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Retailing

Auchan: Wal­Mart's Tough New Global Rival

By Carol Matlack October 23, 2009

Quick, what's France's answer to Wal­Mart? Until now, it has been Paris­based Carrefour, the global No. 2 retail
chain. But increasingly, another French retailer, Auchan, is giving both Carrefour (CARR.PA) and Wal­Mart
(WMT) a run for their money.

Over the past decade, Auchan (pronounced oh­shon) has expanded rapidly into China, Russia, and Eastern
Europe. Based near the northern French city of Lille, the privately held company is now the world's 14th­biggest
retailer, with 1,200 stores in 12 countries and annual sales of $59 billion.

True, that's small change compared with Wal­Mart's annual sales of $405 billion. But by many measures,
Auchan is outperforming its bigger rivals in key global markets. In China, it is opening an average of two new
stores per month, luring middle­class shoppers away from Wal­Mart and Carrefour by providing wider aisles,
better lighting, and a higher­quality product range, says Shaun Rein, managing director of the China Market
Research Group in Shanghai.

Auchan now has 132 big­box hypermarkets in China, including 110 operating under the brand name RT Mart in
a joint venture with a Taiwanese partner. That puts it neck­and­neck with Carrefour, but behind Wal­Mart,
which has 146 stores and owns a stake in a joint venture that has another 104 outlets.

Attracting China's Middle Class However, Rein says Wal­Mart's "everyday low price" strategy has backfired
with Chinese shoppers, who often assume cheaper products are unsafe or counterfeit. And while Carrefour has a
reputation for high quality, its stores have a "ruckus atmosphere," resembling Chinese street markets, which is a
turnoff to middle­class shoppers, he says. "In China, people are trading up. Auchan is positioned better than
Carrefour and Wal­Mart to be able to grab that."

Jonathan Gunz, a senior analyst with London­based retail consultancy IGD, says his group's surveys show that
Auchan's Chinese stores are "proving popular, with many customers filling up large shopping trollies—a bonus,
considering many retailers are struggling to increase relatively small basket size."

Auchan also is thriving in Russia, where it has built or acquired a total of 34 outlets since entering the country in
2002 and is now the top Western operator of big­box superstores. Carrefour, which opened its first two Russian
stores this year, abruptly reversed course this month and announced it was pulling out of the country. Wal­Mart
and British retail giant Tesco (TSCO.L), another big discounter, have no stores in Russia.

At the same time, Auchan is pushing into locales ranging from Ukraine, where it plans to open three new stores
by the end of the year, to Dubai, where it signed a deal with a local partner in 2008 to develop outlets across the
Persian Gulf.

A Foreign Boost Auchan, part of a sprawling retail empire owned by France's publicity­shy Mulliez family,
declined to comment on its international plans when contacted by BusinessWeek. But it's clear that its foreign
operations, which now account for about 50% of total sales, have been a boon during the global downturn. While
same­store sales flattened or declined in Western European countries during 2008, they grew in other places,
"notably Russia and China, where household consumption was impacted later by the slowdown," Christophe
Dubrulle, the group's president, said in a statement in Auchan's 2008 annual report.

To be sure, Auchan's growth has slowed some in the global downturn. First­half sales were flat, after climbing
7.5% during 2008. But the group is already laying the groundwork for more expansion. Last April, it carried out
a successful bond issue that raised $1.5 billion. Now it is preparing a deal with its Taiwanese joint­venture
partner, Ruentex Investment Group, to merge their mainland Chinese operations and spin them off as a separate
company listed on the Hong Kong stock exchange. A Ruentex spokesman says the initial public offering is
planned for next year, but declines further comment.

Auchan is only part of the Mulliez family's global ambition. Some separate Mulliez­owned companies, including
home­improvement chain Leroy Merlin, also are expanding outside France. Often, they occupy retail space in
shopping centers that have Auchan outlets. Look out, Wal­Mart—and now Home Depot (HD), too.
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Matlack is a Paris correspondent for Bloomberg Businessweek.

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