France-based Auchan has signed an agreement to sell ‘almost all [its] activities’ in Italy to Conad. The acquisition of Auchan’s operations in the country will lead to the cooperative becoming the market leader.
Sale to require agreement of Italy competition authority
No financial details were released as part of the announcement, with an Auchan spokesperson being quoted as saying, separately, that ‘the business was in great difficulties. We are leaving to Conad a financial situation that will allow it to succeed with its acquisition project’.
Auchan said the sale would include almost all its nearly 1,600 stores in the country across its three main physical channels – hypermarkets, supermarkets and convenience stores – and its online activities. The sale, however, does not include 33 non-franchised supermarkets in Sicily nor 50 Lillapois drugstores and the shopping malls in which the Auchan or Simply stores sold to Conad are located.
Sale key part of Renaissance action plan
As part of its 2018 results announcement, Auchan set out how it was evolving its Vision 2025 strategy as part of its ‘Renaissance’ action plan. The new initiative put a greater focus on turning around its profits, which included stemming losses in countries that were identified as ‘durably loss making’.
Alongside its continuing optimisation efforts in France, Russia and China, where it is closing unprofitable stores, the sale of most of its estate in Italy, following the closure of 23 stores in Italy in 2018, will help Auchan back on to the path to profitability. The sale will also enable Auchan to switch money it had earmarked for investment in Italy, for new stores, especially in the convenience channel, and in the digitisation of its operations, elsewhere. Auchan is facing challenges in several countries and so this step should help it to back operations where it is performing better.
Acquisition just the first step for Conad
For Conad, acquiring the stores from Auchan is likely to be one of the easier parts of the process. While the purchase will provide it with many stores, improve its presence in northern Italy and drive its revenue growth, turning them around and enabling them to compete in the highly aggressive Italian market will be challenging.
Auchan has acknowledged its operations in the country have been loss making for several years and so Conad will have to work out how to reverse this performance. Although Conad and its cooperatives will bring local knowledge and a better understanding of regional shoppers, it is going to have to invest in the stores to enable them to compete.