Can a falling retailer rebirth? The Carrefour story

Since the 2000s top, Carrefour had an 85% decline. Then 2018 came with a new management team focused on a green future determined to revamp the company.

With over 12,000 stores spread over more than 30 countries, Carrefour is France’s biggest retailer and one of the world’s top 5. Managing such a vast network is not an easy task. Unlike manufacturing where you just sell a product to those who like it, in retail you have to adapt to the customs of every country. That’s why in retailing we have national dominant players like Walmart in the US, Tesco in the UK, Aeon in Japan.

Carrefour was among the first ones to expand beyond its national border hoping to cash in on the globalization trend. And for a while, that worked, but soon, cracks formed, and the model proved unsustainable in its current form.

The fall

Like the Roman Empire discovered 2000 years ago, expanding is easy, but managing the new provinces is the challenge. So, year after year, Carrefour pulled out of Mexico, United States, South Korea, Japan, Greece, Portugal, and many others. In all cases, badly managed stores was the main culprit.

It’s important the note on which you leave a market. IKEA left Japan in 1986 due to the unadapted store format to the local culture. The Japanese hadn’t formed a strong opinion against the brand, they just didn’t like the furniture and DIY style. The company was able to enter the market 20 years later and remained successful to this day.

But when you leave a country on a boycott or as part of a scandal, the bad image sticks. That makes reentering the market a significantly more difficult task. This was the case for Carrefour exits from South Korea, Thailand and Hong Kong.

On top of those failed endeavors, the retailer lost the number one spot in its home market to E.Leclerc. With 44% of the group’s total income from France, the company couldn’t afford to lose any more market share.

The company has tried to reinvent itself in 2010, with little success. The group learned the hard way that when you focus your resources in multiple directions, you don’t get results. As a result of this expenditure, Carrefour accumulated more and more debt on falling revenue. It’s no wonder that investors rushed to get out. Between 2000 and 2020 the stock saw a decline of 85%.

Screenshot taken by author on TradingView

A new wind

In 2017 a new management team lead by Alexandre Bompard was brought to the realm. He decided to exit losing markets and focus resources elsewhere.

Firstly he sold the majority stakes of the company’s stores in China. Then he decided to expand and consolidate operations where they have traction, like France, Spain, Brazil, and Eastern Europe.

Then, in 2018 a plan was born: Carrefour 2022. This highlights the company’s focus for the next 4 years in a few key areas:

  • healthy locally sourced food at a reasonable price
  • less waste
  • more convenience with an increased online presence and smaller stores that are close to the consumer

To improve their food quality, the company partnered with numerous farmers and sponsored them to switch to completely organic food. In smaller countries, they’ve aggregated farmers into associations to increase production.

Waste and packaging management is particularly difficult to control in a huge store chain. Add the shorter lifespan of organic produces and the waste gets rapidly out of control. It’s impressive they’ve managed to reduce the packaging 5 600 tons and the food waste by 8% with a plan to reach a 50% reduction by 2025 (according to the company’s 2020 Q3 financial report). In this area, Carrefour deployed 2 ingenious solutions: recover in-store waste and production just in time with AI help.

For help on the software side, the company signed a strategic partnership with Google in 2018. An innovation lab was created in Paris as part of the agreement where engineers from Google and Carrefour work on ways to increase convenience. Online orders through Google assistant and improved in-store stock management were successfully implemented.

For example, the AI constantly monitors the products sold by each store and then makes suggestions for products that can be replaced based on the customer’s local area preferences. This leads to a more compelling offer in a smaller space.

As sales grew in Spain, the company acquired a local chain store to increase its presence. The same thing happened in Brazil.

But waste isn’t just packaging, is also a badly managed retail area. While the company grew the number of stores, the total retail area was decreased by 133,000 sq. m (159,000 sq. yards) with a further 150,000 sq. m reduction planned by 2022, according to the company’s 2020 Q3 financial report.

The company became more financially responsible as well, managing to implement a cost-saving plan of €2.4 billion with plans to maintain the momentum beyond 2020. The most impressive metric though is a 29% growth of the recurring operating income in 2020.

The future looks bright

Smart space and waste management, increased convenience, healthier food at a reasonable price are all smart moves that every retailer will have to take to stay relevant in the market space of tomorrow. Carrefour isn’t the first one, but since 2018, they are nailing it. Last week I shopped at one of their stores and I was impressed by their product line-up.

And with a stock price at historic lows, they are successfully checking all of Warren Buffet’s points for a value investment:

  • great PE ratio of just 7 with a strong balance sheet (PE = price to earnings ratio)
  • a big company with a long track record
  • resilient industry (people will always have to eat)

Retailing is a boring industry, you can hardly get excited about this. Nevertheless, it’s a necessary industry and with the steps that Carrefour took, I’m sure they are going to stick around for many years to come. Not only are they going to stick around, but with a real concern towards the Earth’s resources, and to me, that’s a big win.

A software developer interested in writing about programming, technology, environment, and self-development. Twitter @mihais77

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