Advertise with

Carrefour’s New CEO May Be Drawn Into Price War to Lift Hypermarket Sales
Carrefour’s New CEO May Be Drawn Into Price War to Lift Hypermarket Sales

Carrefour’s New CEO May Be Drawn Into Price War to Lift Hypermarket Sales


Bloomberg - Jan 31st 2012, 08:47

Georges Plassat, Carrefour (CA) SA’s fourth chief executive officer in eight years, relishes a challenge.

Carrefour has the second-lowest profit margin and return on equity of 50 global competitors in food retailing, trailing only Sweden’s Hakon Invest AB, according to data compiled by Bloomberg. Carrefour shares have fallen 57 percent since 2008, when LVMH Moet Hennessy Louis Vuitton SA Chairman Bernard Arnault and Colony Capital LLC invested about 4 billion euros ($5.3 billion) in the company.

“He clearly has the biggest task in retail this year, considering Carrefour’s scale and the severity of the situation,” said Natalie Berg, global research director at researcher Planet Retail in London. “They need a quick turnaround because it’s a sinking retailer.”

The Boulogne-Billancourt, France-based company has the lowest consensus analyst recommendation of the food retailers. Its rating of 2.13 on a scale of 1 to 5 is its lowest since at least 1999 and compares with Wal-Mart Stores Inc.’s 3.94.

Plassat, 62, joins from Paris-based Vivarte SA, where he earned the nickname “The Cleaner” for turning an unprofitable shoemaker in 2000 into an apparel and accessories business with sales of more than 3 billion euros by 2010. He has a strong reputation as a “cost killer” and is a good negotiator, according to Bernard Delattre, president of Altimeo Asset Management, which holds Carrefour shares.

Casino Career

Unlike his predecessor, Lars Olofsson, who came to Carrefour from Nestle SA (NESN) in 2009, Plassat has a pedigree in food retailing, having served as CEO of French supermarket operator Casino Guichard-Perrachon SA (CO) and run Carrefour’s Spanish business between 1997 and 1999. Olofsson was replaced by the board on Jan. 29 after three years in the job.

Plassat takes the helm as new executives at Europe’s biggest retailers struggle to attract reticent consumers to out- of-town superstores, or hypermarkets. “People are doing their big shop online and they’re supporting that with top-up shops at their local stores,” Berg said. “That kind of invalidates the whole hypermarket model.”

Tesco Plc (TSCO), the U.K.’s biggest retailer, fell 16 percent on Jan. 12 after saying profit won’t increase this year. The Internet is a better sales channel than hypermarkets, said CEO Philip Clarke, who took over last March. Metro AG, Germany’s biggest retailer, also got a new CEO this month.

Pricing Pressure

Plassat will start at the company on April 2 as chief operating officer and become chairman and CEO after the June 18 shareholder meeting, the retailer said yesterday in a statement. As part of the shakeup, Pierre Bouchut, who was demoted from finance chief to become head of growth markets in September, will also leave the retailer, Carrefour said.

The CEO’s first and biggest challenge will be to address Carrefour’s price image, Delattre said. Carrefour is perceived to be less competitive than its rivals in France.

Carrefour’s French superstores, which account for 24 percent of sales, suffer from an inconsistent strategy over the past 12 years, according to Arnaud Joly, an analyst at CA Cheuvreux in Paris. “Radical decisions” are needed to reverse the trend, Joly wrote yesterday in a note. “An option could be to implement a more aggressive policy, which means launching a price war.”

Carrefour would need to increase sales by 1.4 billion euros, or 8 percent, to offset a 2 percent price cut, estimates Joly, who has an “underperform” rating on the shares. That won’t be easy given the “strong aggressiveness” of competitors like LeClerc SA, which has the best price image in the industry, according to the analyst.

Market Share

LeClerc, which controls 17.7 percent of the grocery market in France compared to Carrefour’s 21 percent, has said it plans to overtake its larger rival in the next two years as it keeps prices low and opens more so-called drive facilities where consumers shop online and pick up goods at a store or warehouse.

Carrefour said Jan. 19 that profit was at the lower end of its forecast range of a decline of between 15 and 20 percent as same-store sales fell in most of Europe and in Asia, including China. Carrefour has already signaled that Olofsson’s 1.5 billion-euro plan to remodel some European superstores, dubbed Planet, won’t boost sales and profit through 2015 as forecast.

Plassat may abandon Planet altogether. Instead, Carrefour could reduce the size of some of its larger stores, replacing some non-food items with in-store kiosks, and introduce exclusive or limited-edition merchandise, according to Planet Retail’s Berg.

“There are a number of things they can do without the grotesquely expensive Carrefour Planet, which a lot of shoppers thought they were funding,” Berg said.

Plassat will have to contend also with powerful investors. Groupe Arnault SAS and Colony Capital, which own a combined 16.02 percent of the shares and 22.14 percent of the voting rights, forced out Olofsson and Jose Luis Duran, his predecessor, people familiar with the situation have said.

With financial independence, Plassat, who owned 10 percent of Vivarte, may be more likely to stand up to Arnault and Colony, fund manager Delattre said. “He doesn’t need Carrefour for his own personal success,” Delattre said. “He can be more pushy and punchy with these shareholders.”  

Read more about: kiosks | europe | france | strategy | price cuts | carrefour’

Related News

Meatco and Witvlei bid for Norwegian meat quota, Namibia
22/10/2013 - 08:31
Meat processing companies, Meatco and Witvlei Meat, have once again bid for the lucrative beef export quota to Norway, which is set at 1600 tonnes per year and pays 72% more than exports to other parts of Europe. Earlier this month, the Meat Board of Namibia requested for bids for the Norway quota from local meat companies.

BOS Ice Tea launches in Belgium and Holland
18/10/2013 - 09:07
BOS Ice Tea has recently celebrated its third birthday in South Africa, and has taken the first steps into European markets, launching in Belgium and Holland earlier this month.

World markets react to US debt deal
18/10/2013 - 08:41
Johannesburg - Markets across the world on Thursday gave a lukewarm reaction towards the US debt deal, due to fears that the scenario will repeat itself early next year.

Delhaize Europe CEO resigns
09/10/2013 - 08:19
Brussels - The CEO of Delhaize Group's European division has resigned, effective Oct. 31, the Belgian supermarket operator said.

German grain harvest higher despite floods
23/08/2013 - 08:13
Frankfurt - Germany, Europe's second-biggest grain producer after France, reported a 3.0% increase in its harvest this year, despite the bad weather and flooding, data showed on Thursday.