Car refour ’s Global R each: A Case Study of Its Str ategy

Dr. Yih-Chear ang Shiue, Dr. Der-J uinn Hor ng, Szu-Wei Yeh, Doctor al Student
National Centr al Univer sity, Taiwan

ABSTRACT

In response to the ongoing process of economic liberalization, the corporations around the world are held to
permanently improve their product quality, their operating systems, the selling skills of their personnel, and others
for their long-term development and benefices. Special emphasis is given to the re-structuring of their inner
organization and the distribution of responsibilities within the management. Undoubtedly, Carrefour, a French-based
corporation, is a good example for the implementation of such successful adjustment measures. Today, Carrefour’s
strategy is much about global reach, and Carrefour has become the second largest retailer worldwide till now.

INTRODUCTION

In 1959, Carrefour was founded by two entrepreneurs in Savoie, the South-Eastern part of France. Operated
by its founders, Marcel Fournier and Denis Defforey, Carrefour pioneered in the establishment of so-called
“l’hypermarché” (hypermarket), which are supermarkets with huge dimensions in terms of space, offering variety of
products. Gradually, Carrefour has developed into a modern corporation, thus improving its competitiveness and
market presence considerably. Carrefour has expanded steadily since 1969. Now, it serves over 2 billion clients per
year in its more than 9,000 stores, which are present in 32 countries across 3 geographic zones. Carrefour is not
only the second but also the most internationalized retailer worldwide.

CARREFOUR’S HIST ORY

Combination of two families (Four nier -Defforey)

Established in 1959, Carrefour was made up by three businessmen: Marcel Fournier, Louis Defforey and
his son, Denis Defforey. They all came from Savoie, a province located in South-Eastern part of France. As for the
Fournier family, since the first “boutique” in 1882, the Fournier family has begun to show ability for more than 100
years. In order to maintain the development of the family firm, after dealing in dress shops, the Fournier family
began to expand the business scope, putting into the deal of the wool trade, and achieving “Eugène Fournier” and
“Émile Fournier”, two brands with their name. Shortly before World War II, they owned a company that had the 28
staff, managed and displayed the successful the small and medium-sized enterprises of France.

For the Defforey family, they had dealt in the tobacco business since 1812, and gradually began to invest
and manage the wholesale business. Afterwards, the Defforeys founded “Le Comptoir”, dealing in the business of
toasting the coffee bean and partial shipment of the wine product. Before World War II, it owned 100 CEFs
(Comptoir d’Épicerie Fine) at that time. Le Comptoir was not only the professional agents of 20 manufacturers, but
had over 200 local family food suppliers as well. ( Lhermie 2001)

Why was it named “Car r efour ”?

With the development of economy, various kinds of new-type selling ways appear. In 1948, the first ”Self
Service” shop opened in France, and the first supermarket appeared in Paris in 1957. They both had much impact
on the retail market in France. After that, lots of French traditional retailers (e.g. Goulet-Turpin, Casino, Baptise
Nica, Alsacienne, Dock de France) joined this market one after another. The Fourniers and the Defforeys had no
exception. They chose to cooperate with each other.

On June 11 of 1959, Marcel Fournier, Louis Defforey, and Denis Defforey established “Carrefour
Supermarché”. On January 7 of 1960, they opened its first shop “Fournier-Nouveautés” at Annecy, Haute-Savoie,
whose surface is merely 160m2. However, they promptly closed the shop on January 11 because of his inadequate
experience. After five months, they opened another shop “Super Marché Carrefour” at Parmelan, whose surface is
650m2. This is the first time for them to make profits from managing supermarkets. According the financial
statement of 1960, the revenue of the shop at Parmelan occupied 2/3 of the total revenues. (Lhermie 2001)

Why was it named “Carrefour”? According to the statement of Marcel Fournier, “Originally, we prepare to
call it Agora, but we think that people could misunderstand to some extent to us! What’s more, our shops will be all

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set up on the thoroughfare shut in the traffic, so we choose Carrefour for our brand”. (Lhermie 2001) In other
words, the brand “Carrefour” means “It is convenient to fetch it there.”

Car r efour ’s Or ganizational Development

Organizational development is a long-term effort, led and supported by top management, in order to
improve an organization's visioning, empowerment, learning, and problem-solving processes, through an ongoing,
collaborative management of organization culture--with special emphasis on the culture of intact work teams and
other team configurations--using the consultant-facilitator role and the theory and technology of applied behavioral
science, including action research. (French & Bell 1999)

Besides, the concept of external environment is intended to include those forces and elements external to
the organization's boundaries that affect and are affected by an organization's actions, as well as more general
economic, social cultural, political-legal, and technological influences that provide the broader context for the
entrepreneurial growth and development. (Bruno and Tyebjee 1982). That is to say, organizational change depends
on access to resources available in the environment as usual. Of all resources in the environment, capital is probably
a key to both expansion and increases in market share, so that companies gaining credit from formal institutions or
others may be at an advantage over competitors. Namely, capital markets play an important role on family
company’s expansion as well.

Mentioned of Carrefour’s organizational development in capital, there is a rapid transition in 1970.

“Carrefour Supermarché” is a private company from 1959 to 1970, and shares of the company were intensely held
by the Fournier family and the Defforey family. In another word, Carrefour is so-called a “family company “on this
period. The definition of a family company must be distinguished among three fundamental elements: ownership,
control, and management. In addition to holding shares, two families fully control their business management.

For example, Marcel Fournier is chairman of the board, and Louis Defforey is general manager, and they
both participated directly in managing from strategy planning to marketing, so that they could handed their business
by themselves at the beginning. However, with the expansion of its scale, they need to build more and larger shops
on purpose, so it’s necessary to get much more financing support. Carrefour decided to go public in 1970,
introducing 20% shares in the stock market and attracting investors to join its expansion. (Lhermie 2001)
Table 1 Distr ibution of Capital at 31/12/2004
Shareholders As of Number of shares As a 褝 Number of votes As a 褝

Shareholder's pact 113,139,429 16.05% 218,400,883 25.35%

Employees 16,886,007 2.39% 32,835,762 3.81%

Auto holding 8,532,318 1.21%

Auto auditing

Public 566,561,796 80.35% 610,092,079 70.83%

TOTAL 705,119,550 100% 861,328,724 100%

As is shown on Table 1,”Shareholder's pact” indicates that the key family shareholders, accounting for 16%
of the capital and 25% of the voting rights now. With regard to important decisions, they will concern the
company's development, but they have to take into account normal changes to the body of shareholders necessarily.
Today, Carrefour hasn’t seen as a family company anymore.

As for Carrefour’s organizational development in structure, the private sector has played an important role
in the development of the contemporary economy in France, and most of these companies are family-owned.
However, because of the competition brought forth by the globalization of the world economy, lots of them are
facing the challenge to go into organizational change, and Carrefour has no exception. Carrefour takes “dual
system” in the organization structure at the beginning.

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 The Fourniers
-Since 1882

Carrefour Supermarché Carrefour S.A.

(1959-1997) (1997- )
The Defforeys
-Since 1812

Fig 1. The Or ganizational Development of Car refour

At first, Carrefour transformed itself into professionally run corporate families. While it developed and enlarged from
family organizational form to professional management form, the owner of Carrefour recruited professional managers. However,
the members of the top management were mainly the members of the family system. At the same time, family informal influence
is much more powerful than formal authority in this system. On the contrary, the members of mid- and low- levels management
were members of the company mainly formed by the basis of professional abilities and technical skills. In other words, the
professional managers had to execute what the family members had decided. For Carrefour, it maintained this organization
structure until 1997.

In 1997, Carrefour declared to transform itself to be “Carrefour S.A.”, an incorporated company in legal provision.
Instead of running of the firm themselves, the two families gradually give up holding the reins, letting professional managers go
into top management. Although the family members at the committee still maintains the decision making power while working
with them, professional managers at Carrefour have much more privilege than before.

CARREFOUR’S STRATEGY

French Innovation
On June 15 of 1963, Carrefour opened a shop that the French had ever seen before. The surface of the shop
was 2,500m2, and it had 400 parking spaces as well. The shop was located at Sainte-Geneviève-des-Bois, the
southern suburb of Paris. It was the biggest supermarket in France at that time. The French named it
“l’hypermarché” (hypermarket), which means “bigger than traditional supermarkets”. Learning from the experience
of American experience in retail development, Carrefour realized that the importance of “No Parking, No Business”,
so that they planned to build the parking spaces for customers. It occupied 1/2 of total surface, approximately
1,200m2.(Lhermie 2001) This is the first time for French retailers to invest lots of money to build them for
customers only.

Besides, the hypermarket at Sainte-Geneviève-des-Bois provided more than 15,000 kinds of goods for
customer to choose. Mentioned of price decision making, Carrefour adopted the strategy of “low-margin”
(approximately15%-20% discount), attracting customers to buy them. (Lhermie 2001) The varieties of goods and
price discount really had much influence on the French traditional retailers at that time. For Carrefour, the
hypermarket is not merely the breakthrough of his selling skills, but also symbolizes as “French Innovation”. As is
shown on Fig.2, the hypermarket makes half its nets sales (57.9%) of all. Today, Carrefour has stepped into his
global reach by means of the style until now.

8.1%
Total: 72,668 M euros
15.7%
hypermarket
supermarket
hard discount
18.3% others
57.9%

Fig 2. Breakdown of consolidated net sales by for mat of Car refour (as of 12/31/2004)

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Tr iple Str ategy
After the success of Sainte-Geneviève-des-Bois, Carrefour continues to step into his expansion strategies.
We call it “triple strategy”: internal growth, cooperation and franchising. The strategy of internal growth includes
“business-level strategy” and “corporate-level strategy”. The former indicates the company will engage itself in
product or market expansion on the basis of its ability, the latter the company will go into diversification through
vertical integration or M&A. (Ramanujan & Varadarajan, 1989) For Carrefour; it adopts business-level strategy,
building his own Supply Center to maintain the stability of goods supplied around the world.

As for the strategy of cooperation, Masurel and Janszen (1998) argue that a high degree of commercial
ooperation results from a high market concentration. Particularly, when larger chain stores dominate the market,
SMEs join cooperative organizations more often. In order to increase its market share and reduce perceived risk,
Carrefour cooperates with his competitors (e.g. les Docks de France, les Docks de Nevers, Guyenne et Gascogne,
Comptoirs Modernes, les Établissements La Bruyère-Eberlé, Colin) by joint venture in France.(Lhermie 2001)
Today, Carrefour adopts this strategy in majority of its global reach.

Mentioned of the strategy of franchising, franchising may be considered a contractual arrangement in

which a franchisee owns and operates a business employing the franchiser’s brand name; wherein the franchisee
commonly purchases various goods from the franchiser, often for resale. In turn, the franchiser receives fees and
royalties for the use of his/her brand name and typically provides non-branded inputs such as operating systems and
training. In addition, the contractual arrangement grants the franchiser the right to set and enforce uniform quality
standards upon the franchisee. (Bronson et al 1999)

Carrefour had had three franchisees in early years, all of which were Promodè, Dock du Nord-Mielle and
Cora. Except Dock du Nord-Mielle, Carrefour had encountered “unhappy experience” with the others. Promodè
and Cora both had somewhat ambition, and they gradually became his potential competitors. At last, Carrefour
terminated the franchise relationship with them after a couple of years. (Lhermie 2001) For Carrefour, it learns a
valuable lesson from them: It’s significant to choose franchisees carefully. Nowadays, Carrefour continues to adopt
this strategy in United Arab Emirates, Qatar Romania, Santo Domingo, Tunisia, Egypt, Norway, Oman, Saudi
Arabia, and Japan.

Car refour ’s Challenge from Amer ica

Carrefour has invested outside France since 1969, and the first country that it expands abroad is Belgium.
From then on, Carrefour has expanded steadily. Now, Carrefour is 1st in Europe and the 2nd retailer in the world.
As is shown on Fig.3, with a presence in thirty-two countries, Carrefour makes half its sales outside France. This
makes it the most international of all food retailers, all of which is concentrated on three continents: Europe (13
countries), Latin America (4 countries) and Asia (8 countries), a field of expansion to which one might add Africa,
the Caribbean and the Middle East (7 countries). America is one of the most important markets of the world.
However, Carrefour failed in America in 1993.

6.5%
7.0% Total:72,668 M euros

France
Europe(Excluding France)
Americas
37.3% 49.2% Asia

Fig 3. Breakdown of consolidated net sales by geogr aphic region of Car refour (as of 12/31/2004)

Mentioned of investment in America, Carrefour had gone there since 1984. At the beginning, it cooperated
with Costco and Office Dépôt by joint venture. On February 2 of 1988, Carrefour opened the first store in
Philadelphia, and it expanded to 21 stores throughout America little by little. Meanwhile, many of French
distributors (e.g. Casino, Docks de France, Euromarché, Promodès, Auchan Arlaud As Éco, Rallye, Au Printemps,
Genty-Cathiard) stepped into America as well. (Lhermie 2001)

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 Why did Carrefour fail in America? First, Carrefour encountered lots of competitors, which not only came
from local but also foreign retailers. That made it difficult to expand its market scale. Besides, Carrefour was
unable to get favorable price from local suppliers, so that the cost of purchasing went from bad to worse. In other
words, Carrefour gradually didn’t get competitive advantage of “low-margin” in America. In 1993, Carrefour gave
up his investment in America and never comes back there up to now. Besides, Carrefour had also failed in Hong-
Kong in 2000 during his global reach. As is shown on Fig.4, here is the brief description of process of Carrefour’s
global reach.

Carrefour’s Global Reach

(Since 1969)

Europe Continent America continent Asia Continent

-Belgium since 1969 -Brazil since 1975 -Taiwan since 1989
-Leader in Europe -Failure in the U.S. in -Failure in Hong-Kong
1993 in 2000

Fig. 4. The Process of Car refour ’s Global Reach

Moreover, the most difficult global reach of Carrefour is confronted by Wal-Mart’s challenge. Wal-Mart is
a global company with over 1.3 million associates worldwide and almost 5,000 stores and wholesale clubs across 10
countries. Wal-Mart earned over $256 billion in global revenue, setting up a new record and adding over $26 billion
in sales. It generated nearly $9.1 billion in net income and grew earnings per share by more than 15 percent.
Namely, Wal-Mart is the largest retailer giant of the world.

For Carrefour, the world’s second largest retailer, Wal-Mart has been the most threatened competitor.
Compared with Wal-Mart and Carrefour, competitive advantages are completely different. The former makes use
of efficient logistics network as well as global procurement to have low-price commodities, but the
internationalization starts relatively late. The latter, though it also has his own global logistic network, the core
value of Carrefour is famous for its highly internationalized management. Today, Wal-Mart has ambition to step
into his global expansion, and gradually this will threaten Carrefour’s global reach. Recently, they meet and
compete with each other in South America (mainly in Brazil) and Asia (mainly in China and Japan). Carrefour will
have much more challenge in the future.

CONCLUSION

In conclusion, through the analysis of the case study of Carrefour, we have learned much more successful
experience from its development process. However, in over 30 years of global reach, Carrefour has been confronted
also with great challenges. In Brazil, China, and Japan, Carrefour has encountered (and still is encountering) many
problems, and it also failed in the U.S. and Hong Kong markets. With its strategies, however, Carrefour finally has
solved these problems and maintained an outstanding position within the retail business until now.

REFRERENCES
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edition. Upper Saddle River, NJ: Prentice-Hall
Ramanujan, V. and Varadarajan, R. (1989), Research on corporate diversification: a synthesis, Strategic Management Journal, Vol. 10 No. 6
Masurel, E., Janszen, R.M. (1998), The relationship between SME cooperation and market concentration: evidence from small retailers in The
Netherlands, Journal of Small Business Management, nr. April.
Bronson, James W., Faircloth, James B., Chacko, Jacob M.(1999), Toward a Strategic Model of the Franchise Form of Business Organization,
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