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Is Romania still an attractive market for Carrefour? 

25/04/2012 08:08

With results below expectations on diverse national markets and with a down rate on the French market, the Carrefour Group is trying to recover their rate under a new management. On the shoulders of the new CEO Carrefour is put an enormous pressure coming mostly from the shareholders' impatience. Will it succeed to reposition the French giant on an ascending trend? And if yes, how soon and particularly at what price?

 

With sellings of 22.5 billion Euro recorded for the first quarter, the Group Carrefour displays a 1.5% increase to similar period in 2011. An apparent increase, rather based more on opening of new stores and on the fuel price than on their effort. The rescue was coming from the emerging countries, and the increase of 10% recorded in Brazil seems to justify the investments made there. Contrary to expectations, the results recorded in Asia are slightly lowering. A decrease of 0.3% is not theoretically much. But whenever it is coming from China, country having almost 2/3 of the Asian sellings of the group, the signal cannot be but a worrying one. The old continent, faced with Euro zone problems, is recording lowering figures in its turn. Greece is top list with a reduction of 19%, followed by Spain with -8.1% and Italy with -4.6 %. France, the group's origin country and by far the most important market for it, is recording in its turn a reduction of 0.5%, in spite of a positive evolution of the supermarkets getting a 1.8% increase. But if we eliminate from the equation the effects of fuel price, the reduction in France is much more powerful and reaches 3.1% on hypermarkets. A tough alarm signal coming from the heart and soul format of the group.

 

A new CEO but also an enormous responsibility

Arrived into the group at the beginning of April, Georges Plassat will be the new Carrefour CEO as from June. His adjustment period, not officially specified, is relative short. His presence at the Carrefour steering gear is regarded by many people as a rescuing solution. A difficult mission if we take into account that the group, the second international retailer, is working now in idle mode. With only one engine on increase, in South America area and a lot of question marks coming from Europe and China, the data of the problems are quite confused. The recovery of a giant of Carrefour size is not to be made overnight. Any measure will get the result in time, over long months if not years. But George Plassat knows he has not such time available. His measures must be radical, so that the effects in time would be the quickest. And getting out off some international markets seems to be one of such solutions.

 

Carrefour in Romania

The French retailer entered Romania in July 2001 through a franchise. The development during the early years was quite slow and the budgets allocated to expansion here, were incomparably smaller than those assigned to a country like Poland. The retailer's top year was 2008 when the number of hypermarket openings overcame even the most optimistic expectations. In parallel, the retailer had also entered the supermarket format, through acquisition of the local network Artima. But at that time it was about the Carrefour who had took over complete operations in Romania, by renouncing the franchise which had opened their way. In spite of the investments made at the time, Carrefour fully experienced the effects of the crisis. They lost the leader position in the top of the hypermarkets operators in favor of Kaufland. Also the second position in the top of national sellings. The results recorded in 2011, calculated like to like, are showing a strong decrease. If we extract the difference in VAT as from July 2010, the diminishing is so more dramatic. The expansion, the card the majority of the retailers played in 2011, does not seem to count much in Carrefour results.

 

The expansion of hypermarkets blocked in Deva

According to Carrefour Romania officials, 2011 was meant to be a year to continue the expansion. The retailer opened two hypermarkets, in Bucharest and in Botosani, although three were announced. The Deva location, initially planned for 2009, was to be opened till the end of the year. And yet, Christmas holidays passed and the store was not open. Once lost the most important selling period of the year, logic ought to make the retailer to focus on opening by latest Easter Holiday. Once circulated on the market, opening on February 25th was indicated as certain, so that the store would function during March. On February the store was passing orders of merchandise and the first trucks loaded with cargo already began to arrive in Deva. But this time-limit was passing by, as well as the Easter, and the store was still not opening. In the meantime Carrefour applied to Deva City Hall for extension for another year of the building licence. Imperceptibly, the goods in the store were sent to neighboring hypermarkets, and a new date of opening was not indicated. The reasons of postponement can be, of course, independent of the retailer's strategy, and the fact that it coincides with the moment of changes at the Carrefour top can be a simple coincidence. Even so, there are two other instruments left for expansion: the supermarkets Carrefour Market and the franchise Carrefour Express. Although they cannot be compared with results of some hypermarkets, the two formats can still bring some plus in the retailer's selling. In addition we are talking about other investment budgets, and the majority of the locations are taken over basis leasing contracts. This is a sufficient element to make the retailer press the acceleration pedal. But in real life the expansion of the Carrefour Market format is working idle if we would compare it with the main competitors. And yet, with 8 stores open from the beginning of the year, Carrefour is situated over the rate of the previous years. On short term, the retailer is preparing for another 3 locations. Two in Pitesti and Galati with possible opening time towards end of June, and a third one in Brasov, estimated for half of July. The third banner, the franchise Carrefour Express looks like taking a break. In spite of the optimism shown during launching of the format, Angst stores rebranding is stagnating. Although on the retailer's site only three stores are mentioned, there are four of them really existing but they are far from the final target. At present rate of one store every two months, the time limit for year 2012 for rebranding the entire network, seems a farther and farther dream.

 

Carrefour Discount, a private brand under testing

At the beginning of this year, Carrefour was launching in Romania the first items under their private brand Carrefour Discount. The declaration made at that time to Romania TV by the general director of Carrefour Romania, was able to raise a big question mark. He was saying that the brand Carrefour Discount was in Romania in "testing phase". Surprise! A private brand in the prime price segment, launched by Carrefour almost four years before, present in almost all the countries where the French retailer is operating and with an assortment extended to over 400 items, will enter Romania only if test results will be favorable. In other words, Carrefour put from the beginning a question mark on the success of their own brand, while their marketing policy in Romania is focused on "bombarding the prices".

 

Hypermarket - two stores under the same roof

We recently visited a few of Carrefour hypermarkets. The market image from private brand point of view, is visibly contrasting with Carrefour officials' declarations. Immediately upon entering the stores, the difference between food and non-food categories is noticed. The main alley seems to separate these entities in two distinct stores. In the non-food area, the diversity of private brands is incredible. It is about full categories dominated by Carrefour brands. Where there is no strong producer brand, the private brand is making the law. There are only a few categories to keep the market leader brands too, as a possible option for the buyers fond of this brand but also as a source to compare the private brand prices. Paradoxically, the entire category is dominated by the mainstream brands, Carrefour or Carrefour Home. We can hardly find, lost in the diversity, any product under entry level brand, whilst it might have been here the most suitable place for low prices. The incredible diversity is not based on local products, but on articles coming mostly through acquisition central station in Asia. These are products simply taken over out of the existing assortment at international level, with large percentage of margin behind. Otherwise even the placing here of the mainstream brands is proving the retailer's orientation to additional margin. We meet an identical strategy in clothing departments, where private brand TeX is making the law.      

At the opposite pole, the aisles in grocery category, are trying to maintain the image of competitive prices. The assortment is focused on turnover items, with powerful impact to consumers. There is no trace of the diversity existing in non-food departments. There are full categories being vague images of what Carrefour represents in other countries. To illustrate, for juices or chocolate, the items under private brands can be counted on fingers. We recently counted in France the diversity of private brands existing for chocolate category: Carrefour Discount, Carrefour, Reflets de France, Carrefour Selection, Agir Bio, Agir Nutrition, Carrefour Kids, Carrefour Light, Agir Solidaire, Agir Eco Planet.... Ten brands with an incredible diversity of products, the way a hypermarket offer should be. And since we have mentioned France, a country famous for its tradition in cheese manufacturing, the current assortment under Carrefour brands in the stores in Romania is unrecognizable.

 

Is Romania still an attractive market for Carrefour?

The Romanian market has changed during the recent years, as well as the consumer's profile. With good and bad, Romania is representing almost 1% of the group's turnover. An insignificant percentage for a retailer of Carrefour size. And then if we represent so little, what would be the Carrefour's interest to withdraw their operations in Romania? A reply could be in the cash obtained but also in the elimination of additional expenses. On other side, Romanian market is not (yet) a concentrated market. The top three retailers represent less than 20% of the total volume of the market. In absence of a majority market leader, as it is in countries like Swiss or Lithuania, an exit through selling is much easier now and would not raise special problems to the competition.  

 

The Exit as a commercial strategy  

The withdrawal from a national market must not be regarded as a weakness. It can be a part of any retailer's strategy and can finally be a normal step towards a further development.  It would not be something new for Carrefour to withdraw from a national market. The most recent example, the exit from Russia, was used by the retailer at that time to focus on much more important markets like China or South America. Romania may not be the only country where Carrefour would revise their strategy. Greece, weighted against the results, is also on the list. A country affected by economic problems but also by social instability. A country where Carrefour is facing a mark down because of increasing the logistic costs. Another target could be Italy, also on the list of the countries with problems. The figures do not look here too good and the possible euro entering a new recession stage will speed up Carrefour's decision. Anyway we shall certainly have a reply to all these questions after the Carrefour shareholders general meeting, most probably in August, with publication of the figures for the second quarter. Till then, we have nothing else to do but wait and hope that Romania is still an attractive market for Carrefour.

 

Instead of post scriptum

There are people who do not believe in coincidences. At any rate the coincidences are not at random at all in retail business. Walmart, the leader of the international commerce, has recently opened a London office and nominated a grandson of the  famous  founder of the company Sam Walton, as a manager. Would it be just a simple coincidence that the respective grandson is a professional lawyer, his specialty is fusions and acquisitions, or Walmart is simply waiting (them too) the Carrefour's decisions?

Florin Frasineanu 

 

 

 


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