Recent events have thrown the contrast in strategic priorities between the world’s second- and third-largest retailers, Carrefour and Metro Group, into stark relief.

Recent events have thrown the contrast in strategic priorities between the world’s second- and third-largest retailers, Carrefour and Metro Group, into stark relief.

On the one hand we have seen Carrefour’s sudden withdrawal from Russia and news of shareholder pressure to divest from China and Brazil, underlining that driving profitability in France remains top of the agenda. On the other, German grocer Metro Group has opened its first cash and carry in Kazakhstan and its first Saturn electronics store in Turkey, broken ground for its first store in Egypt and announced an expansion programme for Asia,all in a matter of days.

Perhaps nothing demonstrates Metro Group’s internationalisation strategy better than its opening of a store in the Kazakh capital, Astana. The choice of country typifies Metro Group’s market entry choices in recent years - frontier markets with growing consumption and very low levels of competition in terms of modern distribution networks. Vietnam was opened as far back as 2002, with Moldova following in 2004, Serbia in 2005 and Pakistan a couple of years ago. After Egypt next year, it is thought that the retailer will open stores in Bosnia.

Metro sees the potential for 10 to 15 cash and carries in Kazakhstan. The group will invest around E15m to E20m (£13.6m to £18.1m) per store.

The market entry was not without its hitches, but Metro will be able to establish a leading position relatively quickly in this fast-growing market. In Egypt, Metro plans to have a network of 12 cash and carries by 2012 and more than 20 in the longer term, with each store requiring an investment of around E20m.

There’s no doubt that Metro Group’s strategy of forging ahead with overseas investment in the downturn is a risky one. However, while Carrefour relies heavily on its domestic operation to generate profit, Metro Group is more profitable in its inter-national operations than in Germany, with Eastern Europe contributing E247m (£223.2m) to group EBIT of E291m (£263m) in the first half of the year.

Metro Group has a proven track record of setting up cash and carry operations relatively inexpensively and generating profit within a short time frame. While France is the engine room of Carrefour’s overseas expansion, Metro’s internationalisation programme has become not only financially independent, but also crucial to the future success of the group.

Matthew Stych is research manager of Planet Retail.
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