A leading analyst has said that while French retail giant Carrefour is making progress, chief executive Alexandre Bompard and his team need to do more to lift the business' performance in 'Europe's toughest market'.
In a briefing note, Bruno Monteyene of Bernstein Research described trading momentum at the retailer as 'anaemic', noting that its French hypermarket business saw a 0.5% decrease in like-for-like sales in the first quarter, showing 'no noticeable trend improvement'.
In addition, the group saw a 1.4% like-for-like decline in Spain, a 3.0% drop in Italy and a 1.0% drop in Belgium in the same period, Monteyne noted.
'Whilst Carrefour is doing all the right things, keep in mind that it is in Europe's toughest market and inherited from previous management the wrong format mix, wrong prices and bad habits,' Monteyne said.
Home Market Issues
The landscape of Carrefour's home market, in which it generates 48% of sales, but only 24% of its operating profits, highlights 'what a tough spot this food retailer is in', according to Monteyne.
Within France, 60% of Carrefour's sales come from hypermarkets, 'the most challenged retail format in Europe', while the fact that there are six large supermarket operators in France, all boasting similar retail offerings, similarly compounds the challenges.
Similarly, some 70% of the French retail network is operated by franchisee networks owned by local families, for whom short term accounting profit is not high on the priority list. This compares to the UK, Montyene noted, where more than 60% of the grocery stock is in the hands of publicly-quoted companies.
Price Positioning
Monteyne highlighted the perception that the 'price points of Carrefour hypermarkets have been well above Leclerc for many years, despite a very large part of the range being branded products (rather than private label) and therefore identical products to Leclerc'.
The retailer also has a poor record when it comes to cash generation and cost control, Montyene noted, with Carrefour finally closing its second head office in 2018, some 18 years after its merger with Promodes.
'This won't be new news to people familiar with Carrefour and the management is addressing all those points,' he said. 'However for any new investors having a fresh look at Carrefour, it is essential to keep this super tough background in mind.
'Food retail recoveries take time, especially ones in such a difficult market as France. The management rightly called it a five-year turn around plan. We have argued since the beginning that for the first two to three years of this potential turn around this would be a trading stock as there isn't data in those early years to confirm whether the turnaround will work or not.'
Bernstein Research has downgraded Carrefour to 'underperform'.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
