FRANCE: Disappointing results have convinced Carrefour to focus on France (COMMENT)
Following a disappointing set of results, Carrefour needs to shape up its act. The company has developed a strategy based on price alignment, divesting retail formats in low-performing markets. However, a question remains over whether it can re-attract customers lost to discounters and other chains perceived as offering better value for money.
Having reported earnings below market expectations, Carrefour, Europe's largest food retailer, has announced a strategy for accelerating sales growth and increasing profitability.
The French-based company, which is the world's second largest retailer after Wal-Mart stores with approximately 10,400 stores in 29 countries, saw net income fall to €1.4Bn (US$1.88bn) from €1.6 billion in 2003, well below an expected forecast of €1.7 billion for 2004.
Carrefour's domestic market is its largest, and ordinarily generates about half of its sales, but performance in France has been weak of late. Sales at its French superstores fell 2.3% to €20.9 billion last year and, with the French economy remaining steadfastly in the doldrums, Gallic consumers have discovered discounters such as Aldi and Leclerc.
Having ousted its chairman in February for failing to halt the decreasing market share of its domestic operations, Carrefour's new management team, led by Luc Vandevelde (who previously ran Marks & Spencer) plans to extend price cuts to attract shoppers in response to increased competition from discount retailers.
The company has announced a four-pillar growth strategy whereby it aims to improve its price image, boost customer traffic in its key French hypermarket stores, improve profitability outside France and accelerate growth for the 2006 to 2008 period.
The core of its problem is the price sensitivity of consumers. Three of the four pillars of Carrefour's growth strategy focus mainly on addressing consumers' views of the retailer and promoting the perception that it offers value for money - and it must be successful in doing this. If Carrefour can re-attract lost customers in its domestic market then it will be on the way to recovery.
The promotion of Carrefour private labels might be one avenue to succeed in boosting customer traffic, although this is unlikely to suffice in itself. Carrefour will need to communicate the message that it is offering compelling value for money to fend off price-based competition. Launching a discount label could be one way forward but this is unlikely to generate any immediate results.
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