Carrefour hits the brakes after profits suffer a fall

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Carrefour last week put the roll-out of the Carrefour Planet format on hold as it revealed a drop in profits in the latest financial year.

Multichannel continues to hit hypermarkets in Western Europe

The news comes as Carrefour’s hypermarket format continues to suffer in Western Europe, despite the roll-out of Planet. The problems for Carrefour are two-fold in that in many European markets, discretionary non-food purchases are increasingly shifting online as well as being impacted by a consumer under continued pressure.

In fact, looking across the Channel to UK retailer Tesco, the problems at Carrefour are by no means unique. Tesco’s out-of-town hypermarket formats have also been struggling as non-food spending shifts online.

For Carrefour then, the best strategy is to accept non-food spending is shifting online, while driving investment into online ecommerce and small store expansion. It has begun on this route, investing in rebranding its neighbourhood stores under the Carrefour Contact and Carrefour City banners. It is testing Carrefour City Café and Carrefour Express convenience formats.

The recent launch of a transactional grocery app suggests Carrefour is embracing the trend. The revamp of the hypermarket format has proved costly, particularly since consumer spending is under pressure.

Carrefour is understood to have spent approximately E400m (£336m) on 81 Planet stores in Europe. It had intended to convert 245 hypermarkets across Europe when the plan was launched in 2009. This reduced capital investment programme suggests it sees no improvement in the outlook for trading in the medium turn and is moving into cash conservation mode.

But there is no doubt Carrefour’s hypermarket format continues to account for a large chunk of sales. Focusing on format and channel development alone will not solve Carrefour’s problems.

It will need to revitalise the hypermarket format if it is to improve its ailing operations in Western Europe. Certainly, efforts to improve its food offer could help, as Tesco is doing in the UK.

Notable examples include the introduction of the Le Panel Test Carrefour. However, with a management change at the top drawing closer, it would seem most beneficial for Carrefour to hold off on any major initiatives until new chief executive, Georges Plassat comes on board. He may look to reduce the average store size of the company’s hypermarkets.