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Monday 5 December 2016

Check out the turnaround at retail giant Carrefour

Share Watch

John Lynch

Published 04/05/2015 | 02:30

Carrefour
Carrefour

The recent plight of Tesco has shown the public that even the best and the smartest of the world's retailers sometimes need to pause, reassess, take out their business model and publicly shred it.

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Tesco's decision to confront its mistakes (and worse) made massive headlines in this part of the world, but the scarring of international players with lofty ambitions to dominate is more familiar than many of us think. In this decade, it has been a challenge for French giant Carrefour, which was obliged to embrace the cliché 'back to basics', precisely the task that lies ahead for Tesco.

The Carrefour chain of hypermarkets, supermarkets and convenience stores in Europe, Latin America and Asia, like its peers, did not feel content to simply sell fruit and veg. It expanded into banking, insurance, car hire and even booking holidays.

Valued at €22bn, it employs 380,000 and has an impressive 13 million checkouts every day.

Founded in 1958, it pioneered the concept of a hypermarket. At the beginning of this century, it made a vigorous push into emerging markets in Asia and Latin America. But barriers to entry, currency fluctuations, fierce local competition and plain botching of expansion attempts, can frustrate even the mightiest players, of which Carrefour was certainly one.

After many years of poor sales, Carrefour's new chief executive, Georges Plassat, announced in 2012 a three-year recovery plan, a 'back to basics' programme that is currently under way. The plan requires the company to refocus on its core activities and allocate resources where it already occupies a strong position.

As a result, Carrefour now concentrates on a small number of European countries, such as France, Spain, Italy and Belgium. In Asia, China (for now) is the main focus, and in Latin America, the company is focused on Brazil, its second biggest market, and Argentina.

The 'new' strategy is an extension of the company's retreat from several emerging markets since the beginning of this century. It has exited all of its Asian markets except China. Last year, the company decided to close the Indian operation. The new Indian government's opposition to foreign investment in supermarkets and mandatory local sourcing did not help.

However, these disposals improved Carrefour's balance sheet and it helped that the operations were not major profit contributors.

Carrefour's sales of €75bn last year flatlined but its net profit was up at €1.4bn. Sales in France - the single most important market - were unexciting but operating profits improved thanks to cost control and improved margins. This was a significant achievement as the French market is competitive, facing decent players like Casino, Auchan and Inter Marche.

European sales declined slightly but profits increased. Results in developing countries were mixed, but operating profits from Brazil and Argentina were buoyant. In the frugal environment of China, sales declined.

The star performer of the group was its hypermarkets operation (25pc of group sales) having 2pc growth. Carrefour's share price, which hit €33 in early April, the highest since 2010, is below its high of €50 in 2007. However, an investment two years ago and one would have doubled their money. Regrettably, I didn't.

Interestingly, last year Carrefour sold 10pc of its Brazilian retail business to an investment fund, Peninsula, controlled by the Brazilian billionaire, Abillo Diniz. Analysts are of the opinion this could pave the way for a listing on the Sao Paulo Stock Exchange. Diniz recently announced he had also purchased Carrefour shares, making him the fourth largest shareholder.

Last year, the owners of Galaries Lafayette purchased a 6pc stake in the company. Given that one of the richest men in France, Bernard Arnault (who controls 14pc), sits on the Carrefour board, and with Senor Diniz eyeing the company and with a 6pc shareholder on the sidelines, we could have interesting times ahead.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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