Carrefour 2022 transformation plan: five key takeaways

Date : 23 January 2018

Much was expected from Carrefour’s chief executive, Alexandre Bompard, as part of the retailer’s launch of its transformation plan. However, while there were eye catching elements in the announcement, much appears to be an evolution of existing strategies rather than the revolution that many expected.

In this article we review five key elements from the plan and what they mean for suppliers. For coverage of what was set out in the transformation plan, which focuses on cost savings, lowering capital expenditure and its digital strategy, read our article here.

1. There were no large-scale disposals or market exits

Speculation in the build up to the announcement suggested Carrefour could sell off parts of its international operations. However, except for the news that Carrefour and China-based Tencent have signed a preliminary agreement regarding a strategic cooperation, there was no mention of market exits.

In relation to its hypermarkets, Carrefour committed to the format in its home market, saying ‘no closure is planned in France’. While selling space will be reduced – by at least 100,000 sq. m by 2020 – this is only about 5% of the retailer’s total hypermarket selling space in France. Carrefour did announce it will divest 273 of the ex-DIA stores it purchased in 2014, closing those it is unable to sell.

For suppliers this does provide continuity of operations and removes any uncertainty that they had about long-term collaboration with Carrefour on a global basis or in the countries rumoured to be up for sale. The sale of a stake to Tencent should help it to better compete in China, but the potential benefits of this are likely to take a while to flow through into its performance in the country.

Also, as we shall discuss later, Carrefour stated that it would be looking to use its global presence to drive better terms with suppliers.

2. Digital efforts raised once more

Carrefour has been comparatively slow to take advantage of its multichannel heritage and to drive growth online. Bompard followed through on expectations of spending on digital, announcing plans to invest ‘€2.8 billion over five years… to gain a new dimension in digital and omnichannel’.

Its digital investment will be made mostly in its home market; with home delivery and one-hour express delivery options expanded to further cities, it committing to open 170 new Drive locations in the country and Click & Collect expanded to more than half of its stores by 2019.

The move to invest further online will be welcomed by suppliers, given that Carrefour has lagged rivals in France and will enable it to better compete with Amazon as it expands its Prime service. While Carrefour is targeting €5.0 bn of online food sales by 2022, reaching that number will be challenging given its starting place – it generated €1.2 bn across all categories in 2016 – and the rising competitive environment in the country.

As a result, it is likely that suppliers will be encouraged to collaborate with Carrefour around its online strategy. Questions will be asked of supply chains, to maintain availability, especially in relation to the growing number of options being opened up to shoppers, while the cost to serve could increase.

3. Carrefour opens up to partnerships

While the agreements with Tencent and Yonghui were announced as part of the 2022 transformation plan, Carrefour highlighted its partnerships with Fnac Darty and Showroomprivé as providing examples of how it was looking to partner with sector leaders to drive improvements, mainly in non-grocery ranges.

Many will welcome the acknowledgement by Carrefour that it cannot undertake all the transformation on its own. Bringing in of outside talent will help it to bring fresh thinking to existing issues and allow it to take on more elements of the transformation plan at once. Incorporating start-ups could also enable it to win quicker by integrating existing solutions.

4. Focus on quality to continue

Carrefour has committed to sustaining its investment in quality, especially in the fresh category and through a strengthening of its organic ranges. It said that a key element in its investment in quality would also come through a desire to ‘achieve one-third of its sales via Carrefour-branded products by 2022’.

Carrefour has a long-standing commitment to organic – it launched its Bio private label range in the mid-1990’s – and quality. As such, although much was made of its future focus on food quality, this does not feel like a reinvention for the retailer.

For suppliers of fresh, organic or private label ranges, the targets it has set itself will provide them with an opportunity to grow sales with Carrefour. However, it will require manufacturers to drive new innovations that help the retailer stand out from rivals, which will require them to step up investment in the products they are bringing to Carrefour.

5. Productivity gains to drive improvements

A key area for Carrefour will be on driving operational efficiencies, which will lead to a rationalisation of ‘headquarters in all of its countries’. Another area that it highlighted was the optimisation of direct purchasing, which will lead to a reduction in assortment by more than 10% and ‘negotiations at an international level to take advantage of the Group’s presence in more than 30 countries’.

It is unsurprising to see Carrefour look to improve its buying and use its global buying power. For global suppliers this will likely create a more challenging negotiating environment in the medium term. This will especially be the case given the associated commitment to raising the visibility of private labels and reducing the breadth of range in-store. As suppliers of second and third tier brands have seen elsewhere, these negotiations could ultimately lead to them being delisted.

Some of the savings will be invested in price, but a rebasing of Carrefour’s standard pricing does not seem to be planned. While this may be a relief to suppliers in the short term, they may have to hope that the other initiatives announced by Carrefour will help drive footfall at stores and help it compete better with price-focused rivals across Europe; like Leclerc, Mercadona, Colruyt and discounters Aldi and Lidl.

Evolution rather than revolution

As with many widely previewed announcements, the expectations were probably set too high by commentators looking for Carrefour to implement large-scale changes as part of the transformation plan. However, the initiatives set out in the 2022 plan seem obtainable, likely to benefit its shoppers and enable it to better engage digitally. As such, while some may be disappointed, the strategic focus on grocery, especially fresh ranges, ecommerce and cutting costs should provide it with the foundations to better compete in the medium term.

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