October 27, 2008
Following a difficult H1 2008, Carrefour, the world's second largest retailer, appears to have found its footing, with its global multi-format single brand strategy beginning to bear fruit. Despite an improved performance at home, countries as far afield as China and Brazil are the group's real growth drivers, and international prospects are high as Carrefour prepares to tackle Russia.
Carrefour, which has effectively been insulated from the worst effects of the downturn due to its primary position as a food retailer, saw group sales in the third quarter increase 6.8% to E24.7 billion. While the food giant's non-food ranges have suffered sales declines like other retailers, sales growth has been driven by its core food offer, which accounts for 72% of turnover.The French grocery giant's extensive international presence, especially in key growth markets such as South America, Eastern Europe and Asia, proved to be a silver lining to the cloud looming over its core Western European markets. Sales in Latin America and Asia were up by 22.8% and 10.2%, respectively, while increasing consumer expenditure in Poland and Romania resulted in sales increases of 18.1% and 43.5%.
Despite strong results in its core emerging markets such as Brazil and China, the real glimmer of hope lies in Carrefour's improved performance back home. In France, third quarter like-for-like sales were up 3.2%, as the retail giant managed to reduce the decline of its hypermarkets in its domestic market through increased promotional activity. While sales at its French hypermarkets were down 0.4%, this is a marked improvement on the previous year, when sales declined by 3.4%.
Although the downfall of Carrefour's French hypermarkets was less severe in Q3, the outlook for the retailer's flagship store format is far from rosy. Food sales were driven by heavy discounting, and high inflation also had a helping hand. Moreover, non-food sales continue to struggle, falling 3.3% in the quarter.
Carrefour's improved performance over the last quarter shows that its multi-format single brand strategy is beginning to bear fruit. The Carrefour brand is proving to be a strong asset for the French retailer and sales at its newly-converted Carrefour Market stores are, in some cases, showing double digit growth. Meanwhile, demand for Carrefour's own-brand products are on the rise as consumers facing the squeeze trade down from branded goods to the retailer's private label.
Looking ahead, Carrefour aims to further reduce the decline of its French hypermarkets in Q4 by continuing to step up its promotional activity. Carrefour continues to expand strongly despite the challenging global market conditions and, since the start of 2008, has opened or acquired another 822 stores, adding 832,000 square meters to its total selling space. Furthermore the re-branding of its Champion stores in France has also fortified the Carrefour banner domestically.
Further afield, Carrefour will focus on expanding and consolidating its operations in key growth markets. Acquisitions of local retailers such as PT Alfa Retailindo in Indonesia and Atacadao in Brazil have helped to boost Carrefour's international standing. The retailer is set to add another country to its growing emerging market roster, entering Russia in 2009 with the aim of capitalizing on the country's burgeoning retail market. The grocery player will be wise to implement its multi-format single brand strategy in a bid to establish the Carrefour brand in the Russian market, as with its successful game plan in other Eastern European countries such as Romania and Poland.
Source: Verdict Research