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November 18, 2008

In the Spotlight – Nestle exec takes helm at Carrefour

After months of speculation over the future of Carrefour CEO José Luis Durán, today's (18 November) news that the retail giant has appointed his successor came as little surprise. However, the French group's move to hire Nestle executive Lars Olofsson did raise eyebrows. Dean Best looks at Durán's departure and the challenges ahead for the Nestle veteran.

By Dean Best

After months of speculation over the future of Carrefour CEO José Luis Durán, today’s (18 November) news that the retail giant has appointed his successor came as little surprise. However, the French group’s move to hire Nestle executive Lars Olofsson did raise eyebrows. Dean Best looks at Durán’s departure and the challenges ahead for the Nestle veteran.

The writing, it seems, was on the wall for Carrefour CEO José Luis Durán.

Today (18 November), after months of speculation over the position of  Durán at the head of the world’s second-largest retailer, the company announced it had found a replacement for the Spaniard.

Lars Olofsson, a Nestle veteran, will take up the reins at Carrefour on 1 January, signalling the end of a tense period at the top of the French retail giant.

Durán became Carrefour CEO in 2005 and began building the company’s presence in high-growth markets and selling off under-performing businesses.

However, some in the market believed Durán was not acting quickly enough. Last year, French billionaire Bernard Arnault teamed up with private equity firm Colony Capital and bought just under 10% of Carrefour.

Rumours abounded that Arnault was going to take a more active role in the company’s strategy and speculation grew that Durán could be pressured to sell off Carrefour’s property portfolio to boost returns to shareholders.

Last summer, Carrefour announced it was to sell off part of its property portfolio through an IPO. Investor pressure, it appeared, had paid off. The credit crunch meant plans for the IPO were called off but Carrefour insisted there were alternative plans to unlock the value from its real estate.

However, come this summer, and fresh questions were beginning to be asked about  Durán’s future at Carrefour. Arnault had already taken a seat on the retailer’s board in May. In July, Blue Capital, the company jointly controlled by Arnault and Colony Capital, took its stake in Carrefour to 13.55%. And later that month, Carrefour shareholders approved plans to set up a single board of directors to replace the dual layers of the supervisory and management boards.  Durán kept his job but did not get a seat on the new board.

The changes at the top were said to reflect investor anxiety over the performance of sections of Carrefour’s business, particularly its hypermarkets in France, which account for around half the company’s domestic revenues. Shares in Carrefour slid despite its stores in emerging markets driving a rise in group sales for the second quarter of the year, as the market remained unconvinced about the company’s strategy to revitalise its domestic hypermarkets, which saw like-for-like sales fall 2.4% during the April-June period.

Durán had earmarked plans to breathe fresh life into Carrefour’s domestic business, including a focus on the company’s namesake banner and price cuts on products on sale at its hypermarkets but it seems the changes were not enough for him to remain in the top job.

From the start of next year, the baton will pass to Nestle’s Olofsson, a 57-year-old Swede, who has spent 32 years at the world’s largest food group.

Olofsson, executive vice president for Nestle’s strategic business units marketing and sales, spent four years in charge of the Swiss food giant’s operations in France from 1997 to 2001 before heading up the group’s entire European division.

His appointment has been broadly welcomed, with some saying the move echoes the appointment of former Heineken executive Marc Bolland as CEO of UK retailer Morrisons in 2006.

Nicolas Champ, an analyst at Oddo Securities in Paris, was upbeat about Olofsson’s appointment. “We believe that Lars Olofsson has the requisite qualities to assume the mantle of CEO at Carrefour: excellent knowledge of the mass-market retail sector, recognised experience, both international and in the French market, and so on,” Champ wrote in a note to clients seen by just-food.

Nevertheless, Champ did issue a note of caution on the possible short-term upheaval that could follow a change in the Carrefour hot seat. “Whilst major projects recently launched by Carrefour are likely to be maintained (they have already been approved by the board of directors), other departures from Carrefour’s executive management team cannot be ruled out in the wake of José Luis Duran’s,” Champ wrote. “Within this framework, it is legitimate to wonder whether a number of projects will be delayed (conversion of Champion supermarkets in France, reduction of the size of certain hypermarkets, etc.).”

Carrefour’s move for Olofsson comes just two months after it was announced that another Nestle executive, Paul Polman, would take the top job at consumer goods giant Unilever in the new year.

Like Polman at Unilever, Olofsson has plenty to get his teeth into at Carrefour as the company navigates the economic downturn. Competition is mounting at home as French consumers cut back, while Olofsson will also be aware of the need to keep investing in emerging markets like China and Brazil.

A critical factor could be Olofsson’s nomination to sit on Carrefour’s board of directors – a position Durán was denied – which will be voted on at the company’s next AGM. Such a position could give Olofsson the clout he needs to enact the changes needed at Carrefour.

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