Carrefour has upped cost-cutting targets

Carrefour has upped cost-cutting targets

Carrefour aims to “accelerate” the changes it has put in place through its transformation programme over the next 12 months.

The company today (19 February) posted a 74.2% slide in 2009 net profit as earnings were dented by writedowns and a 1.2% decline in sales.

However, in a presentation to the market following the results release, chief executive Lars Olofsson hailed the last 12 months as “a year full of results”.

“2009 has been the year where we have redefined our strategy. We have identified a transformation plan and put it into action and we are starting to see the first fruit of that transformation plan,” he insisted. “We are going into a new dynamic. There is a new momentum in Carrefour.”

However, Olofsson said that Carrefour faces the same challenges as it did when he took the helm 12 months ago.

Olofsson explained the retailer needs to adjust its pricing image, suffers from a “lack of executional skills”, has lost “innovation momentum” and its cost-base is too heavy.

Nevertheless, Olofsson insisted that the company has taken the first steps to tackle these issues and would look to press ahead with its initiatives in 2010.

Carrefour plans to cut costs, relaunch its domestic hypermarket business and roll out its Carrefour Market format outside France. Olofsson said Carrefour was also rationalising the markets after leaving southern Italy and Russia last year.

He admitted the group's performance in certain markets was “not satisfactory”, particularly in France, Belgium and Italy.

He insisted the company “wants” to stay in Belgium, where sales have suffered and the retailer has faced strike action but added that it was reviewing its under-performing operations there.

Meanwhile, the retailer plans to step up its investments in the high-growth markets of China and Latin America.

Significantly, Olofsson said that the company's attempts to boost its performance in France – where it generates 44% sales – had begun to bear fruit.

The company has focused on expanding its multi-format approach in its home market. It now operates 899 Carrefour Market outlets in the country and it has started to roll out the concept to other western European markets, including Italy and Belgium.

The new Carrefour City and Carrefour Contact concepts, launched in France, have also seen “very encouraging results” with a 30 basis-point lift in sales when outlets are converted to these banners.

“The challenge now is how can we accelerate the roll out,” Olofsson siad.

Likewise, he added that the group would look to accelerate the conversion of Maxi Discount stores to the Dia banner. Following conversion of Maxi Discount outlets, Olofsson said the company had witnessed “a 30 plus minimum uplift”.

During the fiscal year, Carrefour launched 1,940 own-label products, 423 of which were Carrefour Discount products.

“The Carrefour brand has been a main growth driver in France,” Olofsson said, with sales up 9% during the year.

Carrefour Discount products have achieved a 40% household penetration and the entry-level line “has been a big vector for improving price image,” he added.

Carrefour's value-driven initiatives have translated into market share gains in its home market.

On a like-for-like basis, Carrefour's market share was up by 30 basis points in France – the first time in four years that the company has increased its share.

However, in value terms, Carrefour's sales in France slid 2.7% to EUR36.9bn.

Olofsson added that he was not “happy” with the performance of the company's hypermarket business - which represent 23% of group sales. Carrefour is planning to test concepts in the next few months and would announce a relaunch plan in the summer, he added.

As the group's top-line falters, Carrefour has aimed to boost its bottom line through an aggressive cost cutting programme.

During fiscal 2009, Carrefour cut costs by “unprecedented” EUR590m, Olofsson said. In the coming year, Carrefour intends to cut EUR500m of costs – EUR50m more than its previous goal.

These savings, along with the negotiation of more favourable terms from suppliers, will be invested in further improving the group's price proposition, he added.