Carrefour Sets Sights on Emerging Markets

GLYNN DAVIS

LONDON — French retailer Carrefour is in a position to accelerate growth in emerging markets and to push ahead into new territories after enjoying great success from focusing capital expenditure on its key markets over the past two years.

Speaking at the IGD Global Retailing 2007 Conference in London this month, David Shriver, strategic advisor to the chief executive officer at Carrefour, said: “We're seeing a new Carrefour taking shape with local price leadership, flexible tailored stores and faster growth [through organic and acquisitions]. A growth platform is now in place to be successful in the future and to look at new frontiers for our business in India and Russia.”

Carrefour, the world's second-largest food retailer — with more than 12,500 stores in 29 countries — laid out a new strategy in 2005 after suffering a few difficult years. Management decided that the “era of flag-planting had ended. We'd lost momentum in key markets,” Shriver said.

With the focus shifted onto sales growth rather than margin expansion in these key markets — both mature and emerging — he said Carrefour sought to create the virtuous circle: “Bigger volumes increase market share, so achieve better fixed costs, and then better profitability and margins.”

Since the company wanted to maintain its non-negotiable stance on price leadership, Shriver said this could only be achieved with strong local market shares. The strategy involved cleaning up the group's sprawling portfolio of outlets with the sale of its weaker operations in Mexico, Japan and South Korea. The number of banners was also reduced from five to three, with the Carrefour name now increasingly used around the world.

EXPRESS FORMAT

The company has also sought to create a multi-format operation with the creation of the “Express” store — a scaled-down hypermarket measuring around 20,000 square feet, compared with 100,000-plus square feet for the full hypermarket. “They have been rolled out in Spain and Brazil, and the results have been encouraging as the pricing is the same as in the hypermarkets, even though they are in residential areas,” said Shriver.

This creation of a multi-format business has made it easier for Carrefour to hit the rapid expansion targets it set for itself in 2006. It ultimately delivered more than 12 million square feet of new store space at a cost of about $2.7 billion.

As well as smaller stores, this expansion program included 100 new hypermarkets, twice the number opened in 2005, with special emphasis on Brazil and China. The company also made several acquisitions, including more than 190 stores in Poland from Ahold for about $800 million, which pushed it to the No. 2 spot in that market.

In addition to store expansion, Shriver said many changes have also been made to the company's operational methods, such as using a customer database, shelf-ready packaging and more international sourcing, increasing the shelving space in-store and selling more own-label products.

Such has been the success of the new model that Shriver said Carrefour has even enjoyed market share growth of 1% in France in 2006 after a number of years of declining performance.