Talking shop: Carrefour's Plassat makes "encouraging" early impression

By Michelle Russell | 22 June 2012

Plassat has said he is well aware of the magnitude of the task ahead

Plassat has said he is well aware of the magnitude of the task ahead

After a poor year for Carrefour and the departure of its CEO, the market has waited to see what new boss Georges Plassat plans for the French retail giant. Michelle Russell takes a look at what we can expect from Plassat and the mammoth task he has ahead of him.

Georges Plassat stepped back into the spotlight earlier this week as he addressed Carrefour's shareholders at the French retailer's AGM.

Making his first public address since re-joining the world's second-largest retailer last month, shareholders, analysts, indeed the industry, listened with intent for any early signs of how the retail veteran plans to turn the ailing company around.

The retail giant has had a tumultuous 18 months, which has included a series of profit warnings and shareholder dissent over its strategy after a plunge in its share price.

Profits and sales fell in 2011 and in April, the group booked a drop in sales for the first quarter of 2012, hit by weakness in its French hypermarkets and a "difficult" trading environment in Europe.

Plassat replaces Lars Olofsson - a man whose name reportedly drew jeers from the hundreds of shareholders gathered at Monday's meeting at the Louvre in Paris.

Olofsson, who was under pressure from Carrefour shareholders for some time and who quit a month earlier than planned, endured a three-year tenure that was marred by a string of profit warnings and strategy U-turns.

He also lacked the retail experience Plassat brings to the table, having only previously worked in FMCG. Plassat, on the other hand, is a retail veteran and joined from French fashion retail group Vivarte where he was chairman and CEO since 2000. He also had a short stint with Carrefour from 1997 to 1999 as managing director of the group's Spanish operations.

As the third CEO of Carrefour in the past four years, Plassat now has what he admits is a tough task ahead of him. He said it will take around three years to turn the company around as it looks to focus on reducing debt and overhead costs as well as exiting non-core markets.

Whether the three-year turnaround is a realistic target is dependent upon internal and external factors, analysts believe.

"In terms of the external factors, it's not Carrefour's fault but there's no doubt the collapse of the southern European economy is a major headwind. They've got a major presence in Spain and a considerable presence in Italy. Those economies face chronic challenges and Carrefour is therefore a victim of that," Shore Capital analyst Clive Black told just-food.

Black said Carrefour has taken "up front action" in Greece already with its decision to run its Greek stores on a franchise basis but added the retailer had proved "dysfunctional" in recent months.

"[Carrefour] was a great business, a world class business that through a series of poor leadership, and I would suggest divisive boardroom activity, has meant it has lacked focus in a world where focus has been a precondition to survive, nevermind succeed."

Plassat had a busy week ahead of the AGM, with Carrefour announcing the change of how its business in Greece is run, where its sales have been falling because of the debt crisis. However, on a brighter note, it signalled expansion in Argentina with the acquisition of discount supermarket chain Eki.

However, Plassat hinted on Monday that Turkey may be next on the exit list.

"It is not surprising that Turkey is put on the question mark list," Black said. "I would think Poland would be quite high up on that list as well."

Conlumino analyst Simon Chinn believes any markets in which Carrefour cannot be a leader or number two player will be potential candidates.

"[Plassat] said Carrefour plans to exit its non-core markets and this is something that, even under Oloffson, it was looking at, consolidating their operations more.

"One of their core strategies is to be either the market leader or at least the second in the market in food and grocery. So for countries like Turkey and also Poland ... they're not in a position to become the market leader or number two because that market is led by Biedronka and Tesco. It comes back to its core Eurozone countries being the bulk of its business and so it needs to focus on those. Countries like Poland and Turkey are relatively small fry for Carrefour."

Plassat was keen to point out during his speech that the company had no intention of leaving Brazil or China for the time being, two important countries for Carrefour.

"I'm not surprised that Latin America and China are markets outlined as being committed to," Black told just-food. "China is a big strategic project for which I think there are uncertainties and doubts amongst all major western retailers as to whether the country will eventually be a meaningful source of profit and cash generation, but the opportunity cost of not being involved is still too high to lead to withdrawal."

Plassat is expected to disclose specific details of his strategy at the group's first-half results in August, but to date, his actions suggest he is keen to get the wheels in motion.

Black, however, believes it is too early to determine whether Plassat has what it takes to turn the fortune of Carrefour around.

"There has been an ownership in Carrefour that has had a different agenda ... the board has interfered in the activities of the executives to a detrimental effect. It's a bit like a football team that keeps sacking its manager. The manager brings in new people around him and brings in new players and then gets sacked. Then there's another manager bringing in new players and new people, and you wonder why you go from the top of the Premiership and end up in League One. The analogy is very strong in Carrefour's case, it needs stability and hopefully Plassat is the right person. If he isn't, the whole cycle of contraction will continue."

Chinn believes that while Plassat will be "under a lot of pressure" to deliver, his "bolshy and strong" personality and attitude means he is less likely to be "pushed around" by shareholders.

Plassat has himself declared he is well aware of the magnitude of the task ahead, which will require the support of all within the group. His arrival appears to have raised hopes that Carrefour can be revived but shareholders will need to give him the benefit of the doubt and be patient.

"He has got an awful lot to do," Black says. "But the initial smoke signals are encouraging."

Sectors: Retail

Companies: Carrefour, Tesco

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