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Real cases in relation to Porter’s model

The Carrefour case

Founded in France in 1960, Carrefour is the largest retail company in France and seventh in
the world. Carrefour operates in a variety of retail formats such as mini-markets, automotive
centres, supermarkets, and warehouse stores. However, its main emphasis is hypermarkets
which sell various goods including food, clothing, consumer goods and household appliances.
These stores have a large open marketplace atmosphere and provide excellent prices. This
formula has proved to be a successful format; however, Carrefour’s domestic expansion was
restricted by French legislature. The limitation on hypermarket development led to
Carrefour’s international expansion through profitable joint ventures.

Carrefour has strong experience and capabilities in operating on a global level as a high
degree of profits are internationally generated. Also, they have the ability to operate on low
profit margins. Historically, they have differentiated themselves in the hypermarket sector by
focusing on cost leadership, multi-specialisation and private labels. Carrefour has 119 stores
in France, 96 stores across the world and a number of regional distribution centres (physical
resources). The company’s philosophy has been one of decentralisation, while the human
resources department has acquired a vast amount of knowledge, experience and skills in
operating within international markets, in strategic alliances and operating on low profits.
Carrefour has a number of intangible resources including a good corporate image and a
strong private label. The value chain analysis (Figure 4) assesses Carrefour’s competencies
through the examination of its primary and support activities.

This analysis concentrates on inbound and outbound logistics, the marketing and sales of the
company. In terms of procurement or inbound logistics, Carrefour concentrates on host
country purchasing. This can benefit the company as purchases will be made in the same
currency as sales allowing the company to meet local government regulations or standards.
However, it may prove to be a disadvantage to the company if raw materials may be acquired
at a cheaper price from outside the country. Regional distribution centres facilitate the
gathering and distribution of merchandise to the stores. The centres facilitate inbound and
outbound logistics. As it pertains to marketing and sales, Carrefour operates and is
experienced using heavy promotion in international markets. This indicates experience with
marketing products within different countries and cultures.

Carrefour lagi

The chief executive of Carrefour is staking the future of the giant French retailer on a simple
strategy: strengthen at home, then either dominate or withdraw abroad.

The chief, Lars Olofsson, joined the company at the start of 2009, when it was going through
a period of upheaval. Market share had slipped at home, shareholders were uneasy and the
group had lost focus on core clients, while pursing a haphazard international expansion.

Mr. Olofsson, a Swede who speaks fluent French, was brought in to replace José Luis Duran
by the retailer’s largest shareholders, including the prominent businessman Bernard Arnault.
Mr. Olofsson came from the Swiss food giant Nestlé.
“Carrefour had lost track of being client and consumer focused and lost a certain track of
price competitiveness,” Mr. Olofsson said during an interview this week.

Just after taking the helm, he initiated what he called a “reset” in the core markets of France,
Spain, Belgium and Italy.

That meant focusing on re-branding and refurbishing stores, automating checkout lanes at
hypermarkets, introducing recession-friendly value brands, overhauling the information
technology systems and better leveraging its huge buying power to improve price

The process was expensive and dented 2009 results: net profit plunged to €385 million from
€1.3 billion a year earlier, and consolidated net sales slipped about €1 billion, to €86 billion.

Last year, market share in France crept up for the first time in three years.

“In 2010 we should see the fruits of that work coming through — in sales and profitability,”
Mr. Olofsson said in his office overlooking the Seine. “All this puts us in a better position for
the future.”

As the ship steadies, he plans to invest further in China, Brazil and India. But where
prospects are less certain, the group may scale back.

“If you cannot become leader, sooner or later you will have a competitive problem,” he said.
“If ever I have an offer in markets where I don’t believe we can become leader, I’m prepared
to have a look at it.”

Carrefour did this before Mr. Olofsson took over, leaving Japan, Switzerland and Mexico.
Under his leadership, it has also pulled out of Russia, and scaled back in southern Italy,
Portugal and Belgium, where he has just signed a deal with unions to allow for job cuts and
the sale of some stores.

Next up could be Thailand, where, “we were the pioneer, but we didn’t concentrate our
efforts, and we lost leadership,” he said.

Created in 1959, Carrefour is synonymous with hypermarkets, having opened the first such
store in Sainte-Geneviève-des-Bois, south of Paris, in 1963.

The company has expanded through acquisitions, mergers — notably with the French group
Promodès in 1999 — and organic growth.

Now, it really does have scale. It is the second-largest retailer globally by sales, behind Wal-
Mart Stores, and the largest in Europe, with a range of formats from hypermarkets to hard
discount and local convenience stores.

It has more than 15,500 stores — company-owned or franchises — employing 475,000

people, and it operates in 34 countries. More than 57 percent of its sales come from outside

“There’s no distributor in the world that has that kind of geographical footprint,” he said.
But Mr. Olofsson still has plenty of work to do.

In a recent opinion poll by Posternak-Ipsos, which tracks the image perception of the largest
French companies among consumers, Carrefour ranked 19th, behind its main rivals
Intermarché, Auchan, Leclerc, Casino and Système U.

“It’s fair to say their position as a national treasure has diminished,” said Bryan Roberts, head
of research at Planet Retail in London. That, he said, was mainly the result of rivals’
aggressive pricing.

Mr. Roberts emphasized that, befitting its huge size and the continued slow recovery in
Europe, Carrefour’s improvement would be gradual.

Mr. Olofsson was also cautious in his optimism.

“France has been a stable market in terms of consumption for quite some months,” he said. “I
don’t see any reason why this should change significantly in the six coming months.”

In the longer term, the revenue driver will be emerging markets.

Carrefour opened in China in 1995 and has experienced almost seamless growth even though
some stores were affected by a backlash after the Paris leg of the Olympic torch relay for the
2008 Beijing Games was disturbed by pro-Tibetan demonstrators.

“That crisis is very much behind us, and Carrefour has probably come out even stronger than
we were before,” Mr. Olofsson said. “We have a solid profitability and we’ll open as many
stores as we can, keeping the quality that we offer.”’

He described himself as “open” to acquisitions in China and unperturbed by fears about a

downturn driven by a weaker real estate market. The company leases most of its sites.

Like Wal-Mart, Carrefour has also been trying to weave its way through labyrinthine
regulations for a toehold in India.

It is set to introduce a cash-and-carry store there in weeks or months, and a second around the
turn of the year. It will then seek to open its own stores with an Indian partner.

How important could that market become? “Short term: not important at all. Medium term:
very little. Long term: might be very important. It’s a huge market but modern retail is new to
India,” he said.

Mr. Olofsson can also see the day when Brazil overtakes Spain as the company’s No.2
market, behind France.

What of the largest overall market, the United States? Carrefour opened a handful of
hypermarkets there, notably in Philadelphia and New Jersey, around the early 1990s. But the
plug was pulled quickly as U.S. consumers spurned the hypermarket model.

Tesco, the largest British grocer, entered the United States in 2007 and has also had a tough
time penetrating the competitive market.
“They have a lot of courage, I wish them good luck,” Mr. Olofsson said. “I’m not excluding
the U.S. market one day. However, today my absolute priority is France and the countries
around us — we still have synergies to capture.”

“Once our home base is in order and strong — like Wal-Mart in the U.S. — that’s when you
can start thinking really about your strategy on a large scale.”

Toward the end of the interview, Mr. Olofsson took a moment to reflect on a European
passion: the impending soccer World Cup. Carrefour, sponsor of the French team, has started
a promotion to refund the cost of some flat-screen televisions here if the national team wins.

A calculated risk? France appears to be struggling for form, while the team of Spain,
Carrefour’s next market, is looking sharp.

“Our people in Spain said: ‘There’s no way we can do the promotion in Spain, it will cost us
too much, Spain’s going to win,”’ he joked. “So that’s why the promotion is only for


Carrefour continues to be one of the most talked-about retailers across the

world. Not only due to its large size as the world’s second largest retailer and the
number one in Europe, but also for the strategies it has been implementing over
the past 24 months: new formats launched (Carrefour Planet, Carrefour Express
and Carrefour Market across Europe and more recently Carrefour City-Contact in
France), new purchasing framework (Business Development Program), new
organizations and management teams.