Carrefour: Reinventing Hypermarkets to Support Recovery Strategy in France

The saturation of the hypermarket format has heavily impacted Carrefour in France, significantly weakening the group’s wider performance. Carrefour’s stores continue to be hampered by a lacklustre price perception compared to the Leclerc chain, considered by many consumers as offering more consistent price leadership.

The strategy devised by Carrefour’s new CEO, Georges Plassat, to achieve a return to growth for its French hypermarkets revolves around markedly different initiatives compared to those of his predecessor, Lars Olofsson, particularly with the cull of the far-reaching but ill-timed Carrefour Planet project. The Paris Stock Exchange appears to give him full credence, with a share price hitting its highest level in over two years at the end of November 2013.

Recovery Underway?

Investors are waiting for the crucial holiday trading update to confirm if the company has successfully turned its fortunes in the key French market. Results for the third quarter to September 2013  indicated a tentative recovery for French hypermarket sales, with 2% growth compared to 2012, The last quarter of 2013 is expected to confirm this trend, as Carrefour continued to see its share in grocery retailing rise slightly, alongside gains in customer loyalty. Although this indicates that its recovery appears to be firm, the group it is still likely to lag behind Leclerc in the last quarter in terms of sales growth, partly as a result of Leclerc’s stronger presence with the drive-through click-and-collect sites.

Uncertainty also still clouds the longer-term future relevance of Carrefour’s hypermarkets, for which its strategy appears to be providing only partial answers rather than long-term solutions.

Weighing the Benefits of More Autonomy for Individual Stores vs. Centralisation

Georges Plassat has stressed his intention to simplify the group’s strategy and curb the trend towards excessive centralisation in order to put greater emphasis on meeting the needs of consumers and matching its competitors at a local level more closely. Hence, hypermarket store managers will now have more autonomy to decide on promotions and purchases as this is seen as one of the key elements from which Leclerc benefits to maintain competitive prices.

However, the need to achieve economies of scale and constantly improve its supply chain must remain a priority for every grocery retailer. Job cuts at Carrefour’s headquarters could undermine improvements previously achieved in these areas, as well as in terms of the banner’s marketing strategies and multi-channel synergies.

While the advantages of greater autonomy for hypermarkets do bring tangible results, they must not be achieved at the expense of the group’s strengths in relation to its size, particularly in terms of logistics, marketing and purchasing. For example, decentralising some purchasing functions could hinder efficiency and incur additional costs.

Small Hypermarkets and Drive-Through New Battlefields

The disappointing results of French hypermarkets hide uneven performances according to store size. In contrast to the sharp decline in sales for the biggest stores, smaller hypermarkets ranging from 2,500-5,000 sq m are on the rise, which has benefited Système U’s Hyper U chain.

Thus, the potential test launch in France of hypermarkets with a markedly discount positioning based on Brazil’s Atacadão model could offer Carrefour a solution to expand its network of compact hypermarkets in selected urban areas while strengthening the recovery of the banner’s price image against Leclerc.

Drive-through and various click-and-collect delivery methods are also being promoted by most grocery retailers to retain their customer base. For example, Leclerc announced that 38% of its sales growth in the first half of 2013 derived from its drive-through units. In an attempt to catch up, notably against Leclerc and Système U, Carrefour also rapidly expanded its drive-through network in 2012 and 2013. However, the popularity of drive-through units may partially cannibalise sales of hypermarkets by offering additional convenience and time-saving benefits, notably for the format’s core demographic target, young families, as they are often internet-savvy and time-pressed. Therefore, more pronounced innovations are needed for hypermarkets to maintain their attractiveness and relevance, notably among this age group.

Decentralisation could be applied to foster such innovations, for example, in order to better target affluent customers with stores using elements derived from the Carrefour Planet experiment, and to appeal to lower-income shoppers with concepts offering a more marked discount positioning.

Challenges Ahead for 2014

Having finally halted the erosion of hypermarket sales in the third quarter of 2013, the indications arethat Carrefour may have reached a milestone in its long path towards recovery in its domestic market. However, it will need to expand its network of drive-through units more aggressivelyas these have become the main growth driver for grocery retailers struggling with the stagnant hypermarkets channel. Improving price perception of Carrefour stores against Leclerc also remains a key challenge to achieve a long-lasting boost in customer loyalty.