Plassat said Carrefour entering "more demanding phase"

Plassat said Carrefour entering "more demanding phase"

Georges Plassat has not even been CEO of Carrefour for a year but he has already made his presence felt at the world's second-largest retailer.

Shares in the French retail giant climbed yesterday (7 March) after the company booked better-than-expected underlying profits for 2012 (even if they were down year-on-year), results that included an increase in earnings from its core domestic business.

Analysts were, broadly, encouraged by the improvements Carrefour has made in recent months, notably in changing how consumers in France (a market that still accounts for 40% of profits) view the value the retailer can offer.

However, some argued Carrefour investors will want signs of more sustainable change at the retailer. That cautious tone is on the money - but it is one echoed by Plassat himself.

"What's important is moving from thinking to acting. This is a more demanding phase," Plassat told reporters in France after Carrefour had announced its annual results. Carrefour has spent the last year making wholesale changes to its business. In France, it has invested in price and expanded in convenience and online. Outside France, it has quit markets it believed were not central to its future - markets like Colombia and Indonesia.

The early signs are promising, not least in France, but Plassat is aware more work is needed. The retailer is upping its capital expenditure this year, with plans to remodel more stores not just in France but in two emerging markets key to the long-term growth of the business - Brazil and China.

News that Carrefour's plans to up its capital spending appeared not to spook the market and, in any case, Plassat was not apologising for the programme.

"We're not talking about spending money, we are talking about investing. If you don't invest when you are a retailer, you are doomed. Does investing mean taking risk? Yes but not investing is an even greater risk," he said.

Sure, Plassat recognises the tough trading conditions in which he and his peers are operating. He acknowledged the competition is fierce. But he insisted Carrefour had to act despite the challenging external environment.

"Everyone talks about a crisis and it is true ... we are involved in a crisis," Plassat said, reflecting on the weak economies of Europe and of slowing growth in China and Brazil. "However, it's not as serious as all that provided we face up to it. During this period, it would be an error not to invest. We must reinvest. That is what money is for. Money is for reinvesting in order to create profit for our shareholders not in the short term but in the medium term."

As well remodelling stores and expanding parts of its network, Carrefour plans to continue to invest in price and up its listings of local produce. It also wants to shake up its IT and logistics.

Interestingly, Plassat said Carrefour would, as some analysts have urged, continue to invest in expanding its multi-channel services but he cautioned about the impact the investments could have on the business.

"We are lagging behind here," Plassat said of Carrefour's online business. "It's a sector where there is not much of a premium in terms of being a leader. It's a very open market. I don't believe the Internet offers the solution to everything. There is going to be excess capacity here. We should consider this as a service we offer to our clients. It's a marginal contributor to sales in stores but I'm sure if it's done properly it can play a part. But we mustn't expect this to be a miracle."

That said, Carrefour is investing in its Drive or click-and-collect service in order to keep pace with its French rivals in what has become a popular way to shop in the country. Again, Plassat was cautious about the financial impact the service could have on the business but pragmatic enough to recognise Carrefour had to act. "We are not making money in this way in the present time but this is something for the future. These are opportunities but they require hard work," he said.

And a lot of hard work still lies ahead for Carrefour. Its perception among French consumers is improving but it faces some formidable competitors in the shape of retailers like Leclerc and Auchan. As Plassat argued, that image still lags the prices Carrefour actually offers.

Outside France, Carrefour is operating in two tough European markets in Spain and Italy, while there are signs of a slowdown in Poland, a market with some tough competition in the likes of Tesco and Jeronimo Martins' Biedronka.

And further afield Plassat faces challenges. In Latin America, profits and sales jumped last year, with "solid" like-for-like sales in Brazil and Argentina. However, Plassat has acknowledged the work Carrefour needs to make on its stores in Brazil, where it faces French peer Casino and its local arm CBD.

However, it is in China that Plassat faces his toughest task outside France. Profits in Asia fell in 2012 amid increased costs in China and the Carrefour boss yesterday spoke of the urgent work facing the retailer in the market.

"In China, in some of the larger towns and cities, we have to do something or we will be outdated compared to the competition," he said. "We need in China, we need to have ppl who can analyse the market. We don't quite now to do multi-format in China, for instance."

And so, Carrefour's results yesterday offered some encouragement and Plassat should be praised for his early work, especially in France. Nevertheless, challenges remain - what is positive for Carerfour is that that man at the top is fully aware of what lies ahead.