EUR 850.00 For Business Accounts Only

Morningstar | Execution and a Radical Change in Culture Will Determine Carrefour's Turnaround Plan Success

Carrefour provides exposure to global food retail with a high European weighting (75% of sales), mostly in the mature and competitive western part of the continent: France, Spain, Italy, and Belgium. However, it is highly exposed to the large hypermarket format (more than 50% of total European sales), which is in structural decline in mature markets. This is because of consumer behaviour shifts and demographic trends (less waste, lower family formation rates, smaller families), which have contributed to the structural growth of convenience over one-stop shops, with shoppers preferring more frequent shopping trips and smaller baskets. Carrefour operates a multiformat business across three continents (Europe, Latin America, and Asia). Thus, many functions--such as advertising, distribution, and procurement--are not homogeneous across the group. As a result, each segment serves disparate consumers, areas, and tastes, rendering moatworthy economies of scale hard to attain. Furthermore, Carrefour’s store-brand portfolio is not fully developed and remains materially behind European peers' efforts (25% of sales versus more than 50% for Tesco and 40% for Ahold Delhaize). Combined, we believe these factors stop Carrefour achieving a durable competitive advantage against its rivals.The company’s latest efforts (its five-year transformational plan) have concentrated on creating an omnichannel offering that entails heavy investments (EUR 2.8 billion by 2022) in its less developed digital capabilities (9% online market share in France versus 48% for Leclerc as of 2018) and harmonisation of its online presence across regions. In addition, the strategy includes cost-saving programmes (EUR 2.8 billion) and smaller changes regarding Carrefour’s hypermarkets (reduced sales area but with no closures) and product lineup (range, private-label and organic offerings). While the plan is tilted more toward the online side of the business at the expense of its offline assets, limiting future organic growth from new stores and remodellings, overall the strategy makes sense and execution is likely to be the final determinant of its success.