Carrefour has awful financial results in Belgium and is shedding over a tenth of its workforce and 14 of its 56 hypermarkets. What’s wrong? Have a look here: http://archives.lesoir.be/_t-20090404-00MG10.a.html?&v5=1
That article has a lot of good points but also raises a couple of interesting questions. Firstly, how on earth is it possible that 80% of value added is absorbed as labor costs, and what does this say about the high costs and inflexibility of the Belgian labor market? What percentage of the value added is actually created by this labor force, frequently so surly at checkout and stocking the shelves slowly and with scant regard for efficient management of inventory? Also, is the problem here higher labor costs than competitors, or simply less value creation? How does this ratio compare internationally? (the only figures I found were an average for the UK for the period 1994-98, during which labor costs represented 57% of value added – a proportion that seems hardly likely to have risen given the phenomenal efficiencies of Tesco).
Moreover, the notion of a price war is belied by daily experience and also by statistics which show that the price of consumer food products has risen in Belgium by 20% more than the eurozone average since 2005 (source: Eurostat). They are also higher in absolute terms than in Germany, France or the Netherlands – 25% higher than in the latter (source: Eurostat, see p.152). This represents a hidden tax on food which affects the poorest in society, with enormous knock-on effects on health and well-being. Why is the government not more concerned about this?
Another question is, if Carrefour is ceding a number of supermarkets and with them customers to the competition, how do they propose to compete with these outlets in trying to win these customers back to the outlets that stay open? Isn’t the risk exactly the opposite?
But this underlines the lack of a coherent brand positioning. What could that positioning be? It seems to me that Carrefour faces a dilemma: it is far too clumsy to compete with the discounters and yet it is far too big not to.
This announcement from Carrefour is very disappointing and if I were an investor (or for that matter an employee) I would not be happy with it at all, because it gives no indication at all that there is any fresh thinking or real strategy to get out of this mess.
In that article it is suggested that Carrefour made a mistake in assuming its main competitor was Delhaize. And this is probably true. However, it also seems to me that Carrefour has never competed with Delhaize very effectively either. This is in contrast to Tesco which does take sales from Sainsbury, Waitrose and the like. It has done that, it seems to me, through a combination of extending its product lines to address a sufficient chunk of the demand of the customers of these competitors (organic foods, local produce, deli meals…), improving its operations so that shopping time is reduced and food is fresher, and price advantages which come in particular from its buying power.
In Belgium, Delhaize is ripe for attack. It has nothing like the customer loyalty of the upscale UK grocery retailers – it’s overpriced, and its selection is poor with its “organic” credentials entirely without credibility. In short, no-one shops at Delhaize because they love the products or the Delhaize brand; they do so only because it’s more convenient than Carrefour and its product selection is superior in nutritional and taste terms – but in no way outstanding.
Carrefour could certainly attack this premium segment and could do so on the basis of a few factors.
Firstly, the association between its Frenchness and haute gastronomie is easily made in the mind of consumers. I have always been disappointed that Carrefour seems to have practically no French identity in Belgium, not even a component of identity. Here one does not of course want to white-label quality product brands (“Carrefour Sauternes” or “Carrefour Foie Gras”), but one wants a metabrand that stands for quality seriously enough to command premium prices. It need not even be only French – I have enjoyed visits to great Carrefours in Italy – but it should be based on the same values of terroir and tradition that are universally associated with French cuisine. Here Delhaize and Belgium are weak.
Secondly, Carrefour could probably gain a lot of fans by attacking fruit and vegetables. These I never buy in supermarkets unless I have to, and if I do have to, probably Colruyt is the least bad (but I almost never go there because they do not stock fresh milk). Organic or not, the fruit and vegetables from Delhaize are simultaneously overpriced and often tasteless. Carrefour cannot give over the whole fruit and veg section to premium produce, I suppose, but they could stock a lot of the stuff that I usually have to go look for in the corner store.
Next, Carrefour needs a convenience format. It has not profiled itself successfully in this segment and as a result probably captures a lower share of small ticket visits than its rivals, particularly Delhaize. I am not sure how it is positioned on this segment in France or other countries, but it is well known to be a growth segment and all the major quality retailers in the UK are also present in it.
And one more idea, Carrefour needs a performance contract with its customers. It takes forever to find things in its hypermarkets and the checkout queues are enormous. Perhaps not everyone minds, but enough customers do. There are solutions to these things. Better signage and technology can help in navigating the store, and if labor inflexibility really makes it impossible to implement a maximum queue policy, then why not have a few tills where you pay a premium of say 5% on your bill, that people will use if they are in a hurry instead of just not shopping at all?
But then again, for this kind of changes to happen, you’d have to be looking for solutions and ways to create value instead of indulging in the ever facile game of blaming everyone else…
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