Carrefour Brazil's 2019 strategy delivers solid sales performance in Q1

Date : 01 May 2019

Oliver Butterworth

Retail Analyst

Carrefour Brazil’s gross sales for Q1 2019 rose by 9.9% to BRL14.2bn (US$3.6bn), despite an unfavourable Easter calendar effect. Like-for-like (LFL) sales were up 6.6%, the best LFL performance since Q1 2017.

Sales were boosted by the solid performance of Carrefour's Atacadão cash and carry format, as well as four new openings in the banner. The higher annual food (6.5% in Q1 2019 vs. 4.1% Q1 2018) also contributed to the improved sales.

Third quarter of double-digit sales growth for Atacadão

Atacadão's gross sales grew by +13.6% to BRL9.5bn (US$2.4bn). This is the third consecutive quarter that Carrefour has posted double-digit sales growth for the Atacadão format.

LFL sales grew by 6.8% for Q1. This was a similar LFL performance to Q4 2018, but significantly higher than Q1 2018 (+0.5%).

According to Carrefour, sales grew across all categories and the average ticket grew significantly in Q1. The most notable sales increase was for commodities, such as rice and beans, due to their competitively low prices versus other formats.

Same-store sales (SSS) for Carrefour's main estate grow by 2.6% quarter-on-quarter

Despite the -3% impact of Easter calendar effect, Carrefour's main estate saw an accelerated LFL sales growth of 6.1% in Q1, with total sales of BRL4.7bn (US$1.2bn) (excluding fuel).

SSS increased from 3.5% in Q4 2018 to 6.1% in Q1 2019. Several factors contributed to the improved SSS, including; better LFL sales in proximity formats (Express and Market), a solid ecommerce performance as a result of developments in its omnichannel strategy (more below), and hypermarket's non-food sales and health-food initiatives. 

New health food initiatives help to drive increased sales performance

Carrefour's improved LFL performance in its hypermarkets can be partly attributed to the success of its health food initiatives. Carrefour has recently launched ‘Healthy Corridors’ in half of its hypermarkets (available in 49 stores by end of March 2019). This initiative led to a 24% sales increase in health food categories in Q1 and the business hopes to increase this to 32% by the end of 2019.

Source: IGD Retail Analysis

Sales of organic products grew by an average of 67% in Q1 vs. 2018, with the business hoping to also increase this to 85% by the end of 2019. Carrefour plans to do this by expanding the organic assortment, working with new suppliers and intensifying promotions through the My Carrefour app.

Carrefour is reformulating and relaunching various health food products later this year, to improve their nutritional content. Lastly, following the recent launch of its global ‘Act for Food’ programme, which aims to support customers and employees to eat better at more affordable prices, Carrefour has now launched a dedicated Act for Food website for shoppers in Brazil.

Source: Carrefour

Source: IGD Retail Analysis

Ecommerce is the fastest growing channel in Q1

Ecommerce was Carrefour's highest growth channel in the quarter. Gross Merchandise Volume (GMV) saw a 13% growth in Q1 (as Ebit), with an 84% increase in sales. GMV sales accounted for 11% of Carrefour’s total sales (excluding fuel), significantly up from 6% in Q1 2018.

The number of visitors, orders and the average ticket price all continue to grow. Website sales increased by 58% in Q1 2019 versus Q1 2018. Marketplace sales tripled and accounted for 23% of total GMV. The number of partners (c. 2,000 now vs. 134 in Q1 2018) and SKU’s (1.9mn registered at the end of March) continue to grow rapidly.

Rappi partnership is helping to attract new customers

Rappi was launched at the end of January and is already available in 56 stores across 13 cities. Since launching Rappi sales have been increasing at an average rate of +10% each week. In Q1 Rappi sales accounted for c. 35% of Carrefour's total ecommerce food sales.

Around half of Rappi orders are from new Carrefour customers. Carrefour plans to increase its geographical coverage in the coming months.

An overview of Carrefour’s three expanding banners…

In 2019 Carrefour plans to open 20 Atacadão and 20 to 30 proximity stores across its Carrefour Market and Carrefour Express banners.

Carrefour Express

Carrefour Brazil’s Express stores are between 100-200m2 and target on-the-move shoppers in metropolitan areas looking for quick purchases.

Source: IGD Retail Analysis

Stores carry an average of 2,600 SKUs and is predominantly focused on drinks (including alcohol), snacks and ambient grocery, with a small selection of fresh produce. In some stores customers can also buy freshly made sandwiches and coffee-to-go. These, alongside additional services such as basic banking/bill payment and parcel collection, help to drive additional footfall.                                                   

Source: IGD Retail Analysis

Since launching the banner in 2014 Carrefour has opened 122 Express stores, all of which are in São Paulo. The format is performing well and recorded double-digit LFL sales growth in Q1.

Carrefour said it plans to accelerate the expansion of the Express format in the medium-term. In Q1 Carrefour opened just one Express store (no Carrefour Markets), so we expect the number of openings to increase in the coming months.

There is the potential for this format to be a success in Brazil’s other major cities, although Carrefour has not announced plans to extend outside of São Paulo for now.

Carrefour Market

Carrefour's latest proximity banner 'Carrefour Market' was launched in December 2017. It had opened 10 stores under the banner by the end of 2018. The 10 stores are predominantly located in out-of-town centre and high-income residential areas.

Source: IGD Retail Analysis

The stores are bigger than Carrefour's Express format, ranging from 400m²-500m². Whilst the Express stores target on-the-move customers in central locations, Carrefour Market fulfils a neighbourhood mission, enabling customers to perform a two to three day or top-up shop without having to travel to a larger supermarket or hypermarket.

We recently visited two Carrefour Markets in São Paulo. The stores had a modern design with distinctive bright coloured fixtures and displays. Compared to the Express format, Market has a wider selection of fresh produce, a meat counter and a variety of ready-made meal solutions. It also offers more regional products and a dedicated health-food section.

Source: IGD Retail Analysis

Source: IGD Retail Analysis

According to Carrefour, the stores have been very popular with customers and are performing well. We expect Carrefour to open a similar number of stores to the 10 opened in 2018.

Atacadão

Atacadão is Carrefour's key growth format in Brazil. In 2018 Carrefour decided to quicken the pace of its opening programme from c. 11-12 stores per year to 20. This has had a positive effect on Carrefour's sales performance and, as such, the business plans to open a further 20 stores in 2019. Carrefour opened four Atacadão stores in Q1 so this plan is currently on track.

Source: Carrefour

The success of the cash and carry format lies in its offering of individual branded items at prices closer to wholesale and selling staple foods - such as rice and beans - in bulk, at a lower cost than supermarkets.

Source: IGD Retail Analysis

Many Brazilian customers who shop in cash and carry formats have migrated their shop from hypermarkets. It will be interesting to see if cash and carry stores can retain these customers if the economy continues to improve.

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