Casinos domestic hypermarket business suffered in 2009

Casino's domestic hypermarket business suffered in 2009

French retailer Casino posted a mixed set of results yesterday (4 March), with a strong performance overseas failing to offset weakness in its domestic market. While Casino is eyeing growth in Latin America and Asia to fuel its top-line, the group will nevertheless hope that some new initiatives will boost its performance at home in the year to come. Katy Humphries reports.

French retailer Casino revealed yesterday (4 March) that sales in 2009 dropped 1.2%, with declining revenues from its domestic market weighing on the company's overall performance.

In France, the company saw sales drop 3.8% after its hypermarket and discount units posted disappointing revenues.

The well-documented decline of the hypermarket sector in France has posed a serious challenge to most retailers in the country, with Auchan, Carrefour and now Casino revealing that they lost market share last year.

Casino's Géant Casino hypermarkets lost 0.2% of market share over the past 12 months, with sales suffering for a number of structural, industry-wide, reasons.

In the face of rising gas prices, French consumers are increasingly turning to in-town supermarkets and convenience stores, while the ageing population and an increasing number of single-person households are less inclined to shop at large hypermarkets.

Add to this the growing importance of Internet retailing, as more of the weekly shop migrates online, and it seems clear that – without a radical re-think – the sector will continue in its slow decline.

French retailers have indicated a willingness to adapt their offer, with the likes of Carrefour planning to unveil a new vision for their hypermarket operations in the coming months.

Casino, which generates 20% of French sales at its hypermarkets, insisted yesterday that the unit was not for sale.

Speaking at an investor briefing, Jean-Charles Naouri instead revealed that the group planned to reduce selling space at its hypermarkets. The company also plans to scale back its electronics offering and devote more floor space to apparel.

However, according to Verdict analyst Daniel Lucht, Casino may want to consider more drastic measures to breath fresh life into the unit.

“The hypermarket problem is structural. What do you do with these stores that are in a slow long-term decline? Retailers will be considering other options – other reasons to draw people out of town. Perhaps we will see more foodservice, events staged or renting out space to turn them into something more akin to shopping centres,” he suggests.

However, Lucht warns, the local market will determine what ideas prove successful and changes will probably require assessment on a store-by-store basis.

Another cause for concern in France is the weakness shown at Casino's discount format, Leader Price.

Discounters have struggled across Europe, despite the economic downturn, because food deflation has reduced grocery bills, giving consumers fewer reasons to trade down to low-price stores.

In addition, while the downturn has been keenly felt in France, the economy has emerged from recession quicker than in a number of other markets.

According to France's National Institute of Statistics and Economic Studies (INSEE), in February the headline measure of consumer sentiment dropped to -33 from -30 a month earlier.

Fears over job security and unemployment linger and consumer confidence is likely to continue to waver in the first half of 2010, INSEE suggests.

However, confidence remains well up on last year's levels and household spending is holding up better in France than in many neighbouring economies.

INSEE suggests that consumption is therefore likely to make a positive contribution to growth in the coming quarters, a factor that does not bode well for discounters.

Indeed, looking to the coming year, Naouri indicated that Casino does not anticipate significant food inflation, with the price of national brands expected to remain stable in the first half, with an increase of around 1% expected in the second half.

Naouri said that the company would invest in lowering prices and promotional activity in order to drive sales volumes. Over the next two months, the company will cut the price of selected products in store by 20-25%, he revealed.

Casino will also invest in expanding its convenience and online businesses, he said. These investments will be funded by the group's cost-saving programme, which will focus on the optimisation of group purchasing and tighter inventory controls, Naouri added.

During 2009, Casino successfully stripped costs of EUR180m (US$244.8m) out of the business, beating its targeted savings of EUR150m, and reduced inventory control by 2.3 days.

Casino will also continue its asset disposal scheme, which it said would raise in the region of EUR1bn this year.

In a note to investors, Natixis Securities analyst Pierre-Edourd Boudot said that these cost savings coupled with the sale of Super de Boer last year meant that the company's operational performance was “in line” with expectations while debt reduction and net income – which rose 9% - was better than expected.

According to Boudot, while the hypermarkets and Leader Price formats delivered a “worse” performance, overseas operations faired better.

Casino booked a "robust" 6.7% rise in overseas revenues thanks to organic growth of 4.9% and a “strong” performance from its businesses in Latin America and Asia. International profits were up 12%, the group revealed.

The company has seen the importance of overseas operations increase as difficulties in its home market have mounted. In 2000, France accounted for 76% of total sales, while today this figure has fallen to 62%.

As Naouri told investors, the company has developed its international operations to fuel growth in the years to come.

“For Latin America and Asia, the world is growth, growth, growth,” he said.

However, while Casino is looking overseas to generate top-line gains, the company will have to address some of the challenges it faces domestically to ensure it has a strong foundation from which to build growth during the next 12 months and beyond.