Carrefour Research Project

George Fox University Carrefour Research Project Anonymous

CARREFOUR CASE STUDY

February 16, 2010 Case Study

Carrefour In June 1957 the first Carrefour opened in Annecy, France and quickly grew into a chain from this first sales outlet. The Carrefour group pioneered the concept of a hypermarket, a large supermarket and department store under the same roof. In the West Coast of the United States (where I live now), these types of stores include Fred Meyer and Wal-Mart Super Center. Hypermarkets have been around since June of 1963 when the Carrefour Group opened their first hypermarket near Paris, France. In April 1976 they decided to launch a private label named Produits Libres (free products), a line of fifty foods including oil, biscuits, milk, pasta, all of which are sold in unbranded white packages sold at substantially lower prices. In the 1970s and 1980s Carrefour actively sought involvement with other companies in Europe including in Belgium, Switzerland, Great Britain, and Italy. In 1991 they acquired two competitors, Euromarche and a bankrupt grocery chain Montlaur. At this point Carrefour had reached the

CARREFOUR CASE STUDY

saturation point in France with 798 hypermarkets and governmental regulations restricting them from opening new hypermarkets. Carrefour continued to expand in foreign markets with its own stores and partnerships in Austria, Great Britain, The Netherlands, Switzerland, Germany, Belgium, Italy, Spain, Africa, Argentina, Brazil, and the United States. In 1999 they merged with one of their major competitors in the France market known as Continent. In 2000 they made their next big move merging with competitor Promodes SA in a $16.5 billion dollar move, making their presence felt in more than 8,800 stores in 26 countries. One of Carrefours strengths is in size considering that they are the worlds largest hypermarket chain, the second largest retail group in the world in terms of revenue, and the third largest in profits. One of the benefits of being a huge retail group is that they have large profits. These profits can be used to invest in expansion operations avoiding interest costs associated with business loans. Another strength inherent in large size is taking advantage of economies of scale. Large volume output means lower price per unit attracting more and more customers especially in a slow economies. Carrefour definitely has a need for mass large volume production due to their huge number of 10,378 stores. Lower prices derived from economies

CARREFOUR CASE STUDY

of scale may be used as a tool to bump competition out of a market, or prevent other players from entering using predatory pricing. Additionally, a huge company this size has high bargaining power as a buyer, avoiding costs that will lead to a higher profit margin. Carrefour has strengths in size but the same reason for strength, is also the reason for their weaknesses. Some of these weaknesses include slow e-commerce development, unwieldy portfolio of stores in some markets, and failures to meet forecasted goals. Carrefours sales in France for December 2009, fell 2.8 percent due to bad management by the head of operations James McCann (Daneshkhu, 2009). This is distinctly one time in which Carrefour missed their quarterly target sales. Doing business in over 26 countries has its disadvantages that include deficiencies in communication, social-cultural competence, translation, coordination, logistics, competition, etc. All these are barriers that impede management, operations, the expansion of the business, and ultimately profits. Carrefour has opportunities in which they can capitalize and grow. One area of their business where they expand is in providing organics goods in existing markets. The demand for organics products is growing worldwide due to the discovery of the harmful effects of chemicals such as pesticides used in the production of goods. Another

CARREFOUR CASE STUDY

opportunity that exists is the acquisition of vulnerable players in the game. Again this is a scenario where they can use their size as an advantage and swallow smaller weaker competition, growing in size and eliminating competition. The last opportunity available to Carrefour is expanding in Asian countries. Carrefour chooses countries that have reached sufficient levels of maturity to make the transition to mass consumption. There are many Asian countries in or approaching this phase in development, for example Taiwan and Thailand. Similarly to being aware of strengths, it is important to be aware of threats when doing business especially in a global market. Carrefour faces several threats including growing competition and economic political risk. Carrefour must pay close attention to their competition, in particular Metro Group, which operates right behind Carrefour in net sales coming in at number 3 in the industry. Competition comes both locally and internationally and each carry different threats. Substantial threats include economic and political risks. These types of risks are related and highlight the stability of the business environment in any given country with respect to political and economic activity. These types of dangers are completely uncontrollable which is why they are considered to be most threatening. In 1998 Carrefour opened and closed four stores in Hong Kong. Asian economists speculated that the failure of Carrefour in

CARREFOUR CASE STUDY

Hong Kong was contributed to poor economic times (Kyodo, 2000). The poor economic times were a result of the financial collapse of the Thai currency, after a decision made by the Thailand government to float the Baht (Thai currency). Administering a SWOT analysis (strength, weaknesses, opportunities, and threats) was very revealing of where Carrefour stands as Company. It is very clear that much of their strength comes from their large size, which gives them access to capital from big profits, price reduction per unit from economies of scale, and buyer bargaining power. However, the same element that gives them an edge also brings them challenges. The large size of the company presents problems including communication, coordination, and logistics. Additionally, operations in foreign countries bring sociocultural competence challenges such as understanding local traditional business and consumption practices. These barriers obstruct different aspects of operations such as management, expansion of the business, and ultimately subtract from profits. Opportunities from a large company established in different countries can come from the additions of products forecasted to be in high demand such as organic goods. Moreover, the acquisition of smaller vulnerable players can be a strategy used to gain size and minimize competition. Another

CARREFOUR CASE STUDY

opportunity for Carrefour is in expanding into Asia. Countries in Asia with sufficient level of maturity making transition to mass consumption are especially attractive locations for Carrefour. Expanding into new countries carries economic and political risks that have been proven detrimental to the survival of Carrefour outlets in Hong Kong. These risks are inevitable in doing business in economically and or politically unstable countries. Carrefour corporate level strategy can be summarized by their mission statement which states, Carrefour is totally focused on meeting the expectations of its customers. Our mission is to be the benchmark in modern retailing in each of our markets. As a global retailer, Carrefour is committed to enabling as many people as possible to purchase consumer goods, in accordance with the principles of fair trade and sustainable development(www.carefour.com). Their tentative strategy is to use localized services for local needs and to place as many stores as possible in an area to achieve economies of scale. Carrefour developed a circle of success model: Freshness + variety + low prices high volume high bargaining power low costs low prices, which they hope will bring in customers. Additionally, they have centralized IT and administrative departments, and the use of expatriates to train local labor.

CARREFOUR CASE STUDY

Carrefour business-level strategy is focused in promoting and popularizing their Carrefour Quality line of products. One way of doing this is by advertising new promotions and daily discounts. More in specifically, their business level strategy consists of a few pillars that include one-stop shopping, low prices, self-service, quality products, freshness, and free parking. Supplier management is also another area they focus on using local distributers. They use their global name brand for recognition to their advantage as much as possible. In order to implement the business level strategy, Carrefour plans on using their 10,378 stores worldwide to market their Carrefour Quality line. After taking into account all of the information on Carrefour I came up with a few strategic alternatives and they are as follows: 1. Retreat from the Asian market 2. Continue head-on competition with local/international players in Asia 3. Shift focus to Latin American market and 4. Focus expansion on European markets. It is important to note that all of the strategic alternatives offer benefits and carry downfalls to them, so choosing a strategy was a rather long thoughtful process. The recommendation that I propose is for Carrefour to continue head-on competition with local and international players. There are various barriers and challenges in doing business in other countries, staying in the war will ensure that Carrefour capitalizes on

CARREFOUR CASE STUDY

any opportunity available in Asia. With respect to local competition, it is important that Carrefour develops a good brand name reputation for their company locally, in order to gain customer loyalty. Also as important, is for Carrefour to use buyer power combined with economies of scales to attract new customers and perhaps take part mildly in predatory pricing. Internationally they are ready for war in terms of size and distribution channel availability. In addition they have name brand recognition globally. Continuing head to head with local and global competition will be inevitable but using correct analysis tools and making correct management decisions will fuel Carrefour efforts of expanding into Asia.

CARREFOUR CASE STUDY

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References Carrefour Group, Initials. (Unknown). Our Values. Retrieved from http://www.carrefour.com/cdc/group/our-values/

Daneshkhu, SD. (2010, January 15). Sales growth to help carrefour hit target. Financial Times, Retrieved from http://www.ft.com/cms/s/0/4174c22c013d-11df-8c5400144feabdc0.html?SID=google

"France's Carrefour to close stores in H.K". Asian Economic News. FindArticles.com. 19 Feb, 2010. http://findarticles.com/p/articles/mi_m0WDP/is_2000_Sept_4/ai_651027 1 6/

Unknown, Initials. (1999, January 5). Carrefour sa. Retrieved from http://www.fundinguniverse.com/company-histories/CarrefourSA- Company-History.html