Carrefour at a crossroads to win back French buyers

In the affluent Paris suburb of Montesson, Carrefour store manager Laurent Pasguay plastered his cell phone number and photo throughout the sprawling hypermarket.

“Customers are saying the store is too big, so it’s up to us to find ways to help them navigate and enjoy it,” Pasguay said. “They call or text when the lines are long at checkout or when they can’t find the products on sale this week. ”

The food retailer has adopted this tactic in all of its hypermarkets in France, where consumer enthusiasm for weekly department stores has faded.

The success of the turnaround promised by CEO Alexandre Bompard could depend on such details. Since joining in 2017, the 49-year-old has aggressively cut costs, slashed prices to win back customers, invested to catch up in e-commerce and exited unprofitable markets including China.

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The results have been mixed. On the positive side, cash generation has improved significantly, allowing Carrefour to resume cash dividends and buybacks for the first time in years. Yet its business in France continues to suffer due to stiff competition and reliance on hypermarkets, while e-commerce penetration is low and operating profit has barely budged.

As a result, investors remain wary of the group, which pioneered the hypermarket in France in the 1960s and exported it to become one of the world’s largest food distributors.

Its shares are trading at a discount of around 35% to the European food retail sector and have fallen 20% since Bompard took over. This delay increases over the same period by 64% for the Dutch leader Ahold Delhaize and 30% for Tesco in the United Kingdom. US food retailers Walmart and The Kroger Co left it in the dust with rises of 84% and 105%.

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This performance has frustrated Bompard and has sometimes strained its relations with Carrefour’s biggest investors, the Moulins family and Brazilian billionaire Abilio Diniz, who each own 18% of the share capital. Billionaire Bernard Arnault sold his stake last year.

Carrefour has also become a takeover target: Canada’s Couche-Tard showed interest last year before the French government backed away from its approach and small domestic rival Auchan wants to relaunch a bid after it was rejected in October, according to reports. people close to the file.

Bompard said the “hard and unglamorous” turnaround work was now complete, preparing Carrefour for growth driven by e-commerce and opportunities in online advertising and data.

“All the bricks are now in place for a powerful new model,” he said in an interview late last year. “I think we are at a turning point for our industry and once we prove that, the market perception of Carrefour will change.”

Carrefour pioneered the hypermarket concept but customers in France grew tired of their size © Remi Berli/Gamma-Rapho/Getty Images

Bompard should present a new strategy in the coming months. It will build on five-year targets announced in November to triple e-commerce revenue to €10 billion and add €600 million to the group’s operating profit, which would represent a 30% increase on 2020 levels.

If successful, the digital thrust would validate the heavy investments made by Bompard. Like other food retailers, Carrefour has had to invest heavily in software, logistics, warehouses and skilled workers to enable e-commerce.

Supermarket chains in many countries have so far struggled to make significant profits from online grocery shopping due to the resource requirements. In France, however, Carrefour is taking advantage of consumers favoring click-and-collect over home delivery, which is more expensive to operate.

Bompard thinks Carrefour has figured out how to thrive in the age of e-commerce: “If we had had this conversation just two years ago, I wouldn’t necessarily have said that.”

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But with e-commerce accounting for just 4% of group sales in 2021, investors have focused on Carrefour’s brick-and-mortar retail business, which includes 13,000 stores it directly operates in nine countries, the largest being France, Brazil and Spain.

France dominated the debate as Carrefour still generates half of its revenue domestically and comparable sales growth there has been subdued outside of the 2020 pandemic surge. Price competition in the country has been more intense, according to analysts, because France has more players than elsewhere in Europe or the United States. Carrefour has lost 5 points of market share since 2010, mainly to the benefit of private groups Leclerc and Intermarché, and discounters like Lidl, according to Kantar Worldpanel.

“The French business faces more strategic challenges than people realize,” said Bernstein analyst William Woods.

To cope, Bompard closed and sold stores, laid off head office staff and invested the savings in lower prices and technology. By 2020, Carrefour has achieved 3 billion euros in cost reductions and has promised an additional 2.4 billion euros by 2024.

Stemming the market share losses of French hypermarkets was also a priority. In Montesson, Pasguay has set up a sushi counter, a salmon smoking station and a stand for Neapolitan pizza makers. In a nod to discount rivals, a section of the store offers low-priced basic household items and seasonal products.

Pasguay holds morning management meetings to review the store’s daily net promotion score generated by customer ratings in the Carrefour app. The store is ranked against others in real time. “If the score goes down, it’s a warning,” said Pasguay.

The Carrefour de Montesson has a stand of Neapolitan pizza makers to attract customers © Carrefour

Some wonder if better service and cheaper prices than competitors in urban centers can boost sales, when it’s the size of hypermarkets and the time it takes to shop there that many consumers don’t like.

“Consumer habits have changed over the past 20 years as the population ages and people buy more non-food items online,” said Frédéric Valette, analyst at Kantar Worldpanel. Carrefour has stemmed the loss of market share of hypermarkets, but “competition is still very intense”.

For the loss-making French stores that Carrefour cannot repair, Bompard has handed them over to motivated entrepreneurs, often former employees who want to be their own bosses.

Under a “lease-management” model, Carrefour signs a long-term contract under which entrepreneurs manage their stores as they see fit, employ staff directly and choose their own inventory and promotions. The stores must still offer certain Carrefour products, and the group assumes the investment expenses. The two share all losses during a transition period.

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A big advantage: new managers can remove certain clauses from the Carrefour collective agreement that grant benefits to workers, such as paid leave when a child is sick, discounts for employees or annual bonuses.

Carrefour has long had many smaller format supermarkets under lease management or franchise, but in 2018 only two hypermarkets had such agreements. After a period of experimentation, Bompard has added 10 in 2020, 10 in 2021, and plans 16 more this year.

Former Carrefour store manager Nicolas Catrix took over a struggling hypermarket in the town of Sens Voulx in 2019. He cut cleaning and security costs, cut staff from 160 to 125 and started buying more products local. “Every morning, I look at the accounts and wonder what I can spend less without affecting the customer experience?” he said. “The store was losing money and it’s not losing any more.”

Tensions have arisen with staff over changes to their contract terms, he admitted. “Workers lose out when stores go into lease-management,” said Michel Enguelz, representative of the Force Ouvrière trade union organization. “It’s a financial maneuver, nothing more.”

For Catrix, the experience was successful enough for him to sign contracts for two more stores.

Barclays analyst Nicolas Champ said investors viewed rental management positively because it showed Bompard’s creativity in solving old problems.

But he said Carrefour needed to do more to improve its position with investors: “Either they need to consolidate the French market. . . or they must significantly improve their performance there by improving the hypermarkets and taking market share in e-commerce to improve their margins.

For Bompard, the choice is not so obvious. “I’ve never been more confident in the model we’re building,” he said. “However, I will continue to analyze all the offers that come forward. The progress we have made allows us to evaluate them very coldly and with very high standards since we do not need them.

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