Introduction

The worldwide expansion of Carrefour is the result of a structured approach. Since 1999, the
group has drawn on its developments and acquisitions in its various businesses to implement
a specific strategy, the so called “multi format approach”. Over and above the synergies
between the formats, this process creates an impetus for international expansion. The
establishment of hypermarkets in a particular country makes it possible to put in place the
tools and processes necessary for further development (relationships with suppliers, logistics,
marketing, etc.). The offer can then be extended progressively by setting up supermarkets
and hard discount stores and, when the country is sufficiently mature, convenience stores.
The multi format strategy thus leads to growth in global sales, improved purchasing conditions
and, of course, an increased market share in the countries concerned.
The multi format approach is an essential means of securing market share in the various
countries. Carrefour tries to respond to the specific needs and shopping habits of local
customers. The multi format approach contributes to the rapid expansion of the group. It
enables Carrefour to transfer retail brands, while respecting the development of the trading
structure of a town, region or – even more common – an entire country.

SWOT ANALYSIS

Carrefour distributes groceries and consumer goods in 29 countries through more than
10,000 stores. The company operates primarily in three formats, namely hypermarkets,
supermarkets and hard discount stores. As the second largest retailer in the world the
company enjoys a strong brand image and economies of scale yet the company has
seen stagnating sales in its domestic market of France in the last year.

Strengths Weaknesses
Market leader Stagnant sales in France

Aggressive marketing and adaptable business model Declining profitability

Brand recognition Losses for Ooshop.com

Focus on competitive prices

Increasing cash flows from operations

Opportunities Threats
Strong growth potential in Asia Stiff competition from discount retailers in France

New stores Increasing labor costs in Europe

Agreements with Coop Atlantique, Hyparlo and Finiper Poor retailing outlook in the Eurozone

Strengths
Market leader

Carrefour is the largest retailer in Europe and the second largest retailer in the
world. It is also the largest super-market chain in Europe. The company operates
primarily in three formats namely hypermarkets, supermarkets and hard discount
stores. The company’s 6546 stores include 794 hypermarkets, 1495 supermarkets
and 3888 hard discount stores besides 194 convenience stores, 175 cash and carry
stores along with some mini markets and food service stores. Carrefour’s leadership
position in its three primary store formats helps the company maintain an advantage
in the competitive retail scenario.

Aggressive marketing and adaptable business model

Carrefour concentrates on sustainable local development by means of providing

professional training to its workforce to cater to the local market. Its retail formats are
easily adaptable in its various markets. The company has time and again displayed
its ability to adjust its retail formats to suit the dynamics in a particular market, and
this, coupled with its aggressive marketing ability, has helped the company grow in
new markets.

Brand recognition

Product positioning is thoroughly planned in each of Carrefour’s stores and this has
ensured good brand recognition in all markets in which it operates. Carrefour
operates its stores under 17 banners, including hypermarkets (Carrefour),
supermarkets (Champion, GB, GS, Norte), convenience stores (8 á Huit, SHOPI,
Marché Plus), hard discount stores (Dia%, Ed), cash-and-carry stores (Promocash),
mini markets (PROXi) and food service stores (Prodirest). Besides retailing the
branded products of renowned suppliers in its markets, the company sells products
under many of its own brands including Destination Saveurs, Firstline, Produit
Carrefour, Reflets de France, Topbike, Filière Qualité Carrefour, Carrefour Bio, GB
Bio, TEX, Souvenirs du Terroir, GB, GS, Escapade Gourmandes, Neufunk, Bout
´chou, Cicérone and Dia%. The company can boast of 90% brand recognition rate,
with its own branded products accounting for 18% of its worldwide sales. The brand
salience for the company is high.

Focus on competitive prices

In each of its store formats, Carrefour maintains a strong focus on competitive

pricing. In the hypermarkets segment, over three quarters of the company’s stores
offer the lowest or the second lowest prices versus their local competitors. The same
is true for the company’s supermarkets and discount-stores. During 2004, the
company significantly reduced its prices, mainly in dry grocery products. Carrefour’s
continued focus on offering competitive prices to customers has helped the company
sustain its leadership position in a highly competitive industry.

Increasing cash flow from operations

For fiscal year 2004, Carrefour’s cash flow from operations was E4.2 billion, an
 increase of 13.1% over 2003. The free cash flow for the company was E1.7 billion,
62.0% higher than 2003. The increase in operating cash flows was primarily
attributable to the increase in cash generated from the change in working capital. The
company’s ability to generate higher cash flows from its operations suggests
increasing operational efficiency.

Weaknesses

Stagnant sales in France

France, Carrefour’s largest geographical market, accounted for 49.1% of the total
revenues in the fiscal year 2004. However revenues from this market grew by a mere
0.1% during 2004. This is largely as Carrefour has a relatively poor pricing image
amongst consumers in France. The company has tried to address this during 2004
by cutting prices in all its stores, especially for dry grocery products. However, the
company continues to witness stagnating sales in its domestic market. Carrefour’s
French market share has slipped, hurt by competition from closely held companies
such as LeClerc at a time when the French government is pushing retailers to cut
prices.

Declining profitability

The operating profit of the company during fiscal 2004 was E4.9 billion, an increase
of 0.9% over fiscal 2003. Net profit was E1.4 billion during fiscal year 2004, a
decrease of 14.8% from 2003. The operating margin of Carrefour fell from 6.9% in
2003 to 6.8% in 2004. The net margin of the company has declined from 2.3% in
2003 to 1.9% in 2004. The largest decline in profits was experienced in the
company’s domestic market, France. The company’s ability to invest in further growth
is inhibited by declining profits.

Losses for Ooshop.com

Carrefour operates its online shopping business, Ooshop.com, in both France and
Spain. It is estimated that the business has accumulated losses in excess of E17
million, despite sales of more than E50 million. Carrefour intends to sell Ooshop.com.
However, the company has declined all offers it had received as it did not believe that
the offers reflected the true value of the business. In times when internet shopping is
gaining popularity, the company’s inability to profitably run Ooshop is a burden on its
bottomline.

Opportunities

Strong growth potential in Asia

In Asia, Carrefour currently operates only through hypermarkets. Given the high
population in Asian countries and growing local demand, there is considerable
opportunity to add other formats such as supermarkets and hard discount stores. The
company’s has large plans to penetrate the growing Chinese market. There is
considerable growth opportunity for the company in the Asian region.
 New stores

Carrefour bought 26 stores in Greece from Xinosin in July 2004. These included eight
supermarkets and 18 convenience stores. The company also acquired 12
hypermarkets in Poland from Ahold in November 2004. In 2005, the company plans
to open 15 new hypermarkets in China, seven in Brazil, six in Colombia, five in
Indonesia, four in Thailand and three in Poland (in addition to the 12 acquired from
Ahold). In total, the company is expected to open 70 hypermarkets, 140
supermarkets, 620 hard discount stores and 275 convenience stores during 2005.
These new stores should help the company attract a larger number of customers and
thereby boost revenues.

Agreements with Coop Atlantique, Hyparlo and Finiper

In November 2004, Carrefour reinforced the position of its Ed discount retail chain in
France through a franchise agreement with Coop Atlantique. Later, in January 2005,
the company strengthened its partnership with the Groupe Hyparlo by taking a 50%
stake in Hofidis, the holding company which controls the group. Carrefour continues
to retain its 20% direct stake in Hyparlo.

Later, in March 2005, Carrefour also announced an agreement where it would

become the majority shareholder in its Italian partner Finiper. The company already
owns 20% of Finiper and it reached an agreement with Marco Brunelli, the main
shareholder in Finiper, whereby Carrefour has an option to buy 31% while Brunelli
has an option to sell about 80% of Finiper (which operates 24 hypermarkets in Italy).
The new agreements will help Carrefour expand its footprint across Europe, its
primary market.

Threats

Stiff competition from discount retailers in France

Stifling Government regulation is the main cause of Carrefour’s troubles in France. In the
mid-1990s, the French government passed legislation requiring food wholesalers to offer
the same prices to all retailers. The goal was to protect food producers and mom-and-pop
stores by preventing big chains from leveraging their size to extract deep discounts from
wholesalers, à la Wal-Mart. But the law created an opening for discount chains, which
skirt the restrictions by stocking private-label brands that aren’t sold anywhere else.
Some of those items are priced 40% below comparable products at Carrefour.
Carrefour prides itself on its focus on price competitiveness. However, due to these
discount retailers the company is suffering from a poor price image in its domestic
market. The company has already cut its prices significantly during 2004 and any
further price cuts will adversely affect the company’s already declining profit margins.

Increasing labor costs in Europe

Europe (including France) is the primary market for Carrefour, accounting for 86.4%
of the company’s revenues. The market has been witnessing an increase in labor
costs. During the year ended September 2004, average labor costs in Europe had
 increased by 2.4%. An increase in labor costs in its most significant market can
adversely impact Carrefour’s bottomline.

Poor retailing outlook in the Eurozone

Month-on-month sales and profits at Eurozone retailers have been continuously

falling during the second half of 2004 and the first two months of 2005. A further fall
in Eurozone retailers’ profit margins was witnessed for the tenth consecutive month in
February 2005. Retail chains have had to offer discounts and other promotions in an
attempt to revive flagging sales, undermining their margins in the process. Increased
purchase prices have also added to the pressure on margins. Average purchase
prices in the sector have risen sharply during the seven months in February 2005,
driven up by rising raw material prices and higher transport costs. Not only have
sales figures for most retailers in the Eurozone declined, they have been below
targets for most stores leading to rising inventories. If the trend continues, it could
cause a significant dent in the profits of large retailers like Carrefour, for whom
Europe is the primary market.

Industry analysis

Carrefour is a large-scale retailer of groceries and consumer goods. The company

operates primarily in three formats namely hypermarkets, supermarkets and hard
discount stores. Other channels of distribution include convenience stores, cash and
carry foodservice stores and also the Carrefour online virtual supermarket.

The company operates 6546 stores worldwide (as of December 2004). These include
794 hypermarkets, 1495 supermarkets and 3888 hard discount stores. Other
channels of distribution include 194 convenience stores, 175 cash and carry stores,
mini markets and food service stores. The company operates in 32 countries.

Carrefour’s major markets include France, Spain, Greece, Portugal, Brazil, Argentina,
Taiwan, Mexico, and Asia. The company operates its stores under 17 banners,
including hypermarkets (Carrefour), supermarkets (Champion, GB, GS, Norte),
convenience stores (8 á Huit, SHOPI, Marché Plus), hard discount stores (Dia%, Ed),
cash-and-carry stores (Promocash), mini markets (PROXi) and food service stores
(Prodirest). Other banners of the company include Puntocash, docks MARKET and
Ooshop.com.

Carrefour hypermarkets offer a wide range of food and non-food products and
maintain a focus on competitive prices. The company’s hypermarkets stock an
average of 70,000 items. Floor areas of hypermarkets range from 5000 square
meters to over 20,000 square meters. At the end of 2004, the company has about
 288 hypermarkets in European countries outside France, 157 in the Americas and
170 in Asia.

Champion, GS, Norte and GB supermarkets offer a wide selection of mostly food
products, again maintaining the company’s focus on competitive prices, in outlets
with floor areas of 1000 to 2000 square meters.

Hard discounters such as Dia and Ed stock 800 food products, at low prices, in small
stores (from 200 to 800 square meters). Half of the products are sold under the Dia
brand name.

The company sells its products under various brands including Destination Saveurs,
Firstline, Produit Carrefour, Reflets de France, Topbike, Filière Qualité Carrefour,
Carrefour Bio, GB Bio, TEX, Souvenirs du Terroir, GB, GS, Escapade Gourmandes,
Neufunk, Bout´chou, Cicérone and Dia.

PRODUCTS AND SERVICES ANALYSIS

The company recorded revenues of E72.7 billion during the fiscal year ended
December 2004, an increase of 3.1% over 2003. For the fiscal year 2004, revenues
from France, the company’s largest geographical market, accounted for 49.1% of the
total revenues.

Carrefour generates revenues through its four business divisions: hypermarkets

(57.9% of total revenues during fiscal 2004), supermarkets (18.3%), hard discount
stores (8.1%) and other stores (15.7%).

Revenues by Division

During the fiscal year 2004, the hypermarkets division recorded revenues of E42.1
billion, an increase of 1.2% over fiscal 2003.

The supermarkets division recorded revenues of E13.3 billion in 2004, an increase of

4.7% over fiscal 2003.

The hard discount stores division recorded revenues of E5.9 billion in 2004, an
increase of 20.4% over fiscal 2003.

The other stores division recorded revenues of E11.4 billion in 2004, an increase of
0.9% over fiscal 2003.

Revenues by Geography

France, Carrefour’s largest geographical market, accounted for 49.1% of the total
revenues in the fiscal year 2004. Revenues from France reached E35.7 billion in
2004, an increase of 0.1% over fiscal 2003.

Europe (excluding France) accounted for 37.3% of the total revenues. Revenues
from Europe (excluding France) reached E27.1 billion in 2004, an increase of 6.3%
over fiscal 2003.
The Americas accounted for 6.6% of the total revenues. Revenues from the
Americas reached E4.8 billion in 2004, an increase of 2.2% over fiscal 2003.

Asia accounted for 7.0% of the total revenues. Revenues from Asia reached E5.1
billion in 2004, an increase of 10.0% over fiscal 2003.
5) Corporate –level international strategies

 Type of corporate strategy selected will have an impact on the selection and
implementation of the business-level strategies.
 Some corporate strategies provide individual country units with flexibility to choose their
own strategies
 Others dictate business-level strategies from the home office and coordinate resource
sharing across units

Three corporate strategies:

Multi-domestic strategy
Global strategy
Transnational strategy

Multi-domestic strategy

 Strategy and operating decisions are decentralized to strategic business units

(SBU) in each country
 Products and services are tailored to local markets
 Business units in each country are independent of each other
 Focus on competition in each market
 Prominent strategy among European firms due to broad variety of cultures and
markets in Europe

Global strategy

 Products and standardized across national markets

 Decisions regarding business-level strategies are centralized in the home
office
 Strategic business units (SBU) are assumed to be interdependent
 Emphasizes economies of scale
 Often lacks responsiveness to local markets
 Requires resource sharing and coordination across borders (which also
makes it difficult to manage)

Transnational strategy

 Seeks to achieve both global efficiency and local responsiveness

 Difficult to achieve because of simultaneous requirements for
strong central control and coordination to achieve efficiency and
 local flexibility and decentralization to achieve local market
responsiveness
 Must pursue organizational learning to achieve competitive
advantage

Carrefour first store was opened in France in the summer of 1960. The concept of one-stop shop
with discount prices proved to be very successful since in France retail distribution in 1960 was
highly fragmented and product lines in individual stores were very narrow. Visits to up to four
separate shops were required in order to purchase all retail food merchandise. Carrefour
facilitated the process of buying food items by creating a store where the consumer could find
almost every food product he needs.

Nonfood products were later added to Carrefour line of products. In 1963 Carrefour opened its
first hypermarket in France outside Paris selling food and nonfood products at discount prices,
and providing parking for 450 cars. The high degree of consumer acceptance can be attributed to
convenience and price. The hypermarket strategy proved to be very successful and from 1965
and 1971 sales grew in excess of 50% and nonfood items accounted for 40% of total volume. In
1970 new stores were opened with selling area as large as 25,000 sq m.

Carrefour’s strategy was to build its store outside of towns in location where highways provided
easy access and land could be acquired very inexpensively. The combination of low-cost land
and inexpensive construction gave Carrefour a total investment per square meter of selling space
equal to about one third of traditional supermarkets.
Another strategy was a decentralized management. Each store manager had high decision-
making power to operate their stores, which make decisions faster, more dynamic, and the daily
store management more efficient. Plus, manager could customize its store to suit local needs
better. The decentralized operations were a key success factor underlying Carrefour’s national
achievements.

By 1971 the growth of discounted retail stores face a huge problem in France, 40% of small
shopkeepers had disappeared due to the growth of big retailers and small shopkeepers had a
significant…

The results of 2007 demonstrated that the Carrefour Group is in a good position to enter another
period of growth, even though they are fully aware that the economic climate will not always be
favorable. But considering the work they already achieved in 2007 and the high standards they
apply to everything they do. For the first time since they launched their new strategy three years
ago, faster sales growth will lead to corresponding growth in their results and, as a result, a
higher return on capital employed.
The first objective of the company is to boost sales (not including acquisitions) by 6 to 8%. They
are also seeking more rapid growth in activity contribution than in sales by gaining better control
over fixed costs and, to a certain extent, by adopting various measures to improve productivity.
To succeed, they are counting on growth markets for a larger share of sales and activity
contribution. By accelerating profitable growth and optimizing investments and working capital,
they should be able to generate a free cash flow of €1.5 billion. Lastly, they will do everything in
their power to ensure a higher return on the capital employed by the Group.
6) The hypermarket concept was invented by Carrefour. Carrefour’s hypermarkets averaged
10,034 sq.mt. (108,000 sq. ft) and were usually located within a commercial center. The firm’s
location strategy was to place stores outside towns in areas where highways provided easy access
and land could be acquired inexpensively. The company also favored simple facility
construction. This gave it a total investment per square meter of selling space in a fully equipped
store equal to about one-third that of traditional supermarkets and department stores.

The high degree of consumer acceptance that fuelled Carrefour’s growth stemmed, in large part,
from factors such as convenience and price. Almost any product a consumer could think of
purchasing more than once a year could be bought at a Carrefour store. The company even
operated discount gasoline outlets at many stores. Indeed, Carrefour operated 5 of the 10 largest
volume gasoline stations in France.

Although convenience was undoubtedly a strong factor in Carrefour’s growth, so too was price.
Carrefour’s prices averaged 5 to 10 percentage points under those of retailers in traditional
outlets. Gross margins on food and non-food products differed somewhat, but Carrefour operated
on an average gross margin of about 15 percent, which, in 1998, translated into a 4.5 percent
operating margin after SG&A.

As competitors picked up the concept, Carrefour felt the need to differentiate itself and to better
respond to client needs. Differentiation for Carrefour meant developing a local products
purchasing base anв selling private labels. Purchasing locally was one of the Carrefour’s key
strategies, both in France and internationally. Еры was seen as a way to please local authorities
and to meet local customers needs. Buying locally supported Carrefour’s specialization strategy,
which aimed to position it as the leader in every fresh product department (butchery, bakery,
delicatessen, etc.)

Private labels provided customers with a value-for-money offer over national brand products.
The private label program was started in 1976, and by 1993 Carrefour offered almost 4,300 lines
of its own branded products. This line was so extensive that I some countries there we only
Carrefour products in certain categories. The proposition was a good one for consumers since
technical quality was equivalent. The national brand products and the prices normally ranged
between 15 to 35 percent lower than that of national brands. Although Carrefour’s overall
pricing was heavily promotional, with frequent sales and special discounts supported by weekly
circulars, its private label offering had a fixed price all year round.

The decentralization operations were later recognized as a key success factor underlying
Carrefour’s national and international achievements. The ability to react to local conditions had
enabled the stores to thrive in such diverse locations as Taiwan and Argentina, and in erratic
economic circumstances, like the hyperinflationary period in Brazil.

7) The Carrefour Group builds relationships and forges personalities — between the Argentine
producer who grows Quality Line apples for Carrefour and the consumer who buys them,
between the hesitant customer and the butcher ready with advice, between employees of all
nationalities who share the same goals.
With 12 million loyalty card-holders in France, but also 7.5 million in Spain, for example,
Carrefour group stores have an excellent base from which to forge closer relationships with
customers. As a multi-format retailer, Carrefour can offer solutions addressing a wide variety of
shopping habits. In 2009, the Carrefour group is enhancing its knowledge of customers, with the
aim of serving them better and improving its brand image. In stores, the Carrefour brand will be
conveyed in a way that is closer to the customer and more emotionally involving. By being more
competitive, the brand will again become a tool for winning customers, enhancing customer
loyalty and distinguishing Carrefour from the pack. In towns and villages, as convergence
accelerates, the Carrefour brand will provide its best stores to more customers. In this way,
Carrefour will make customers want to come, and keep coming, to its stores, regardless of the
format or product offering. By focusing on retailing, Carrefour will become customers' preferred
retailer.

Convenience: a driving force for attracting new customers

France’s top player in convenience retailing, the Carrefour Group has been testing new
convenience formats in the centre of large cities outside France. In Madrid, three stores of 350 to
500 sq.m were inaugurated under the Carrefour City banner. In Poland, four stores were opened
under the 5 Minut Carrefour name. In Brazil, the Group is testing 100 sq.m convenience stores
under the Carrefour Express banner at service stations located in the centre of Porto Alegre.

Non-food: international partnerships

The qualitative upgrading of non-food products, one of Carrefour’s strategic priorities. Their
partnership with internationally renowned designer Max Azria gave birth to their Tex by Max
Azria brand. Azria launched his first women’s autumn and winter ready-to-wear collection in
600 hypermarkets in Europe. Another major agreement: Dell, the American personal computer
manufacturer, granted the Carrefour Group the exclusive rights to sell its products in Europe.
Since 15 January 2008, 365 French, Spanish and Belgian hypermarkets and supermarkets have
been offering a selection of desktop computers and laptops. When this agreement is extended to
other countries, such as Italy, Carrefour will become the European leader in computer
equipment.

8) Carrefour - the world’s second-largest retailer and the largest in Europe, saw the opportunity
to enhance its business performance—and become an even stronger competitor—by embracing a
new promotional paradigm. Carrefour recognized the growing importance of customer loyalty to
its future growth, and how leveraging the strength of the Carrefour brand across its supermarket,
hypermarket and convenience store formats would help to achieve a competitive advantage by
creating a common customer experience. As part of this strategy, Carrefour sought to enable
smarter, more effective and more personalized promotions and campaigns that—instead of being
unique to a particular Carrefour store format—would span them all, thus enhancing loyalty to the
Carrefour brand across all formats. Achieving this would require Carrefour to redefine its
processes, leverage information as a strategic asset, and transform the systems that supported
them—all without disrupting its in-store operations. .

The major advantages relate to the image of the corporation and its social and environmental
reputation. Despite the fact that there is little publicity regarding the CSR actions, the
surrounding community keeps up to date with daily corporate activities, which is good for the
corporate image. The major corporate benefit is the gain in image, which occurs despite the fact
that they do not invest highly in publicizing their CSR projects. The image company has in the
eyes of the local community is very positive and this is the best CSR investment return. They
have reduced their electricity consumption significantly as well as water consumption and
refrigeration fluid, because it causes ozone depletion. These all are also related to GRI indicators
and the major implication is really the gain in image.

The company intends to become a global reference for CSR, particularly in the retail sector and
as a result add even more value to the Carrefour brand in order to expand its competitive
advantage in the highly competitive supermarket industry. They expect to become a reference in
the modern retail sector while addressing health, consumer safety and environmental
preservation. This is their ambition, their mission. You can bet on it. It is in people's minds and
they are going to achieve it – to become a reference in environmental protection, health and
consumer safety. The major competitive advantage for Carrefour through CSR is mainly related
to image and reputation. These aspects are also internal resources that are difficult for
competitors to copy.

 Business Challenge

To maintain its leadership in the increasingly competitive retail grocery industry, Carrefour
sought to gain more control over its marketing processes and more effectively leverage its
business intelligence - with the ultimate aim of strengthening customer loyalty.

 Solution

Carrefour teamed with IBM and its partners to put in place a groundbreaking in-store promotion
system across its supermarket and hypermarket stores - operated entirely by Carrefour - that
enables the planning and execution of more targeted campaigns, with more rapid feedback as to
their effectiveness.

 Key Benefits

- Greater control over marketing strategy and customer relationships resulting in stronger
customer loyalty and a stronger brand;

-Faster and more profitable growth through more effective, targeted and personalized
promotional campaigns;

-Deeper knowledge of customers via analytics and segmentation.

http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/RA/RA07GB1.pdf

http://www.carrefour.com/cdc/finance/strategy/

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