Carrefour’s surprise exit from Russia just four months after launching its first hypermarket in the country makes “strategic sense” for the company, a retail analyst claimed today (16 October).
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Carrefour has opened two hypermarkets in Russia since June. The French group has also been linked to takeover discussions with Russian retailers, including Seventh Continent.
However, with no deal on the horizon and slow progress being made in opening its own outlets, the company said that now was the time for it to withdraw from the market.
In a statement released yesterday evening (15 October), Carrefour said: “The decision to sell the group’s activities in Russia and pull out of the market [was reached] given the absence of sufficient organic growth prospects and acquisition opportunities in the short-and medium-term that would have allowed Carrefour to attain a position of leadership.”
According to Verdict Research analyst Simon Chin, the “bombshell” announcement is tantamount to Carrefour cutting its losses in the market.
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By GlobalData“In any market in which they operate, they want to be the market leader, or at least in the top two. Given that they don’t view this as achievable in Russia, the decision to pull out sooner rather than later – when you have invested more – makes good strategic sense,” Chin told just-food.
However, Chin added that there were “probably other reasons” informing Carrefour’s decision to quit Russia, with structural issues limiting the development of modern retail in the country.
Widespread corruption and bureaucracy continue to plague mass retailers operating in the market, while the global economic downturn – resulting in rising unemployment in Russia – have played a role in dampening the market’s short-term prospects.
The sharp economic decline being witnessed in Russia has benefited discount retailers, such as X5 Retail Group. However, Carrefour has not been able to reap the rewards of investing in price in Russia, Chin added.
“In Russia, Carrefour doesn’t have the big brand recognition that they have in other parts of Western or Eastern Europe, but they are not truly a discount player either,” he observed.
The move follows reports that Carrefour’s largest investors – Colony Capital and Bernard Arnault – were placing the company’s management under pressure to sell its operations in emerging markets.
However, Chin suggested that the decision to sell its Russian business is more a reflection of Carrefour’s “strategic thinking” rather than any pressure being placed on management.
“The move won’t go any way to appeasing investors, who were reportedly pushing for a big sell-off, but it does show how they are thinking about strategy.”
Chin added that Carrefour has its “hands full” in turning around negative sales in its home market, which accounts for over 43% of sales.
Carrefour is dependent on the ailing hypermarket format – which accounts for almost 62% of sales. However, French consumers have increasingly eschewed out-of-town hypermarket shopping for local supermarket and convenience outlets.
Responding to this trend, Carrefour has expanded its supermarket and convenience stores. As a consequence, the company was able to hail the “success” of its Carrefour Market format, which saw sales rise 6%, as well as the “good performance” of its convenience formats and “excellent results” for the newly-opened Carrefour City and Contact stores.
The group has also invested heavily in reducing prices and marketing – initiatives which, according to Chin, have paid dividends.
“In their half-year results, Carrefour said that they were losing share in France. They are now recuperating this, in part thanks to their big publicity campaigns and focus on price,” Chin said.
Carrefour posted market share gains of 0.2% in France during the third quarter.
