Analysis of the Business

By Rafael Cruz

Company Snapshot
Carrefour S.A. is a French retail
group that was founded in 1959.
Carrefour competes against its
rivals on the basis of price,
convenience, and customer
experience.

Company Snapshot
Carrefour is the second largest
retailer in the world and its aim is
to become the preferred retailer
in all of its formats:
Hypermarkets
Grocery Stores
Hard Discount Stores
Convenience Stores

Company Snapshot
Carrefour operates 15,661 stores
in 34 countries and had sales of
85.36 billion in 2009.
Sales By Region
Asia; 8%
Latin America; 14%
France; 43%

Europe (excluding France); 36%

PEST Analysis
Political Aspect
Political unrest in The Middle
East is causing oil prices to
increase.
This could cause product costs
and distribution costs to rise
which would result in decreased
profits.
Developing economies have
placed restrictions on FDI to
protect their domestic retail

PEST Analysis
Economic Aspect
The current devaluation of the
Euro will make FDI and importing
more expensive for European
businesses.
This is a threat to Carrefour.
The rising Asian middle class
accounts for approximately 3.06
trillion in annual consumer
expenditures.
This is a potential opportunity

PEST Analysis
Social Aspect
Consumers are more conscience
of their health and the health of
the environment.
This is an opportunity for
Carrefour because it has its own
line of organic foods and it
stocks fair trade products.
Carrefour has also reduced its
energy consumption and the
amount of disposable plastic

PEST Analysis
Social Aspect
The Asian middle class is
becoming more prosperous and as
a result has shifted its diet to
include more protein.
This is a contributing factor to
rising food prices.
This poses a threat to Carrefour.

PEST Analysis
Technological
Aspect
Social networking sites provide
an opportunity for businesses
because they can be used to
increase customer loyalty to their
brand.
Twitter can be used to inform
customers of special deals at
Carrefour stores.
Facebook can be used to create
a community for loyal Carrefour

PEST Analysis
Summary
Factor

Trend

Impac
t
Evaluatio (1=lo
n
w;
5=hig
h)

Unrest in The Middle

Threat
East .
Political
FDI restrictions in
Threat
developing economies.
The devaluation of the Threat
Euro.
Economic
The rising Asian middle Opportunit
class.
y
Consumers more
conscience of health
Opportunit
Social
and environment.
y
Change in Asian middle
class diet.
Threat
The use of social
Technologica
networking to increase Opportunit
l

Rank in
terms of
importan
ce

3
3
4
4
1
5

Industry Analysis
Food Retail
The global food retail industry
had total revenues of $4.4 billion
in 2009 and is expected to grow to
$5.9 billion by the end of 2014.
The major players in this
industry, in order of annual
revenue, are Walmart, Carrefour,
Tesco, and Metro AG.

Industry Analysis
Power of Suppliers
Carrefour purchases from a large
group of suppliers.
This forces the suppliers to
compete against each other
giving Carrefour the ability to
negotiate the best price
possible.
The power of the suppliers is low.

Industry Analysis
Power of Buyers
The preferences of the buyer
dictate what Carrefour must place
on its shelves.
The switching costs for the buyer
are very low.
Carrefour has a frequent
shopper program in an effort to
increase the switching costs.
Overall the buyer power is high.

Industry Analysis
Threat of
Substitutes
Restaurants and fast-food
establishments pose a threat to
Carrefour.
The convenience of this option
makes it appealing to
consumers.
The relative high cost prohibits
most consumers from using this
option as a permanent
alternative.

Industry Analysis
Threat of New
Entrants
The barriers to entry are
relatively low for a small food
retail shop.
While these small shops are not
able to compete directly with
Carrefour, in large numbers they
do have the ability to decrease
Carrefours market share over
time.

Industry Analysis
Intensity of Rivalry
Due to the low switching costs of
the buyers and the similar product
offerings between the industry
rivals, competition is based mainly
on price.
With rising food costs, efforts to
maintain low prices could put a
strain on profit margins.
The threat created by the
intensity of rivalry is very high.

Industry Analysis
Summary
Factor

Evaluation

Power of Suppliers

The supplier power is low since Carrefour purchases

from several different suppliers.

Power of Buyers

The buyer power is high due to low switching costs.

Threat of
Substitutes

The threat of substitutes is moderate.

The threat of new entrants is moderate since small

specialty shops can erode Carrefour's market share
over time.
Intensity of rivalry is very high because competition
Intensity of Rivalry is based primarily on price and the consumer
switching costs are low.
Threat of New
Entrants

Conclusions Thus
Far
Rising oil prices pose more of a
long term threat. Carrefour can
absorb any losses in the short
term but it will eventually have to
invest in further improvements to
its distribution channel.
The continued devaluation of the
Euro could have a large impact on
Carrefours decision to expand
further into international markets.

Conclusions Thus
Far
Carrefours rivals pose the
biggest threat to its business.
Since competition is based
mainly on price, Carrefour should
focus its efforts on strengthening
its brand and building
relationships with customers,
thereby increasing the switching
costs for the customer.

Carrefours
Key Competitors
U.S. Retailer
Targets lower and middle class
consumers.

British Retailer
Targets middle and upper middle
class consumers.

German Retailer
Targets business consumers as
well as lower and middle class
consumers.

Strategic
Business Groups
In the Food Retail Industry there
are five primary formats:
Hypermark
et

Grocery
Store

Hard
Discounter

Convenienc
e Store

Cash &
Carry

Large
retail
space
with a mix
of food
and nonfood items

Large
retail
space
selling
primarily
food items

Small
retail
space
selling
food items
at a deep
discount

Very small
retail
space
with a
limited
selection

Retail
space
selling
wholesale
food items

Generic Strategies
of the Competition

Broa
d
Narro
w

Competitive Scope

Competitive Advantage

Low
Cost

Higher
Cost

Core Competencies
of the Competition
Every Day Low
Prices
An efficient distribution system
allows them to be the low price
leader.

Customer Experience
One way Tesco enhances
customer experience is through
the use of its Clubcard which
allows customers to accumulate
points that can be redeemed for
store vouchers.

Very Strong Cash & Carry

Business

Assumptions
of the Competition
Customers purchase based
on price and therefore want
the lowest price possible.
Customers will
overlook price if the
experience is
enjoyable.
Product offering must be
expanded to appeal to a
broader market.

Resources
of the Competition
An extremely efficient
distribution channel as well
as being the #1 retailer in
the world.
A loyal customer
base and the #2
retailer in terms of
profit.
A strong wholesale arm
that gives it the financial
stability to expand into new

Financial
Comparison
of the Competition
Annual Revenue
(bn)
Revenue Growth
Net Income (MM)
Percent
International Sales

Walma
rt

290
0.9%

Metro
Carrefo Tesco
AG
ur

86
63
66
-1.2%

10,187 494
24.7%

5.6%

-3.6%

2,336 383

21.8% 31.1%

4.5%

Global Market Rank

(revenue)

Global Market Rank

(profit)

Market Breakdown

Food Retail
Customer
Location

Urban

Suburb
an

Rural

Custom
er Type

Individu
al

Busines
s

Customer
Income Level

Lower

Middle

Affluent

Market Breakdown
There is a food retail format to
appeal to each type of customer.
Hypermark
et
Suburban
Lowermiddle
class and
up

Grocery
Store

Hard
Discounter

Convenienc
e Store

Cash &
Carry

Urban and
Suburban
Lowermiddle
class and
up

Urban
Consumer
s that do
not have
a lot of
money to
spend.

Urban and
Suburban
Willing to
pay more

Appeals to
the
business
to
business
market

Brazilian Market
The food retail market in Brazil is
worth approximately 177 billion
and is growing at a rate of 17.9%.
Food retail accounts for the
majority of Brazilian retail
spending.
There is a current shift towards
non-food spending that is forcing
grocery chains to carry more nonfood items.

Brazilian Market
Income levels have been steadily
increasing which has resulted in a
new middle class (approximately
100 million people) which is
driving retail spending.
Brazil is considered to be an
entry point to the South American
market.
Brazil will be home to the 2014
World Cup and the 2016 Olympic

Russian Market
The food retail market in Russia
is worth approximately 222
billion and is growing at a rate of
20.5%.
The growth rate of household
income and disposable incomes
has declined.
The Russian Middle class is
comprised of roughly 19 million
individuals.

Indian Market
The food retail market in India is
worth approximately 217 billion and
is growing at a rate of 7.7%.
Approximately 140 million Indians
earn 13,000 per year making them
middle class.
The standard of living in India is
improving and the Indian population
is becoming accustomed to western
culture.
The Indian retail market is still not

Chinese Market
The food retail market in China is
worth approximately 255 billion and is
growing at a rate of 6.8%.
The per capita disposable income in
urban areas has tripled in the last 10
years to approximately 2,300 which
means that approximately 175 million
Chinese are considered middle class.
Living standards have increased
leading the Chinese people to pursue a
higher quality of life.
The Chinese people spend

BRIC Comparison

Size of Market (bn)

Market Growth Rate
Growing Middle Class
Market Open to Foreign
Competitors
Population Size (MM)

Brazi Russi
Chin
India
l
a
a

177 222 217 255

17.9
7.7% 6.8%
20.5%
%
Yes Yes
Yes Yes
Yes

Yes

191

143

No

Yes

1,170 1,300

Social Media
Social Media can be used by
businesses to increase customer
traffic by alerting customers of
special deals in local stores.
This use of Social Media has
become very popular with the
people of Brazil.

Conclusions Thus
Far

Walmart has established itself in

the marketplace as the low price
leader and will be very difficult to
compete against on price alone.
Tesco has shown that a
differentiated approach is
successful in amassing a loyal
following.
The Cash & Carry arm of Metro
AG is strong enough to support its

Conclusions Thus
Far

Each of the BRIC countries has

experienced tremendous growth
over the past several years and is
forecast to continue to grow
steadily.
Brazil seems to be a very
attractive market since it can be
used as an entry point into the
rest of South America.
Regulations in India still prevent

Business Model

Purchasing
Carrefour
purchases
in large
quantities
and at
reduced
prices
from
producers
and
wholesale
rs.

Distribution
Carrefour
has an
efficient,
cost
saving,
distributio
n channel
to
distribute
the goods
to its
stores.

Retail
Carrefour
passes
the
savings
on to the
consumer
in the
form of
lower
prices.

Performance
While sales have been
increasing, profits have been
decreasing since 2007.
In the past, Carrefour has been
known to maintain prices even
though
costs are increasing.
Net
Sales (Billions)
Profit (Billions)
90

2.5

85

80

Net Sales 1.5

75

70

0.5

65

0
2004

2005

2006

2007

2008

2009

Profit

2004

2005

2006

2007

2008

2009

Distribution of Sales
By Format
Revenue contributions from
hypermarkets and grocery stores
has increased.
These two store formats comprise the majority
of Carrefours retail stores.
Hypermarket

Grocery Store

63.0%

25.0%

62.0%
20.0%

61.0%
60.0%

15.0%

59.0%
58.0%

10.0%

57.0%
56.0%

5.0%

55.0%
54.0%
2004

2005

2006

2007

2008

0.0%
2009
2004

2005

2006

2007

2008

2009

Distribution of Sales
By Format
The hard discounter segment
has seen a 3% increase over the
past several years.
There has been an 11% decrease
in the contribution of convenience
and
cash
& carry formats. Other
Hard
Discounter
12.0%

18.0%
16.0%

10.0%

14.0%

8.0%

12.0%
10.0%

6.0%

8.0%

4.0%

6.0%
4.0%

2.0%
0.0%
2004

2.0%
2005

2006

2007

2008

0.0%
2009
2004

2005

2006

2007

2008

2009

Distribution of Sales
By Region
Sales in the European market
have been in decline. The current
depressed state of the economy is
a contributing factor.
69% of Carrefours annual sales are
generated in Europe.
France

Europe (excluding France)

52.0%
50.0%
48.0%
46.0%
44.0%
42.0%
40.0%
38.0%
2004

2005

2006

2007

2008

39.0%
38.5%
38.0%
37.5%
37.0%
36.5%
36.0%
35.5%
35.0%
34.5%
34.0%
2009
2004

2005

2006

2007

2008

2009

Distribution of Sales
By Region
Sales in the South American and
Asian markets have been
increasing.
Growth in these regions is an opportunity
for Carrefour to increase its market share
and decrease its reliance on the European
South America
Asia
market.
16.0%

8.0%

14.0%

7.0%

12.0%

6.0%

10.0%

5.0%

8.0%

4.0%

6.0%

3.0%

4.0%

2.0%

2.0%

1.0%

0.0%
2004

2005

2006

2007

2008

0.0%
2009
2004

2005

2006

2007

2008

2009

Key Assets
Assets
Goodwill
Fixed Assets

2008
11.3B
14.8B

Investment
Properties
Receivables
Cash & Cash
Equivalents

455M
346MM M
32%
2.9B
2.2B 24%
5.3B

2009 %
11.5B 2%
15B
1%

3.3B

60%

BCG Matrix
Stars

Question
Marks

Cash Cows

Dogs

Market Growth Rate

High

Low
High

Relative Market Share

Low

Value Chain
Analysis

Primary Activities: The two most

important are Marketing and Sales
as well as Service.
Carrefour is a one-stop-shop for all of the
consumers shopping needs but Carrefour is
not perceived to have the lowest price.
Providing an excellent customer experience is
how Carrefour maintains market share.

Secondary Activity: The most

important is procurement.
Maintaining a relationship with many different
suppliers and negotiating for the lowest price.

SWOT
Strengths
Extensive network of
suppliers
Brand is ranked in the top
five of most valuable retail
brands
Very successful private label
brands
Opportunities
The growing Asian market
The growing South American
market

Weaknesses
Not keeping up with competitors'
investment in Brazil.
Losing market share in European
market

Threats
The depressed European market
accounts for 69% of revenues.
Consumer preferences are
changing toward smaller local
stores.

Generic Strategy

Broa
d
Narro
w

Competitive Scope

Competitive Advantage

Low
Cost

Higher
Cost

Grand Strategy
Carrefour aims to be the preferred
retailer in all of its formats.
Carrefour will divest from a market when it is
not among the top retailers.
Examples include Mexico, Russia, Japan,
and South Korea.

Carrefour has been successful in

entering new markets by forming
a joint venture with an existing
operator.
This allows Carrefour to gain information on the
shopping habits of the local consumer to
ensure a successful store.

Recent Strategic
Moves

Carrefour has been in talks to sell its

Dia % brand as well as its real estate
arm.

This will give Carrefour cash that it can invest

in new markets.

Carrefour is introducing Planet

Carrefour which is a very large
hypermarket that offers customers
services such as cooking classes and
snacking areas.
Carrefour is trying to gain lost market share by
improving the customer experience.

Conclusions
Selling the Dia % brand will
narrow Carrefours target
customer base which will allow it
to better serve its current
customers.
Expanding further into the Asian
and South American markets will
decrease Carrefours reliance on
the European market.

Conclusions
Carrefour has strong brand
recognition in Brazil which gives it
an advantage over its
competition. By investing in its
stores, Carrefour can regain lost
market share.
Asia shows promise for
Carrefour. Carrefour has already
had success and failure in Asia.
Carrefour can use what has