Analysis of the Business By 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.
Sales By Region
Asia Latin 7% America 14%

France 43%

Europe (excluding France) 36%

PEST Analysis Political 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 Analysis Economic 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 Analysis Social 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 Analysis Social 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 Analysis Technological 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 Analysis Summary

Factor Trend Evaluation Impact Rank in (1=low; terms of 5=high) importance 3 3 4 4 1 5 3 2

Political

Unrest in The Middle East . Threat FDI restrictions in developing economies. Threat The devaluation of the Euro. Threat The rising Asian middle class. Opportunity Consumers more conscience Opportunity of health and environment. Change in Asian middle class Threat diet. The use of social networking Opportunity to increase loyalty

Economic

Social

Technological

Industry Analysis Food 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 Analysis Power 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 Analysis Power 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 Analysis Threat 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 Analysis Threat 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 Carrefours market share over time.
The threat of new entrants is moderate.

Industry Analysis Intensity 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 Analysis Summary

Factor Power of Suppliers Power of Buyers Threat of Substitutes Threat of New Entrants Intensity of Rivalry Evaluation The supplier power is low since Carrefour purchases from several different suppliers. The buyer power is high due to low switching costs. The threat of substitutes is moderate. The threat of new entrants is moderate since small specialty shops can erode Carrefour's market share over time. 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 Carrefours decision to expand further into international markets.

Conclusions Thus Far

Carrefours 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.

Carrefours Key Competitors

U.S. Retailer
Targets lower and middle class consumers.

British Retailer
Targets middle and upper middle class consumers.

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

Strategic Business Groups

In the Food Retail Industry there are five primary formats:
Hypermarket Large retail space with a mix of food and nonfood 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

Competitive Advantage

Competitive Scope

Narrow

Broad

Low Cost

Higher Cost

Core Competencies of the Competition

Every Day Low Prices
An efficient distribution system allows them to be the low price leader.

Customer Experience
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.

Very Strong Cash & Carry Business

Assumptions of 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.

Resources of 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 Comparison of the Competition

Walmart Carrefour Tesco Annual Revenue (bn) Revenue Growth Net Income (MM) Percent International Sales Global Market Rank (revenue) Global Market Rank (profit) 290 0.9% 10,187 24.7% 1 1 86 -1.2% Metro AG 63 5.6% 66 -3.6% 383 4.5% 3 4

494 2,336 21.8% 2 3 31.1% 4 2

Market Breakdown

Food Retail
Customer Location Customer Type Customer Income Level

Urban

Suburban

Rural

Individual

Business

Lower

Middle

Affluent

Market Breakdown
There is a food retail format to appeal to each type of customer.
Hypermarket Suburban Lowermiddle class and up Grocery Store Urban and Suburban Lowermiddle 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 countrys 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.

BRIC Comparison
Brazil Russia India China
Size of Market (bn) Market Growth Rate Growing Middle Class 177 222 217 255 17.9% 20.5% 7.7% 6.8% Yes Yes Yes 143 Yes No Yes Yes

Market Open to Foreign Competitors Yes Population Size (MM) 191

1,170 1,300

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

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

Retail

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

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.
Net Sales (Billions)
90 85 80 Net Sales 2.5 2 1.5 Profit 1 0.5 0 2004 2005 2006 2007 2008 2009

Profit (Billions)

75
70 65

2004

2005

2006

2007

2008

2009

Distribution of Sales By Format

Revenue contributions from hypermarkets and grocery stores has increased.
These two store formats comprise the majority of Carrefours retail stores.
Hypermarket
63.0% 62.0% 61.0% 60.0% 59.0% 58.0% 57.0% 56.0% 55.0% 54.0% 2004 2005 2006 2007 2008 2009 0.0% 2004 2005 2006 2007 2008 2009 20.0% 15.0% 10.0% 5.0% 25.0%

Grocery Store

Distribution of Sales By Format

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.
Hard Discounter
12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2004 2005 2006 2007 2008 2009 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2004 2005 2006 2007 2008 2009

Other

Distribution of Sales By Region

Sales in the European market have been in decline. The current depressed state of the economy is a contributing factor.
69% of Carrefours annual sales are generated in Europe.
France
52.0%

Europe (excluding France)

39.0% 38.5% 38.0% 37.5% 37.0% 36.5% 36.0% 35.5% 35.0% 34.5% 34.0%

50.0%
48.0% 46.0%

44.0%
42.0% 40.0% 38.0% 2004 2005 2006 2007 2008 2009

2004

2005

2006

2007

2008

2009

Distribution of Sales By Region

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.
South America
16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2004 2005 2006 2007 2008 2009 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2004 2005 2006 2007 2008 2009

Asia

Key Assets
Assets Goodwill Fixed Assets Investment Properties Receivables 2008 11.3B 14.8B 2009 11.5B 15B % 2% 1%

346MM 455MM 32% 2.9B 2.2B 24% 3.3B 60%

Cash & Cash Equivalents 5.3B

BCG Matrix
High Stars Question Marks

Low High

Market Growth Rate

Cash Cows Relative Market Share

Dogs 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 consumers 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 brands Very successful private label brands

Weaknesses Not keeping up with competitors' investment in Brazil.

Losing market share in European market

Opportunities The growing Asian market The growing South American market

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

Generic Strategy
Competitive Advantage

Competitive Scope

Narrow

Broad

Low Cost

Higher Cost

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 Carrefours target customer base which will allow it to better serve its current customers. Expanding further into the Asian and South American markets will decrease Carrefours 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.