel and entertainment bookings and so on. In several countries, the group also offers store-branded mobile phone services. In 2010, the group began rebranding its larger outlets under the name Carrefour Planet, with different individually branded areas within the store as well as exhibitions and tasting events.

In addition the group operates a network of 3,273 owned or franchised grocery supermarkets in Europe and South America. Until recently the dominant brand in France and most other markets was Champion, supported by GS in Italy, GB and Super GB in Belgium and Norte in South America. In 2006, the group rebranded most of its Champion stores in Spain as Carrefour Express, and began a similar shakeup in France at the beginning of 2008, testing a rebrand in selected stores as Carrefour Market. This process went well, delivering sales increases in test stores of as much as 15%. As a result, the decision was taken to rebrand all remaining Champion stores in France under the Carrefour Market name between 2008 and 2009. A similar process has been rolled out in other markets, for example in Argentina, where all local brands, including Norte supermarkets, were rebranded under the shared Carrefour banner; and in Romania, Turkey and Poland, where all the group's supermarkets now operate as Carrefour Express.

Carrefour's large collection of local convenience store brands include Shopi, Marché Plus, 8 a Huit, Proxi and Sherpa in France, Di Per Di in Italy, GB Express in Belgium, and 5' Marinopoulos, Ok and Smile Market in Greece. However most of the stores in this segment are operated by franchisees: Carrefour directly controls only around 440 of almost 7,330 stores. The group has a commanding share of the convenience store market in France. These stores have also been rebranded, adopting the Carrefour Contact and Carrefour City names. Reflecting the urban environment, Carrefour City outlets are open from 7am till 11pm. Other businesses within the group include France's leading cash & carry retailer Promocash, now exclusively run through franchised operators, and its Italian counterparts Docks Market and Gross IPer.

Until 2011, the group also owned a large collection of hard discount stores trading under the Dia banner. These sell lower priced food, personal care and household products, many of them private label, in Spain, Greece, Turkey, Brazil and Argentina. The same format had operated in France for several years as Ed (or Ed L'Epicier), and was boosted in 2006 with the acquisition of Penny Market, the French subsidiary of German group Rewe. The Ed chain was converted to the Dia brand during 2009 and 2010. By the end of 2010, there were 6,373 hard discount stores under the group's global umbrella, with combined gross sales of €11.1bn. Carrefour was the #2 in this segment in France, and #3 in Europe behind Aldi and Lidl. However, mid-2011, the entire business was spun off to Carrefour's long-suffering shareholders. In a complete turnaround, 800 Dia stores in France were reacquired at the end of 2014 for €600m.

Carrefour France

France is by far the group's biggest territory, accounting for almost half of revenues. Even after the disposal of the hard discount estate (which had accounted for more than 4,500 of its local outlets), the group remains the #1 retailer in France overall, although it sits behind rival operators in each segment of the market. Worryingly, its share of the total retail market has remained under intense pressure despite several rebranding exercises. During 2013, the gap between Carrefour and arch-rival Leclerc narrowed dramatically, and the smaller group came close to seizing first place. By year-end however, Carrefour had recovered at least some of its lost ground. Another crisis began to develop at the beginning of 2016. Kantar Worldpanel estimated Carrefour's overall share of till roll at 21.0% for the 12 weeks to Feb 2016, only 0.3% ahead of Leclerc. The rival finally seized the lead in early 2017, and has retained it ever since.

Since the late 1990s, Carrefour has come under intense pressure in France from hard discounting rivals such as Aldi, Lidl and Leader Price. Two laws passed in France in the 1990s placed restrictions on the development of new retail space by existing French groups and also prevented them from heavy discounting on branded goods. This created a loophole which could be exploited by companies such as Aldi and Lidl, which leapt into France, selling a limited range of unbranded household staples through small stores at substantially lower prices. As a result Carrefour's revenues remained flat for several years, while operating profits steadily drifted lower, and the group struggled to find ways to reignite growth. (All retailers were already prohibited from advertising on television, although this law was finally lifted in 2007).

A breakthrough of sorts arrived in 2006 as a result of an amendment to the Galland law which had prevented large groups from offering steep discounts on price. As a result, Carrefour demonstrated a 4.6% increase in local sales, although profits remained flat. That growth appeared to have slowed once more in 2007, in which net sales for the full year showed a growth of only another 1%. There was a similar modest increase in 2008 to just under €38.0bn, despite a further amendment to the Galland law which allowed further discounting from 2008. During 2009 the group made dramatic cuts to the price of its products in an attempt to win back market share.

Competition is especially fierce with Leclerc, and the two groups have clashed repeatedly over claims to be the cheapest retailer in the market. Carrefour's hypermarkets and supermarkets have seen their share of the country's combined groceries sector wither over the past five years. In an attempt to defend its market share, the group agreed to acquire one of its largest French franchisees, Guyenne & Gascoyne, in 2011 for €494m. G&G ran 34 hypermarkets and supermarkets under the Carrefour banner, and co-owns a further 13. However that bolt-on seems to have had little effect on market share. The reacquisition of 800 Dia stores at the end of 2014 was also designed to shore up performance, with almost all outlets gradually rebranding as Carrefour Market or Carrefour Contact. The group also acquired online retailer Rue du Commerce and organic grocer Greenweez.

In addition to national brands, Carrefour controls a huge collection of private label brands across numerous sectors. They include foreign foods brand Destination Saveurs, everyday Produit Carrefour foods, Reflets de France provincial French specialties, Filiere Qualite Carrefour fresh foods, Carrefour Bio organics, Firstline home and consumer electronics appliances, TopBike bicycles and c (in partnership with Orange). A new value brand, Carrefour Discount, launched in 2009. In Belgium Carrefour also markets Neofunk electronics appliances, Bout'Chou babycare products and Cicerone clothing. The group runs France's leading loyalty card scheme with more than 14m members worldwide.

Combined net sales in France were €35.9bn, effectively flat on a like-for-like basis as declines in hypermarkets were offset by growth in supermarkets and convenience stores.

Carrefour Spain

The group's next biggest territory is Spain, where it generated net sales of €8bn in 2016 (that figure has slumped dramatically as a result of the spin-off of Dia, as well as the country's economic troubles). It is the country's second largest grocery retailer some way behind local leader Mercadona. After launching its first hypermarket there in 1973, Carrefour formed a joint venture with local group Simoco to open Pryca hypermarkets. Simoco pulled out in 1986, and Carrefour floated the business as Centros Commerciales Pryca five years later. It retained a 69% shareholding, and in late 2002 bought out minority shareholders to take full control, rebranding all outlets as Carrefour, Champion or Dia. The Champion supermarket chain was shut down during 2005 and 2006, replaced by two new brands: a larger Maxi Dia hard discount format, offering a wider range of fresh food and non-food items, and smaller Carrefour Express mini-hypermarkets. The Dia discount network was further strengthened with the acquisition of 250 Plus stores from German group Tengelmann in 2007, but that whole business was later divested. Instead, the group has steadily bolted on additional outlets for its supermarket operations, including 36 smaller hypermarkets in 2016 from Eroski.

Other European Markets

Elsewhere in Europe, Carrefour is a leading force in Italy's highly fragmented grocery sector (net sales of €4.9bn in 2016) and Belgium (sales of €4.0bn), and among the leaders in Poland and Romania (with combined sales between them of €3.2bn). In 2005 the group added to its existing resources in Turkey, acquiring the country's 3rd largest supermarket chain Gima, and hard discount chain Endi. In Italy it agreed a partnership with local group Aligros to establish a joint venture under which the Italian company's 160 convenience stores adopted the Carrefour brands, and expanded its presence in Italy in 2014 with the acquisition of 53 Billa supermarkets from German rival REWE. In addition, Carrefour agreed a deal with UK rival Tesco to swap its own outlets in the Czech Republic for Tesco's business in Taiwan. (The original agreement called for the transfer of the Carrefour stores in Slovakia as well but this was blocked by regulators. Those outlets were sold instead to a franchisee in 2007, and continue to operate as Carrefour). It acquired Ahold's stores in Poland during 2006, to become that country's 2nd largest retailer with 194 stores. That same year it absorbed six Hypario hypermarkets in Romania, followed by the Artima supermarket chain in 2007. Its biggest expansion in Romania was in 2016 with a deal for 86 Billa supermarkets in that country. Carrefour pulled out of direct involvement in Greece in 2012, selling its interests to local partner Marinopoulos, now its exclusive franchisee in that market. Carrefour withdrew from the UK during the 1980s, and it has no operations in Germany.

Carrefour Latin America

The group is still one of the biggest retailers in Latin America. It became the local leader in Brazil at the end of 2007, as a result of an agreement to acquire local chain Atacadao for $1.1bn. Carrefour already had more than 100 hypermarkets in Brazil, either wholly-owned or operated as joint ventures with local partner Eldorado, as well as over 235 Dia discount stores. It shut down its Champion supermarket outlets in Brazil in 2005 in order to concentrate on hypermarket and hard discount operations. In 2011, the group was involved in discussions to merger its operations in Brazil with local retail giant Pao de Acucar. Those talks eventually collapsed because of a legal challenge from the Brazilian group's part-owner Casino, a bitter rival to Carrefour in France. Instead in 2014, Carrefour sold a 10% stake in its Brazilian operations to local billionaire Abilio Diniz, the son of Pao de Acucar's founder. Combined sales in Brazil were €11.8bn in 2016, making it the group's second largest market after France.

Carrefour is also the #1 food retailer in Argentina (Carrefour, Supermercados Norte and Dia brands) and acquired another 130 stores in 2012 from Eki. Combined sales were €2.7bn. The group has exited most other markets in the region: Chile at the end of 2003, from Mexico in early 2005, and from Colombia in 2012.

Carrefour Asia

Carrefour was the first international retailer to establish a presence in Asia, launching in Taiwan in 1989. Later the group opened a string of outlets throughout the region, in countries including Malaysia, Thailand, Korea, Hong Kong, Singapore and Indonesia. However, it has since exited several of these markets, or sold the stores to franchisees. Its biggest presence here now is in China, where Carrefour is the largest foreign retailer with more than 250 hypermarkets and convenience stores (including franchise partners). Sales were €4.4bn in 2016. There are also outlets in Taiwan.

The group opened its first Japanese store in 2000, but found business very tough. Shoppers expecting French delicacies were reportedly disappointed by Carrefour's range of low-priced goods, little different from those in other Japanese stores. As a result the group greatly increased the number of French-made items in its Japanese store, slowly adding more outlets. In 2003 the group announced plans for a significant boost for its Asian businesses, promising to invest $200m a year between 2004 and 2007 to open new stores in Korea and Japan and renovate existing ones. However this investment failed to deliver sufficient returns. Carrefour took the decision to withdraw from Japan in 2005, selling its stores there to local retail giant Aeon, although they continue to operate under license under the Carrefour banner. In 2006, the group pulled out of Korea altogether, selling its 32 stores there to local fashion retailer E-Land. It put its stores in Thailand, Malaysia and Singapore up for auction in 2010. The Thai outlets were acquired by Casino for €868m, more than had been expected. Malaysia was eventually sold in 2012 to Aeon of Japan (for €250m), and the group sold its holding in stores in Indonesia to its local partner for €525m. They continue to trade under the Carrefour name as a franchisee. No buyer was found for Singapore, and the outlets were shuttered.

Financials

The group has been struggling with weak performance for several years, with stagnation in France exacerbated by global economic problems and fluctuating exchange rates. Group net revenues peaked in 2008 at just under €87.0bn, but have been declining steadily ever since as a result of disposals and currency to a low of €76.32bn in 2014 (or €84bn inc sales tax). At constant currency rates, that represented year-on-year growth of almost 3%, almost 4% excluding divestments, but a marginal decline at reported rates. All of the increase came from Latin America. Systemwide revenues including franchisees were €100.5bn, up marginally in reported currencies. Reported net income was flat at €1.37bn, but net income from continuing operations rose 25% to €1.18bn.

Total revenues for 2015 were €78.86bn, up 3% on an organic basis. Reported net income slipped back to €1.12bn, including exceptional iterms. After minority shareholders, the group share of net income was €980m, compared to €1.2bn the year before. On an adjusted basis, excluding exceptionals, Carrefour claimed a 7% increase in comparable continuing net income. France contributed 47% of retail revenues in 2015; the rest of Europe a further 25%.

Total system sales in 2016 were €103.7bn. Group net revenues slipped back to €76.65bn, while net income fell to €894m.

Background

Carrefour's principal claim to fame is its invention of the Hypermarket concept, first launched in 1963. Based roughly on the American-style shopping mall, the hypermarket (or hypermarché in France) offers every sort of product but under one roof, with discount prices and onsite parking. The business grew out of French department store chain Fournier's. Owners Marcel Fournier and Louis Defforey opened a supermarket inside one of their stores in Annecy in 1961. A success with shoppers, they decided to combine the supermarket and department store models in one giant outlet situated at a major road intersection at Ste-Genevieve-des-Bois outside Paris. (The word carrefour in French means "crossroads").

The business grew quickly in France, and spread to Belgium in 1969. By 1970, the group had become France's seventh-biggest business by market capitalisation. Because of its size, French authorities placed restrictions on its growth at home, so Carrefour turned to the international market instead, opening outlets in Switzerland (1970), the UK and Italy (1972), and Spain (1973). In 1975, the group launched a range of unbranded private-label food products. The Tex clothing brand was launched in 1982, followed by Firstline consumer electronics and household appliances in 1987.

Meanwhile, the group continued to develop the spread of its business. In 1979 sister store chain Ed l'Epicier launched in France, selling discounted foods. In 1981, Carrefour launched its own store card, signing up almost 2m customers over the next 10 years. This sideline developed rapidly during the decade. In 1984, the group added car and home insurance bureaus to its largest stores, followed by a personal savings schemes (in 1989), then monetary funds, life insurance and most recently a range of short-term and medium-term investments.

In 1988, Carrefour opened its first US outlet, in Philadelphia. But the project was a failure, plagued by union problems, poor marketing and product selection. A second store opened in New Jersey in 1992, but both outlets were sold a year later. A debut store in Taiwan, launched in 1989, fared much better.

Prevented under competition laws from opening more than one or two Carrefour stores a year in its home country, the group continued to develop sister brands. Express Oil garages launched in 1990, and the group added out-of-store insurance services through new brand Carma. In 1991, it acquired rival supermarket chains Euromarche and Montlaur. That deal took a big chunk out of group profits, but didn't stop expansion plans. In 1993, Carrefour teamed up with Mexican group Gigante to open its first stores in Latin America. Three years later the group bought a 40% stake in French rival GMB Cora (later sold). Carrefour stores opened in Poland and the Czech Republic in 1997. With acquisition still on its mind, the group made a series of huge purchases in 1998 and 1989. First up was Comptoirs Modernes, which operated the Marche Plus, Commod and Stoc store chains in France, followed by Brazilian chain Lojas Americanas. Then in 1999, the group acquired one of its biggest rivals in France, supermarket chain Promodes, in a deal worth $16.5bn.

The development of Promodes since its launch in 1961 followed a distinctly similar pattern to its bigger rival. Paul-Auguste Halley and Leonor Duval-Lemonnier set up food wholesaler Promodes in France's Normandy region in 1961, and opened their first supermarket outlet a year later. As they opened new outlets they also added new brands including Champion supermarkets and Promocash cash-and-carry stores. Belatedly following Carrefour's lead, they opened their first hypermarket in 1970, under the brandname Continent. With Paul-Auguste Halley's son Paul-Louis as CEO, a selection of new formats were added during the 1970s including convenience stores Shopi and 8 a Huit.

In 1976 the first Continent hypermarket stores opened in Germany and Spain. Three years later the company launched Dia discount chain in Spain. The group floated the same year, although the Halley family retained 38% of the group's shares. In 1980, Promodes made a stab at the US market, acquiring south-western supermarket chain Red Food Stores. Although marginally more successful there than Carrefour, they also withdrew from the territory, selling the chain to Ahold in 1994. Europe was a more productive region for the group. During the 1980s and early 1990s, they opened Continent hypermarkets in Portugal, Italy and Greece, some as joint ventures; acquired supermarket chains Primestres and Codec in France, and Dirsa in Portugal. In 1994, Spanish business Continente was partly floated; two years later the group acquired Italian retail group Garosci, but pulled out of Germany. In 1997, Promodes acquired Catteau supermarkets from Tesco. In partnership with local retailer Exxel, the group paid $600m to merge Argentina's Tia supermarket chain, with Exxel's Supermercados Norte.

Following the merger of Carrefour and Promodes in 1999, the combined group agreed to sell most of its European shopping centre properties to French real estate company Klepierre in 2000 for €1.5bn ($1.4bn). The group leased back its own outlets, and used the extra cash to reduce debt and finance further expansion. Within days, it had agreed to spend €670m ($628.5m) to acquire the 72.5% of Belgium's GB supermarket chain it didn't already own. It later acquired almost 100% of Gruppo GS, Italy's #2 retail group and formed a joint venture with Greek retailer Marinopoulos to become that country's #1 retail operator.

However, attempts to integrate the Carrefour and Promodes businesses began to create problems at management and administrative level. Carrefour was forced to halve its growth forecasts as a result of delays in reducing crossover between the two giant store groups. More serious still was the stranglehold placed on Carrefour's French operations by local competition restrictions. Two laws passed in the 1990s aimed to protect small independent retailers as well as the French countryside. The Raffarin law limited the amount of new out-of-town retail space that could be developed by all the hypermarket operators, while Loi Galland prevented big groups from undercutting independents by selling branded goods at discounted prices. In addition, as a condition of the Promodes merger, Carrefour was not just limited but prohibited from opening any new stores in France for five years. This gave competitors license to exploit the full extent of Loi Raffarin to expand at Carrefour's expense.

But the most damaging development was the arrival of hard discount stores such as Aldi and Lidl, which bypassed both laws by building large numbers of smaller stores, and selling "no-label" products at substantially reduced prices, sometimes 50% or less than equivalent branded products available at Carrefour and the other giants. Carrefour responded with the aggressive expansion of its own hard discount brands, but it was not enough to prevent erosion of its overall market share. In 2001, Carrefour replaced four of the nine executive committee members in its French division in a bid to boost performance. Also that year, the group sold Picard Surgeles, its frozen foods subsidiary, for €920m ($848m) including debt, to a group of private equity companies, and sold its stake in Cora to Deutsche Bank. The group also took full control of Norte in Argentina, buying out partner Exxel.

Yet performance in Carrefour's home market has remained disappointing, and CEO Daniel Bernard came under increasing pressure from shareholders led by the Halley family in 2003 and 2004. They appointed Luc Vandevelde as their official representative in 2004. Formerly the head of Promodes, Vandevelde lost the top job at the merged group to Bernard in 1999, and had left to run troubled British retailer Marks & Spencer for several years. Back in France again, he raised the pressure on Bernard, finally leading to the latter's resignation at the beginning of 2005 after no improvement in French sales. Several other executives with responsibility for operations in France also left the company. Jose Luis Duran was promoted to lead the group, but when there was still no marked improvement in performance he too was forced out in 2008.

Last full revision 19th January 2018

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