Analysts say Carrefour's new CEO Georges Plassat is taking steps needed to turn retailer around, including allowing stores to make their own decisions about what to stock in response to local tastes
February 18, 2013
– UNTIL recently, Carrefour’s supermarkets in France were run along Napoleonic lines. Strict orders emanated from its headquarters in Paris. Every store sold a similar range of products. If selling groceries were like marching an army over the Alps, this strategy would have worked brilliantly. But it isn’t, and it didn’t.
Customers enjoy choice, and their tastes vary. In Orange, for instance, a town in Provence where many north Africans live, E. Leclerc, a rival chain, was offering 20 varieties of chickpea. The local Carrefour had only two brands, sighs a big shareholder. Sales were flatter than pitta bread.
Enter Georges Plassat, the new boss who joined Carrefour last year. One of his first acts was to give store managers the power to adapt to local tastes. At the big Carrefour in Monaco, for example, out went the racks of cheap luggage, of the sort chic locals would be embarrassed to see their servants carrying. In came a sushi bar and a global wine selection. The place is now humming, says the investor.
Not long ago Carrefour was in such trouble that a break-up seemed likely. It was rapidly losing market share in France, its biggest market, to Leclerc. The "hypermarket" model that it invented in the 1960s is considered to be well past its sell-by date. With more single and older customers, convenient city-centre supermarkets are becoming more popular, rather than vast stores on the edge of town selling everything from charcuterie to televisions. And retailing specialists in consumer electronics and fashion have eaten into Carrefour’s non-food business. Under Carrefour’s former chief executive, Lars Olofsson, a Swede, the firm issued five profit warnings in a year, more than any other big French company has ever made.
But after six months under Mr Plassat, improvement is evident. "The tanker has turned," opines John Kershaw of Exane BNP Paribas, a bank. According to Kantar, which measures retail-market share, Carrefour started winning back ground in France last spring. Its sales of food had fallen in every quarter except one since 2010, but in the last two quarters of 2012 they grew again. The decline in sales of non-food items, the trickiest area, also slowed sharply.
What is Mr Plassat doing that his predecessors didn’t? Being French helps. The first boss to leave suddenly, in 2008, was José Luis Duran, a Spaniard with a background mainly in finance. His successor was Mr Olofsson, a marketing whiz from Nestlé, a food company. Mr Olofsson then brought in an Englishman from Tesco, James McCann, to run French hypermarkets, and he encouraged executives to communicate in English at headquarters. "Imagine a Frenchman going to Walmart’s headquarters in Bentonville and saying: 'Now we will write and speak in French’," scoffs an insider.
Mr Plassat, by contrast, is a French shopkeeper through and through, having worked for Casino, another French supermarket chain, and for Carrefour itself back in the 1990s. "When dealing with something as sensitive as the place people get their food," says Mr Plassat, "it’s important to be close to the local culture."
His diagnosis of Carrefour’s problems is three-pronged. First, the firm failed to digest a merger with Promodès, a group of retail brands, in 1999. The two management teams fought in the aisles and neglected customers. Second, the group overexpanded internationally, leaving it with insufficient funds to invest at home. Its reputation for offering good value slipped. And it became over-centralised, starting well back in the 2000s, so that Leclerc’s local managers ran rings around it.
Mr Plassat has moved quickly to reverse all this, starting with the centralisation. Store managers can now decide how many kilos of pasta or bananas they want to stock. Before, head office simply told them. Now they are free to order regional products, which are popular, not just national brands. Mr Plassat has also sold Carrefour’s businesses in four countries: Greece, Colombia, Indonesia and Malaysia. The firm is still big in China and Brazil, but the proceeds from selling up in places where it was weak can be ploughed back into its European heartland.
Mr Olofsson had started a revamp of 245 hypermarkets across Europe, which would have cost €1.5 billion ($2 billion) in total, called Carrefour Planet. Shoppers were treated to more theatrical food displays, nurseries and more organic produce. It was a step in the right direction but cost a bomb, says Natalie Berg of Planet Retail, a consultancy: the fancy stores cost twice as much as traditional Carrefour outlets.
What French shoppers crave, however, is lower prices. Mr Plassat is keen to oblige. His ads compare Carrefour’s stickers with those of Leclerc. And he is making cheap improvements. On a recent store visit he was buttonholed by a customer who had waited ages for ham to be sliced; he quickly agreed that the store should have a second slicing machine. Carrefour Planet, meanwhile, has been binned.
Two big questions remain. Mr Plassat may drive a revival in sales over the next few years, says Mr Kershaw, but he may not be able to do much more than delay and soften what may be a structural decline in hypermarkets. "Our hypermarkets have in the past suffered from lack of investment and a lack of belief in the format," answers Mr Plassat. Carrefour is already a multi-format retailer, and will continue to add smaller stores.
Mr Plassat will also face pressure from Carrefour’s two biggest shareholders, Colony Capital, an American property-investment fund, and Bernard Arnault, the boss of LVMH, a luxury-goods firm. Colony Capital and Mr Arnault jointly bought a stake in the firm in 2007 when its share price was 58% higher than today. They now own 16% of Carrefour. Other shareholders grumble that they have exerted too much influence. Carrefour’s ill-conceived attempt in 2011 to merge its Brazilian business with a local competitor, Pão de Açúcar, for instance, is thought to have been pushed by Blue Capital, the entity which holds Mr Arnault’s and Colony’s shares. For now, though, the man behind the counter has some room to act.
(c) 2013 Economist Intelligence Unit