Carrefour Research Project

George Fox University

Carrefour Research Project

Anonymous

CARREFOUR CASE STUDY

February 16, 2010

Case Study

Carrefour

In June 1957 the first Carrefour opened in Annecy, France and

quickly grew into a chain from this first sales outlet. The Carrefour

group pioneered the concept of a hypermarket, a large supermarket

and department store under the same roof. In the West Coast of the

United States (where I live now), these types of stores include Fred

Meyer and Wal-Mart Super Center. Hypermarkets have been around

since June of 1963 when the Carrefour Group opened their first

hypermarket near Paris, France. In April 1976 they decided to launch a

private label named Produits Libres (free products), a line of fifty foods

including oil, biscuits, milk, pasta, all of which are sold in unbranded

white packages sold at substantially lower prices. In the 1970’s and

1980’s Carrefour actively sought involvement with other companies in

Europe including in Belgium, Switzerland, Great Britain, and Italy. In

1991 they acquired two competitors, Euromarche and a bankrupt

grocery chain Montlaur. At this point Carrefour had reached the

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saturation point in France with 798 hypermarkets and governmental

regulations restricting them from opening new hypermarkets.

Carrefour continued to expand in foreign markets with its own stores

and partnerships in Austria, Great Britain, The Netherlands,

Switzerland, Germany, Belgium, Italy, Spain, Africa, Argentina, Brazil,

and the United States. In 1999 they merged with one of their major

competitors in the France market known as Continent. In 2000 they

made their next big move merging with competitor Promodes SA in a

$16.5 billion dollar move, making their presence felt in more than

8,800 stores in 26 countries.

One of Carrefour’s strengths is in size considering that they are

the world’s largest hypermarket chain, the second largest retail group

in the world in terms of revenue, and the third largest in profits. One

of the benefits of being a huge retail group is that they have large

profits. These profits can be used to invest in expansion operations

avoiding interest costs associated with business loans. Another

strength inherent in large size is taking advantage of economies of

scale. Large volume output means lower price per unit attracting more

and more customers especially in a slow economies. Carrefour

definitely has a need for mass large volume production due to their

huge number of 10,378 stores. Lower prices derived from economies

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of scale may be used as a tool to bump competition out of a market, or

prevent other players from entering using predatory pricing.

Additionally, a huge company this size has high bargaining power as a

buyer, avoiding costs that will lead to a higher profit margin. Carrefour

has strengths in size but the same reason for strength, is also the

reason for their weaknesses. Some of these weaknesses include slow

e-commerce development, unwieldy portfolio of stores in some

markets, and failures to meet forecasted goals. Carrefour’s sales in

France for December 2009, fell 2.8 percent due to bad management by

the head of operations James McCann (Daneshkhu, 2009). This is

distinctly one time in which Carrefour missed their quarterly target

sales. Doing business in over 26 countries has its disadvantages that

include deficiencies in communication, social-cultural competence,

translation, coordination, logistics, competition, etc. All these are

barriers that impede management, operations, the expansion of the

business, and ultimately profits.

Carrefour has opportunities in which they can capitalize and

grow. One area of their business where they expand is in providing

organics goods in existing markets. The demand for organics products

is growing worldwide due to the discovery of the harmful effects of

chemicals such as pesticides used in the production of goods. Another

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opportunity that exists is the acquisition of vulnerable players in the

game. Again this is a scenario where they can use their size as an

advantage and swallow smaller weaker competition, growing in size

and eliminating competition. The last opportunity available to

Carrefour is expanding in Asian countries. Carrefour chooses countries

that have reached sufficient levels of maturity to make the transition to

mass consumption. There are many Asian countries in or approaching

this phase in development, for example Taiwan and Thailand. Similarly

to being aware of strengths, it is important to be aware of threats

when doing business especially in a global market. Carrefour faces

several threats including growing competition and economic political

risk. Carrefour must pay close attention to their competition, in

particular Metro Group, which operates right behind Carrefour in net

sales coming in at number 3 in the industry. Competition comes both

locally and internationally and each carry different threats. Substantial

threats include economic and political risks. These types of risks are

related and highlight the stability of the business environment in any

given country with respect to political and economic activity. These

types of dangers are completely uncontrollable which is why they are

considered to be most threatening. In 1998 Carrefour opened and

closed four stores in Hong Kong. Asian economists speculated that the

failure of Carrefour in Hong Kong was contributed to poor economic

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times (Kyodo, 2000). The poor economic times were a result of the

financial collapse of the Thai currency, after a decision made by the

Thailand government to float the Baht (Thai currency).

Administering a SWOT analysis (strength, weaknesses,

opportunities, and threats) was very revealing of where Carrefour

stands as Company. It is very clear that much of their strength comes

from their large size, which gives them access to capital from big

profits, price reduction per unit from economies of scale, and buyer

bargaining power. However, the same element that gives them an

edge also brings them challenges. The large size of the company

presents problems including communication, coordination, and

logistics. Additionally, operations in foreign countries bring socio-

cultural competence challenges such as understanding local traditional

business and consumption practices. These barriers obstruct different

aspects of operations such as management, expansion of the business,

and ultimately subtract from profits. Opportunities from a large

company established in different countries can come from the

additions of products forecasted to be in high demand such as organic

goods. Moreover, the acquisition of smaller vulnerable players can be

a strategy used to gain size and minimize competition. Another

opportunity for Carrefour is in expanding into Asia. Countries in Asia

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with sufficient level of maturity making transition to mass consumption

are especially attractive locations for Carrefour. Expanding into new

countries carries economic and political risks that have been proven

detrimental to the survival of Carrefour outlets in Hong Kong. These

risks are inevitable in doing business in economically and or politically

unstable countries.

Carrefour corporate level strategy can be summarized by their

mission statement which states, “Carrefour is totally focused on

meeting the expectations of its customers. Our mission is to be the

benchmark in modern retailing in each of our markets. As a global

retailer, Carrefour is committed to enabling as many people as possible

to purchase consumer goods, in accordance with the principles of fair

trade and sustainable development”(www.carefour.com). Their

tentative strategy is to use localized services for local needs and to

place as many stores as possible in an area to achieve economies of

scale. Carrefour developed a “circle of success” model: Freshness +

variety + low prices high volume high bargaining power low

costs low prices, which they hope will bring in customers.

Additionally, they have centralized IT and administrative departments,

and the use of expatriates to train local labor.

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Carrefour business-level strategy is focused in promoting and

popularizing their Carrefour Quality line of products. One way of doing

this is by advertising new promotions and daily discounts. More in

specifically, their business level strategy consists of a few pillars that

include one-stop shopping, low prices, self-service, quality products,

freshness, and free parking. Supplier management is also another

area they focus on using local distributers. They use their global name

brand for recognition to their advantage as much as possible. In order

to implement the business level strategy, Carrefour plans on using

their 10,378 stores worldwide to market their Carrefour Quality line.

After taking into account all of the information on Carrefour I

came up with a few strategic alternatives and they are as follows: 1.

Retreat from the Asian market 2. Continue head-on competition with

local/international players in Asia 3. Shift focus to Latin American

market and 4. Focus expansion on European markets. It is important

to note that all of the strategic alternatives offer benefits and carry

downfalls to them, so choosing a strategy was a rather long thoughtful

process. The recommendation that I propose is for Carrefour to

continue head-on competition with local and international players.

There are various barriers and challenges in doing business in other

countries, staying in the war will ensure that Carrefour capitalizes on

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any opportunity available in Asia. With respect to local competition, it

is important that Carrefour develops a good brand name reputation for

their company locally, in order to gain customer loyalty. Also as

important, is for Carrefour to use buyer power combined with

economies of scales to attract new customers and perhaps take part

mildly in predatory pricing. Internationally they are ready for war in

terms of size and distribution channel availability. In addition they

have name brand recognition globally. Continuing head to head with

local and global competition will be inevitable but using correct

analysis tools and making correct management decisions will fuel

Carrefour efforts of expanding into Asia.

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References

Carrefour Group, Initials. (Unknown). Our Values. Retrieved from http://www.carrefour.com/cdc/group/our-values/

Daneshkhu, SD. (2010, January 15). Sales growth to help carrefour hit target. Financial Times, Retrieved from http://www.ft.com/cms/s/0/4174c22c- 013d-11df-8c54-00144feabdc0.html?SID=google

"France's Carrefour to close stores in H.K". Asian Economic News. FindArticles.com. 19 Feb, 2010.

http://findarticles.com/p/articles/mi_m0WDP/is_2000_Sept_4/ai_6510271 6/

Unknown, Initials. (1999, January 5). Carrefour sa. Retrieved from http://www.fundinguniverse.com/company-histories/Carrefour-

SA- Company-History.html

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