Carrefour has admitted its moves into China’s tier-two and tier-three cities have not paid off to the extent the retail giant hoped.
Speaking to a media and analyst conference in Paris, CEO Georges Plassat underlined Carrefour’s ambitions to have a “long-term presence” in China.
However, he indicated returns from its moves outside China’s main cities had not met the company’s expectations.
“We’re testing the response to our hypermarkets in what we call tier-two and tier-three towns and cities. The response has not been as strong as we had anticipated,” he told media and analysts at a conference in Paris today (5 March).
The world’s second-largest retailer has pinpointed China as one of two key, long-term emerging markets – alongside Brazil – in which it would like to expand.
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Reporting its 2013 results today, Carrefour said its sales in China rose 3.1% last year. Carrefour operates hypermarkets in China and in 2013 opened 20 more taking its network to 236.
The expansion programme weighed on profits from Carrefour’s Asian division, which comprises two markets, China and Taiwan. Recurring operating income came to EUR131m, down from EUR179m in 2012.
In a presentation accompanying the results, Carrefour indicated its return on investment margin for Asia fell from 2.8% to 2% in 2013. It did not provide specific margin figures for China and Taiwan.
Plassat said Carrefour would “support our presence in China” and be “patient”.
“It will take longer for the return on investment to materialise on those stores. This doesn’t mean to say we are heading in the wrong direction. In China, we’re in a dozen towns and cities which will soon have populations of five and six million because of the great influx of the rural population who wish to live in the more urban areas,” Plassat said.
The Carrefour chief said a key issue facing Carrefour in China’s regional cities was in logistics, with the retailer needing to improve its relationship with wholesalers. “We have stock-outs of 30-40% of key commodities,” he admitted.
Carrefour will also look at areas such as its product offer. “China is a huge country with huge discrepancies into local habits, which we did not take into account.”
However, he added: “We must not be in too much of a hurry, we must not be over-ambitious, which would be rapidly counter-productive.
“A number of international companies have recently withdrawn from China. Other international distributors have announced closures of stores in China. Only those that are well embedded in local markets have good results. We also have good results. We must understand the return on capital invested will take time to materialise but I’m confident in China. We need to support our presence in China, take our time and do things properly. Often major projects are ruined by impatience.”
