After reporting a 22% fall in first half operating profit, including a dramatic 40% decline in France alone, Carrefour has launched a new commercial strategy for France called Reset.
After reporting a 22% fall in first half operating profit, including a dramatic 40% decline in France alone, Carrefour has launched a new commercial strategy for France called Reset. The plan is designed to help the company “regain competitiveness and traffic in its hypermarkets” and adapt to “an increasingly challenging economic environment”.
Carrefour chief executive Lars Olofsson revealed that Reset will focus more on price cuts than on costly promotions, hand back more responsibility to hypermarket managers and accelerate the expansion of Carrefour-branded products and ecommerce. He has conceded that the company lost sight of the competition’s prices, focusing too much on promotions, which impacted its profitability. As a result, Carrefour passed on price increases from manufacturers to its customers earlier than many of its rivals, which meant it lost market share.
Carrefour now wants to “return to sustainable growth, based on low prices,” which will have a negative impact in the short term, but will help the business in the long term. Another key objective will be stemming the extremely high rate of out-of-stock items (7% in food and 18% in non-food) that affected its sales in the first half of the year. Carrefour is promising that these will be halved by the end of the year.
In addition, the company will still push on with the roll-out of its Carrefour planet format, which has been a success in increasing sales in converted stores.
However, these conversions are proving to be a costly exercise and the retailer is still not convinced by the format, seeing it more of a work in progress than the completed deal. Olofsson admits that the introduction of Carrefour planet suffered from “sub-optimal execution” and that the reduction in some non-food categories may have been too drastic. As a result, there will now be only 26 Carrefour planet stores in France by the end of the year instead of the 40 it originally planned.
The change in strategy shows just how serious Carrefour’s woes in its key French market – which generates more than 40% of global sales – have become. It was only in 2009 that Carrefour launched its previous strategy called ‘En Avant’. However, the implementation of this plan has not yet met expectations. Olofsson now admits he has made mistakes and “tried to do too much too quickly,” an admission that’s sure to cast further doubt on his leadership and raise shareholders’ concerns.
- Robert Gregory, research director, Planet Retail.
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