Download French mass retailers branch out internationally

No. 6
September
2012
Network Support Department
Communications, Planning and Economic Monitoring Sub-Directorate
Economic and Price Monitoring Bureau
French mass retailers branch out internationally
Olympe Tarteret1, Hugo Hanne2
This paper outlines and analyses the strategy and development of French mass retailers on international
markets.
Since the 1990s, France’s principle mass retail groups have extended their footprint in the main
developed economies and especially in the emerging economies, using the growth models employed in
France and Europe.
While French groups have opted for a strategy of buying local groups or trade names in some countries,
others have entered into joint ventures with local partners to help boost their growth levels outside
France.
While these strategies have often had a positive impact on turnover figures, with emerging economies in
particular seeing stronger growth than in France or Europe, the impact on French GDP has been
negligible.
French retail groups, now well-established abroad, are very influential on a global scale. Their quest for
international growth came about for several reasons. First, French legislation introduced between 1990 and 2000,
including the Raffarin Act, the Galland Act and the New Economic Regulations Act (2001), led to a slowdown in
the number of new supermarkets and hypermarkets opening in France and consequently the growth rates enjoyed by
mass retail groups in France.
Second, given the relatively lacklustre French mass retail market, all the biggest groups decided to look for growth
on new markets. They therefore expanded internationally, focusing particular attention in the last few years on
emerging markets in South-East Asia, Latin America and Africa, their chosen new lands of plenty.
1
Student at ENS Cachan, intern at the Economic and Price Monitoring Bureau (1B), DGCCRF
2
Head of the Economic and Price Monitoring Bureau (1B), DGCCRF
1. French groups’ international growth strategies
1.1 Auchan
The group has a strong presence in Europe and Asia. Most of its growth is organic, with a
lesser proportion coming from acquisitions.
Organic (or internal) growth represents the rate of growth achieved by a group (generally
measured as an increase in turnover) as a result of acquiring new customers through an
improvement in its internal methods of production, distribution or research.
In contrast, inorganic growth is growth achieved through acquisitions (of trade names or stores)
which result in a change in group structure.
In 2011, Auchan operated in 12 countries. In western Europe alone (France, Italy, Spain,
Portugal and Luxembourg), the group boasted 280 hypermarkets (including 5 opened during the
year) and 1,822 supermarkets.
The group’s growth comes through its core businesses of food retail, property development and
banking. It also relies on the complementary nature of its retail formats and is permanently on
the look-out for new sales channels by testing new concepts, such as online sales or drivethroughs. In 2011, it had 90 drive-throughs in western Europe including 29 in France and 2 in
Luxembourg.
Auchan is continuing its expansion in both western Europe and East Asia, especially China.
Number of large stores in main countries targeted for investment
France
Spain
Italy
Hypermarkets
134
53
59
Supermarkets
409
252
1 161
Portugal
Luxembourg
Poland
33
1
26
-
-
27
Hungary
Russia
China
Taiwan
12
48
230
22
-
63
-
Source: Auchan 2011 reference document
In 2011, the group’s consolidated earnings before tax in France, the rest of western Europe and
South-East Asia increased by 13.6%, with the latter accounting for 29%, France for 45% and
western Europe excluding France 26%3.
In China, Auchan Group and its local partner Ruentex successfully floated their joint subsidiary
Sun Art Retail Group on the Hong Kong Stock Exchange on 27 July 2011, opening the door to
new sources of finance.
3
Source: Auchan Group 2011 reference document, financial statements.
-
According to industry observers, Auchan’s international growth is based on an aggressive
pricing policy coupled with multiple promotions and discount products to meet the changing
needs of consumers and offset the impact of the recent economic and financial crises. The group
is also aiming to adapt to local consumption habits.
1.2. Carrefour
Carrefour Group operates in central and western Europe, Asia and Latin America. In total, it has set
up shop in 33 countries where it boasts a total of 9,771 stores (across all formats).
Ten years after opening its first hypermarket, Carrefour ventured outside France for the first time,
opening a store in Spain in 1973.
Number of large stores by main geographic area
France
Europe (excl. France)
Hypermarkets
232
456
Supermarkets
977
1,708
Latin America
Asia
335 ( 186 in Brazil)
361 (203 in China)
180
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Source: Carrefour 2011 reference document
Carrefour also boasts a significant number of local stores in France (3,285) and Europe (1,787). In
2011, the hypermarket model dominated in emerging markets, while supermarkets were more
numerous in Europe and France.
This split reflects the desire by western consumers to see a return to smaller stores whereas emerging
market consumers are still in thrall to larger surface areas.
From a financial viewpoint, Carrefour Group turnover reached 81.271 billion euros in 2011, a jump
of 0.9% driven by a slight upturn in sales but mainly due to strong demand in emerging markets.
Breakdown of turnover and recurring operating income by geographic area
Consolidated earnings
before tax
Recurring operating
income
Source: Carrefour 2011 reference document
France
Europe (excl. France)
Latin America
Asia
43.2%
29.2%
18.6%
9%
39.5%
23.3%
25.4%
11.8%
According to INSEE, recurring operating income (ROC) is operating income less other operating revenue and
expenses.
Operating income is the difference between all revenue and expenses not generated from financial activities.
Other operating revenue and expenses is made up of extraordinary operating events that do not occur very often.
Recurring operating income is a figure that helps to assess the company’s performance.
-
The fact that recurring operating income exceeds consolidated earnings before tax in the emerging
markets vs. Europe is proof that expenses in Europe take a bigger chunk out of earnings, possibly
because of higher payroll expenses in Europe or heavier taxation that leads to higher production
costs.
Consequently, the net margin, which for a retailer represents the gross margin (difference between
the sales price before tax and the cost price before tax) less distribution costs, is very low in Europe
but higher in developing and emerging economies.
Carrefour’s goal is to be “the consumers’ number one choice of retailer, wherever it operates”4. Its
international expansion strategy is built on several pillars:
Full integration of its logistics operations to cut transport costs and boost productivity with a view to
generating synergies between the various sales and operating formats.
Flexible management to adapt the products, formats and organisational structures to meet local requirements.
Purchase local products and employ local people to breathe life into regional economies.
Despite these statistics, the Group is not neglecting the French market. It is looking to maintain its
leading position in France by developing its hard discount model and a close relationship with its
customers.
Its overall target is to generate growth by promoting its multi-format model (especially hard discount
stores) and by boosting sales, price competitiveness and price image.
1.3.Casino Group
In 2011, group consolidated turnover stood at 34 billion euros, up 18.2% on 2010. International sales
accounted for 45% of total turnover5, i.e. 15.613 billion euros.
Casino Group has decided to concentrate its efforts outside France, specifically in Latin America and
South-East Asia. These two regions together account for over 90% of the group’s international
turnover. Casino has invested in a limited number of countries seeing extremely strong growth
momentum in both regions.
4
http://www.carrefour.com/cdc/groupe/notre-strategie/. In French, « le commerçant préféré, partout où il est présent »
5
Source: 2011 Casino Group reference document —financial results
Casino Group currently operates in eight countries in these regions:
- Brazil, where it is number one based on size and number of stores and number two
in e-commerce.
- Colombia, where the group is also number one through its Exito subsidiary.
- Thailand, where it bought Big C from Carrefour in 2010 and is co-leader on the
hypermarket segment.
- Vietnam through its Vindémia subsidiary.
- Argentina where it makes turnover equivalent to 388 million euros.
- Uruguay where it has been market leader since 2000.
- Madagascar, Mauritius and Reunion.
The group has 2,295 stores, including 365 hypermarkets, in these countries where it is either
leader or joint leader.
On June 22, Casino Group acquired control of Brazil’s largest retailer, Grupo Pao de
açùcar (GPA). To coincide with this acquisition, the Group’s CEO Jean-Charles Naouri was
appointed Chairman of the Board of Directors of Wilkes, the Brazilian retail group’s parent
holding company. In 2012, Casino expects 60% of its turnover and 69% of its recurring
operating income to come from international operations. This acquisition is the culmination
of a long process of setting up shop in Brazil which has strong growth potential.
GPA is Brazil’s biggest retail group ahead of Walmart and Carrefour and one of the
country’s biggest employers (around 170,000 staff). It operates over 1,800 stores and in 2011
generated 30 billion dollars in turnover.
Number of stores and breakdown of turnover by country
Stores
Sales in billions of euros
(group share in %)
Brazil
Colombia
Vietnam
Thailand
1,571
351
18 hypermarkets, 5 convenience stores
221 (108 hypermarkets, 12
supermarkets, 51 convenience stores)
3.2 (11.6%)
0.327 (27.2%)
2.6 (46.6%)
7.8
(68.2%)
In 2006, Casino also had stores in Poland, Taiwan, the Netherlands and Venezuela. But
between 2007 and 2010, it sold its businesses and interests in these countries to refocus on
the four countries mentioned in the table above. In Venezuela, the nationalisation of its Exito
supermarkets in 2010 triggered the group’s departure.
The group’s international strategy is based on several actions. It aims to adapt to the local
environment in terms of both managerial practices and the products on offer, while taking
advantage of the growth drivers on emerging markets, namely a booming and young
population and a fast rate of urbanisation.
Consequently, it is basing its international development strategy on five key points: reviving
the convenience store concept, introducing retailers’ own brands with a strong brand image,
jumping on the hard discount bandwagon, rolling out a “dual model” (retail and property:
operating hypermarkets and shopping centres) and making a commitment towards fair trade.
1.4. The Leclerc movement
The E. Leclerc movement is centred around several organisations.
ACDLec (Association des Centres Distributeurs E. Leclerc), which allocates the trade name
to its members, ensures compliance with the members’ charter and draws up the trade name’s
main strategies.
GALEC, which manages the list of main suppliers on behalf of the stores.
Sixteen regional cooperatives (SCA) that oversee store logistics, negotiate with national
suppliers and work with local suppliers to adapt the product offering to better suit regional
consumption habits.
Lastly, members can become owners of their own store as long as they adhere to the
members’ charter.
The E. Leclerc Group’s priority is to “build a network of independent European retailers”6.
Leclerc operates in Eastern Europe and pursues an international development programme
along the same lines as the French programme. It has expanded at a rapid pace through its
system of franchises and cooperatives.
Leclerc currently has 112 stores outside France generating turnover of over 2.4 billion euros.
After opening its first foreign stores in Spain (in 7 towns), it went on to open stores in Italy
(in 27 towns), Poland (in 18 towns), Portugal (in 15 towns) and Slovenia (in 2 towns).
Similarly, since 2006 E. Leclerc has formed partnerships with four European independent
retailers: Conad (Italy), COOP (Switzerland), REWE (Germany) and Colruyt (Belgium). The
aim of these partnerships is to exchange expertise and offer consumers better quality products
and services at the lowest possible prices.
Lastly, Leclerc is focusing its international development on several businesses other than
food retail. They include multimedia stores, jewellery carousels, travel agency services,
eyewear, pharmaceutical and healthcare products, DIY, sport and leisure. All of these
businesses will allow the group to diversify to not only offset the downturn in footfall seen in
its hypermarkets but also attract new customers.
The movement has maintained its independence and cooperative approach on international
markets, an original approach compared to other groups, but it is lagging considerably behind
the growth rates boasted by Carrefour and Auchan.
6
http://www. mouvement-leclerc.com/index.php/home/le-mouvement-e-leclerc
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2. Possible impact on French GDP of the international development of the major
French food retail groups
As mentioned previously, France’s main food retail groups must grow internationally to
maintain their current growth rates. It is nevertheless worth asking what impact this
international growth strategy might have on the French economy and the mass retail sector.
There is no one single answer to this question since these strategies could have both a
positive and a negative impact on French GDP growth.
In the national accounts, it is worth remembering that gross domestic product can be looked
at from three different angles, i.e. from an output, revenue or employment angle.
GDP is therefore defined as either the total added value generated by all French companies
(which is equivalent to total national output) or the total of the following equation using
macroeconomic indicators: household consumption + capital expenditure + government
spending + (exports - imports).
The internationalisation of France’s mass retail groups may have a positive impact on the
French economy in several respects:
1) If the mass retail groups manage to expand successfully, the additional revenue
generated will have a positive knock-on effect on their earnings, which in turn
would have several consequences:
-
-
-
-
It would help to boost their financing capacity which would in turn enable them
to invest in new areas, particularly in France, to modernise their networks or
innovate.
The increase in group earnings would have a positive impact on their stock
market value. A profitable group posting strong results attracts shareholders, lenders
and investors, bringing in new sources of finance that can be used to invest or
innovate (possibility of issuing debt or borrowing from banks or other companies).
Their additional financial firepower would enable them to:
o improve their rewards to shareholders (in the form of dividend payments)
o and/or grow (reinvest in new stores, extend the type or range of products sold,
etc)
o and/or invest in very costly R&D
(reinvestment)
o and/or acquire other companies in the same sector
(horizontal integration)
o and/or acquire suppliers or client companies (vertical integration)
o and/or acquire companies in other sectors (diversification)
An increase in group earnings would make more cash available and provide the
groups with more room for manoeuvre to take out more loans or make significant
investments (see above).
2) The international expansion of French groups helps bring French products to a
wider audience. Their expansion could lead to greater foreign demand for French
products (especially for luxury goods which are very popular with foreign customers)
and consequently to a leap in French exports. As exports are a component of GDP,
stronger export sales would lead to stronger GDP growth. Moreover, greater demand
for French products means more jobs are created in France which breathes life into
the national economy.
3) GDP can also be looked at from an output angle. Consequently, groups whose
added value grows are vectors of growth (growth in procurement services,
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R&D, strategy, finance and human resources helps to boost national
employment levels).
4) Internationalisation does not mean that groups pull out of France but that they
extend their business to diversify their sources of income and harness new
potential growth areas. Their expansion does not come at the expense of the French
economy which is often the case when some firms relocate jobs.
In short, the strategy employed by these firms on international markets is not incompatible
with having a strong national economy. As we have just shown, the strategies pursued
internationally can have a positive knock-on effect on the French economy (by creating jobs
in France, generating revenue and leading to investments that will benefit the entire
economy).
However, these strategies nevertheless contain an element of risk and may sometimes
have a negative impact on French activity and employment levels. This is the case if
groups put all of their financial resources towards their international development,
investing little or nothing at all in France and therefore not contributing to the country’s
economic renewal, modernisation or growth in its commercial sector. However, this risk
has been more or less cancelled out by the fact that the main mass retail groups are keen
to hold on to their leading positions on the French market which generates several
hundreds of billions of euros in sales and which lies at the heart of their business and
expertise.
The Economic and Price Monitoring Bureau (1B) of the DGCCRF (Directorate General for Competition
Policy, Consumer Affairs and Fraud Control) establishes and introduces measures to bolster economic
transparency of the manufacturing and marketing processes for goods and services. This means that it is
able to base its analyses in this area on objective and common factors. Its work involves price analysis and
monitoring formation mechanisms for prices and margins, in conjunction with other relevant monitoring
centres. It also produces economic studies for the Directorate and is tasked with its in-house documentation
and economic monitoring responsibilities. Lastly, it carries out statistical analyses of the consumer
complaints register.
Address:
Ministère de l’économie et des finances - DGCCRF
Bureau de la veille économique et des prix (1B)
Teledoc 052
59 boulevard Vincent Auriol
75703 PARIS CEDEX 13
FRANCE
Email: [email protected]
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