Katy Askew

On the money: Questions surround Carrefour's hypermarket strategy

By Katy Askew | 16 January 2014

Carrefour hypermarkets miss expectations

Carrefour hypermarkets miss expectations

That Carrefour made further progress on its turnaround plan during 2013 was left in no doubt today (16 January) when the company revealed improving underlying sales trends. However, fourth-quarter revenues in France missed consensus expectations and the retailer still has a number of domestic questions to answer - particularly around its hypermarket strategy. Katy Askew reports.

Carrefour saw its share price slip in early trade this morning, dropping 2.7% by 09.30 GMT, after a fourth-quarter sales miss in France overshadowed the firm's international growth and foreign exchange hit the group result.

The retailer booked a 1.2% drop in full-year sales as currency fluctuations weighed on the group's total sales. 

Nevertheless, Carrefour remained upbeat as it insisted its performance had gained momentum in 2013. Organic sales in the year rose 2.5%, suggesting Carrefour was able to pick up sales volumes across various markets.

The company said its sales performance "accelerated" throughout the year. Organic growth in the European retailer's international operations rose to 4.3% in the fourth quarter and Carrefour was able to report a return to positive sales in the troubled Spanish market.

In France, where the company generates a majority of sales, Carrefour saw growth across "all formats". Organic growth totalled 2% in the final quarter of the year, the company said.

According to Carrefour, the improving performance is evidence efforts to boost its domestic operations are paying off. Carrefour has struggled with its reliance on hypermarket sales in the French market but, in recent quarters, Carrefour has invested heavily in developing a multi-channel offering in its home market, an area where CEO Georges Plassat has admitted the retailer had lagged its rivals, and opened more convenience stores.

The format has seen several years of decline as consumers increasingly look to in-town supermarkets and convenience stores, as well as migrating to online retailing options.

Critics of hypermarkets say the format has seen non-food sales hit as the popularity of online shopping grows. Concern over the economy has also made consumers in mature markets cautious, curtailing their spending - including travelling to out-of-town stores - and leading them to shop more often but at nearby convenience stores.

Carrefour has also moved to address its poor price perception by lowering prices and strengthening its private label line-up.

However, Carrefour's fourth-quarter French sales missed consensus expectations, sparking concern the difficulties the group has faced domestically - particularly at its closely-watched hypermarket unit - may not be fully resolved.

"France continues to grow (+0.4% LfL inc fuel), but below consensus (+1.3%) and our estimates (+1.1%). This reflects a further quarter of LfL growth in hypermarkets (+1.4% exc fuel)," Sanford Bernstein analysts wrote in a note to investors. "However this represents a slowdown from 2013 Q3 (+3.0%) and a significant underperformance to consensus (+2.5%)."

Changes at its domestic hypermarket business have then yielded positive results. Carrefour did post another quarter of rising like-for-like sales at its French hypermarkets.

Nevertheless, the group's fourth-quarter hypermarket slowdown could suggest the format remains sticky for the retailer.

According to Kepler Cheuvreux analyst Fabienne Caron, the performance of Carrefour's hypermarket business was dampened by market share declines in the final month of the quarter. "We explain the lower performance in Q4 2013 by the trend in market share: gains in October, November, and a loss in December," he suggested.

Management has repeatedly indicated it remains committed to the hypermarket format. CEO Georges Plassat insisted last year's World Retail Congress in Paris in October that the hypermarket is "not dead".

However, beyond Carrefour's overall strategic moves on price and ranging - which, if they get it right, should boost the group's performance across the board - it is less clear exactly what Carrefour has in mind to address the structural issues facing hypermarkets.

According to Sanford Bernstein analyst Bruno Monteyne, Carrefour remains too reliant on hypermarket sales in the slow-growth markets of France and western Europe. "Carrefour remains structurally challenged, with unattractive formats in unattractive countries. It is still too dependent on hypermarkets in France and Western Europe. The turnaround plan has stopped the bleeding and improved the business. While the patient is out of the emergency ward, it is now in the sick ward and we do not see it return to rude health yet," he suggested.

What will it take to get Carrefour back to full health? Herein lies the rub. The company cannot retreat from the hypermarket format. Its big-box out of town stores still generate too large a proportion of its income. However, the company is yet to set out a clear roadmap for how it plans to revitalise and - if necessary - reinvent its hypermarket proposition.

Sectors: Financials, Retail

Companies: Carrefour

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