Analysis of the BusinessBy Rafael Cruz

Company Snapshot

Carrefour S.A. is a French retail group that was founded in 1959.

Carrefour competes against its rivals on the basis of price, convenience, and customer experience.

Company Snapshot

Carrefour is the second largest retailer in the world and its aim is “to become the preferred retailer” in all of its formats:

Hypermarkets

Grocery Stores

Hard Discount Stores

Convenience Stores

Company Snapshot

Carrefour operates 15,661 stores in 34 countries and had sales of €85.36 billion in 2009.

France43%

Europe (excluding

France)36%

Latin America14%

Asia8%

Sales By Region

PEST AnalysisPolitical Aspect

Political unrest in The Middle East is causing oil prices to increase. This could cause product costs and

distribution costs to rise which would result in decreased profits.

Developing economies have placed restrictions on FDI to protect their domestic retail industries. These are both threats to Carrefour.

PEST AnalysisEconomic Aspect

The current devaluation of the Euro will make FDI and importing more expensive for European businesses. This is a threat to Carrefour.

The rising Asian middle class accounts for approximately €3.06 trillion in annual consumer expenditures. This is a potential opportunity for

Carrefour.

PEST AnalysisSocial Aspect

Consumers are more conscience of their health and the health of the environment. This is an opportunity for Carrefour

because it has its own line of organic foods and it stocks fair trade products.

Carrefour has also reduced its energy consumption and the amount of disposable plastic bags used by 12.8% and 53.8% respectively.

PEST AnalysisSocial Aspect

The Asian middle class is becoming more prosperous and as a result has shifted its diet to include more protein. This is a contributing factor to rising

food prices.

This poses a threat to Carrefour.

PEST AnalysisTechnological Aspect

Social networking sites provide an opportunity for businesses because they can be used to increase customer loyalty to their brand. Twitter can be used to inform

customers of special deals at Carrefour stores.

Facebook can be used to create a community for loyal Carrefour customers.

PEST AnalysisSummary

Factor Trend EvaluationImpact (1=low; 5=high)

Rank in terms of importance

PoliticalUnrest in The Middle East .FDI restrictions in developing economies.

Threat

Threat

3

43

Economic The devaluation of the Euro.The rising Asian middle class.

Threat Opportunity

4

51

SocialConsumers more conscience of health and environment.Change in Asian middle class diet.

Opportunity

Threat3 2

Technological The use of social networking to increase loyalty Opportunity 2 4

Industry AnalysisFood Retail

The global food retail industry had total revenues of $4.4 billion in 2009 and is expected to grow to $5.9 billion by the end of 2014. The major players in this industry, in order of annual revenue, are Walmart, Carrefour, Tesco, and Metro AG.

Industry AnalysisPower of Suppliers

Carrefour purchases from a large group of suppliers. This forces the suppliers to compete

against each other giving Carrefour the ability to negotiate the best price possible.

The power of the suppliers is low.

Industry AnalysisPower of Buyers

The preferences of the buyer dictate what Carrefour must place on its shelves. The switching costs for the buyer are very low. Carrefour has a frequent shopper

program in an effort to increase the switching costs.

Overall the buyer power is high.

Industry AnalysisThreat of Substitutes

Restaurants and fast-food establishments pose a threat to Carrefour.The convenience of this option makes it

appealing to consumers.The relative high cost prohibits most

consumers from using this option as a permanent alternative.

The threat of substitutes is moderate.

Industry AnalysisThreat of New Entrants

The barriers to entry are relatively low for a small food retail shop. While these small shops are not able to compete directly with Carrefour, in large numbers they do have the ability to decrease Carrefour’s market share over time.

The threat of new entrants is moderate.

Industry AnalysisIntensity of Rivalry

Due to the low switching costs of the buyers and the similar product offerings between the industry rivals, competition is based mainly on price. With rising food costs, efforts to

maintain low prices could put a strain on profit margins.

The threat created by the intensity of rivalry is very high.

Industry AnalysisSummary

Factor Evaluation

Power of Suppliers The supplier power is low since Carrefour purchases from several different suppliers.

Power of Buyers The buyer power is high due to low switching costs.

Threat of Substitutes The threat of substitutes is moderate.

Threat of New Entrants The threat of new entrants is moderate since small specialty shops can erode Carrefour's market share over time.

Intensity of Rivalry Intensity of rivalry is very high because competition is based primarily on price and the consumer switching costs are low.

Conclusions Thus Far

Rising oil prices pose more of a long term threat. Carrefour can absorb any losses in the short term but it will eventually have to invest in further improvements to its distribution channel. The continued devaluation of the Euro could have a large impact on Carrefour’s decision to expand further into international markets.

Conclusions Thus Far

Carrefour’s rivals pose the biggest threat to its business. Since competition is based mainly on price, Carrefour should focus its efforts on strengthening its brand and building relationships with customers, thereby increasing the switching costs for the customer.

Carrefour’s Key Competitors

U.S. Retailer

British Retailer

German Retailer

Targets lower and middle class consumers.

Targets business consumers as well as lower and middle class consumers.

Targets middle and upper middle class consumers.

StrategicBusiness Groups

In the Food Retail Industry there are five primary formats:

Hypermarket

• Large retail space with a mix of food and non-food items

Grocery Store

• Large retail space selling primarily food items

Hard Discounter

• Small retail space selling food items at a deep discount

Convenience Store

• Very small retail space with a limited selection

Cash & Carry

• Retail space selling wholesale food items

Generic Strategies of the Competition

Broa

dN

arro

w

Low Cost Higher Cost

Competitive AdvantageCo

mpe

titive

Sco

pe

Core Competenciesof the Competition

Every Day Low Prices

Customer Experience

Very Strong Cash & Carry Business

One way Tesco enhances customer experience is through the use of its Clubcard which allows customers to accumulate points that can be redeemed for store vouchers.

An efficient distribution system allows them to be the low price leader.

Assumptionsof the Competition

Customers purchase based on price and therefore want the lowest price possible.

Customers will overlook price if the experience is enjoyable.

Product offering must be expanded to appeal to a broader market.

Resourcesof the Competition

An extremely efficient distribution channel as well as being the #1 retailer in the world.

A loyal customer base and the #2 retailer in terms of profit.

A strong wholesale arm that gives it the financial stability to expand into new markets.

Financial Comparisonof the Competition

Walmart Carrefour Tesco Metro AG

Annual Revenue (€bn) € 290 € 86 € 63 € 66

Revenue Growth 0.9% -1.2% 5.6% -3.6%

Net Income (€MM) € 10,187 € 494 € 2,336 € 383

Percent International Sales 24.7% 21.8% 31.1% 4.5%

Global Market Rank (revenue) 1 2 4 3

Global Market Rank (profit) 1 3 2 4

Market Breakdown

Food Retail

Customer Location

Urban Suburban Rural

Customer Type

Individual Business

Customer Income Level

Lower Middle Affluent

Market Breakdown

There is a food retail format to appeal to each type of customer.

Hypermarket

• Suburban• Lower-

middle class and up

Grocery Store

• Urban and Suburban

• Lower-middle class and up

Hard Discounter

• Urban• Consumers

that do not have a lot of money to spend.

Convenience Store

• Urban and Suburban

• Willing to pay more

Cash & Carry

• Appeals to the business to business market

Brazilian Market

The food retail market in Brazil is worth approximately €177 billion and is growing at a rate of 17.9%. Food retail accounts for the majority of Brazilian retail spending. There is a current shift towards non-food spending that is forcing grocery chains to carry more non-food items.

Brazilian Market

Income levels have been steadily increasing which has resulted in a “new middle class” (approximately 100 million people) which is driving retail spending. Brazil is considered to be an entry point to the South American market. Brazil will be home to the 2014 World Cup and the 2016 Olympic Games which will boost the country’s infrastructure.

Russian Market

The food retail market in Russia is worth approximately €222 billion and is growing at a rate of 20.5%. The growth rate of household income and disposable incomes has declined. The Russian Middle class is comprised of roughly 19 million individuals.

Indian Market

The food retail market in India is worth approximately €217 billion and is growing at a rate of 7.7%.Approximately 140 million Indians earn €13,000 per year making them middle class. The standard of living in India is improving and the Indian population is becoming accustomed to western culture. The Indian retail market is still not fully open to foreign competitors.

Chinese Market

The food retail market in China is worth approximately €255 billion and is growing at a rate of 6.8%. The per capita disposable income in urban areas has tripled in the last 10 years to approximately €2,300 which means that approximately 175 million Chinese are considered middle class. Living standards have increased leading the Chinese people to pursue a higher quality of life. The Chinese people spend approximately 41% of their income on food.

Brazil Russia India China

Size of Market (€bn) € 177 € 222 € 217 € 255

Market Growth Rate 17.9% 20.5% 7.7% 6.8%

Growing Middle Class Yes Yes Yes Yes

Market Open to Foreign Competitors Yes Yes No Yes

Population Size (MM) 191 143 1,170 1,300

BRIC Comparison

Social Media

Social Media can be used by businesses to increase customer traffic by alerting customers of special deals in local stores. This use of Social Media has become

very popular with the people of Brazil.

Conclusions Thus Far

Walmart has established itself in the marketplace as the low price leader and will be very difficult to compete against on price alone. Tesco has shown that a differentiated approach is successful in amassing a loyal following. The Cash & Carry arm of Metro AG is strong enough to support its efforts to expand into new markets.

Conclusions Thus Far

Each of the BRIC countries has experienced tremendous growth over the past several years and is forecast to continue to grow steadily. Brazil seems to be a very attractive market since it can be used as an entry point into the rest of South America. Regulations in India still prevent foreign competitors from entering the retail market but reforms are underway.

Business Model

Purchasing

• Carrefour purchases in large quantities and at reduced prices from producers and wholesalers.

Distribution

• Carrefour has an efficient, cost saving, distribution channel to distribute the goods to its stores.

Retail

• Carrefour passes the savings on to the consumer in the form of lower prices.

Performance

While sales have been increasing, profits have been decreasing since 2007. In the past, Carrefour has been known

to maintain prices even though costs are increasing.

2004 2005 2006 2007 2008 200965

70

75

80

85

90

Net Sales (Billions)

Net Sales

2004 2005 2006 2007 2008 20090

0.5

1

1.5

2

2.5

Profit (Billions)

Profit

Distribution of Sales By Format

2004 2005 2006 2007 2008 200954.0%

55.0%

56.0%

57.0%

58.0%

59.0%

60.0%

61.0%

62.0%

63.0%

Hypermarket

2004 2005 2006 2007 2008 20090.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Grocery Store

Revenue contributions from hypermarkets and grocery stores has increased.

These two store formats comprise the majority of Carrefour’s retail stores.

Distribution of Sales By Format

2004 2005 2006 2007 2008 20090.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Hard Discounter

2004 2005 2006 2007 2008 20090.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Other

The hard discounter segment has seen a 3% increase over the past several years. There has been an 11% decrease in the contribution of convenience and cash & carry formats.

Distribution of Sales By Region

2004 2005 2006 2007 2008 200938.0%

40.0%

42.0%

44.0%

46.0%

48.0%

50.0%

52.0%

France

2004 2005 2006 2007 2008 200934.0%34.5%35.0%35.5%36.0%36.5%37.0%37.5%38.0%38.5%39.0%

Europe (excluding France)

Sales in the European market have been in decline. The current depressed state of the economy is a contributing factor.

69% of Carrefour’s annual sales are generated in Europe.

Distribution of Sales By Region

2004 2005 2006 2007 2008 20090.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

South America

2004 2005 2006 2007 2008 20090.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Asia

Sales in the South American and Asian markets have been increasing.

Growth in these regions is an opportunity for Carrefour to increase its market share and decrease its reliance on the European market.

Key Assets

Assets 2008 2009 %ΔGoodwill €11.3B €11.5B 2%Fixed Assets €14.8B €15B 1%

Investment Properties €346MM €455MM 32%

Receivables €2.9B €2.2B 24%

Cash & Cash Equivalents €5.3B €3.3B 60%

BCG Matrix

Stars Question Marks

DogsCash Cows

Relative Market ShareHigh Low

Mar

ket G

row

th R

ate

High

Low

Value Chain Analysis

Primary Activities: The two most important are Marketing and Sales as well as Service.

Carrefour is a one-stop-shop for all of the consumer’s shopping needs but Carrefour is not perceived to have the lowest price. Providing an excellent customer experience is how Carrefour maintains market share.

Secondary Activity: The most important is procurement.

Maintaining a relationship with many different suppliers and negotiating for the lowest price.

SWOT

Strengths

Extensive network of suppliers

Brand is ranked in the top five of most valuable retail brandsVery successful private label brands

Weaknesses

Not keeping up with competitors' investment in Brazil.

Losing market share in European market

OpportunitiesThe growing Asian marketThe growing South American market

Threats

The depressed European market accounts for 69% of revenues.Consumer preferences are changing toward smaller local stores.

Generic Strategy

Broa

dN

arro

w

Low Cost Higher Cost

Competitive AdvantageCo

mpe

titive

Sco

pe

Grand Strategy

Carrefour aims to be “the preferred retailer” in all of its formats.

Carrefour will divest from a market when it is not among the top retailers.

Examples include Mexico, Russia, Japan, and South Korea.

Carrefour has been successful in entering new markets by forming a joint venture with an existing operator.

This allows Carrefour to gain information on the shopping habits of the local consumer to ensure a successful store.

Recent Strategic Moves

Carrefour has been in talks to sell its Dia % brand as well as its real estate arm.

This will give Carrefour cash that it can invest in new markets.

Carrefour is introducing Planet Carrefour which is a very large hypermarket that offers customers services such as cooking classes and snacking areas.

Carrefour is trying to gain lost market share by improving the customer experience.

Conclusions

Selling the Dia % brand will narrow Carrefour’s target customer base which will allow it to better serve its current customers. Expanding further into the Asian and South American markets will decrease Carrefour’s reliance on the European market.

Conclusions

Carrefour has strong brand recognition in Brazil which gives it an advantage over its competition. By investing in its stores, Carrefour can regain lost market share. Asia shows promise for Carrefour. Carrefour has already had success and failure in Asia. Carrefour can use what has worked in past Asian ventures to expand its current operations.