Dia, the world’s third largest discount retailer has a problem. Under Carrefour’s leadership, the chain had been underperforming for years - 2010 sales increased by a mere 1.6% (down 0.5% excluding petrol and at constant exchange rates).

Dia, the world’s third largest discount retailer has a problem. Under Carrefour’s leadership, the chain had been underperforming for years - 2010 sales increased by a mere 1.6% (down 0.5% excluding petrol and at constant exchange rates). Despite the fact Dia is the number one or two discounter in virtually all of its markets, its growth has been sluggish in comparison with Aldi and Lidl, which had global sales rises of 5.4% and 5.8% respectively last year.

So it makes sense that Carrefour is finally divesting the business. After the separation, Dia’s shares will be listed on the Madrid stock exchange and the company will be based in Spain, its most important market.

For Carrefour, hard discount was never vital. At a time when retailers are focusing on their core assets and drivers of profitability, it makes sense to divest any areas of the business that do not add value. Considering that Carrefour is looking to achieve both operational and marketing synergies through a single-brand, multi-format approach, the case for retaining Dia became even less compelling. In fact, Carrefour itself acknowledges that there were zero synergies in terms of IT, supply chain, loyalty programme and human resources. It was able to achieve some economies of scale in purchasing but even that was limited due to the difference in store formats, with Dia heavily dependent on a narrow assortment of high-volume goods.

Carrefour’s decision to spin off Dia didn’t come as a shock.

The divestment will generate shareholder value while allowing Carrefour to focus on its much-needed European turnaround. Europe is clearly the priority since this is where its core hypermarket business is based, and as a result it is taking steps to revive the operation through the revamped hypermarket format Carrefour Planet and a plethora of cost-savings measures.

Despite Dia’s underperformance in Europe, there are plenty of organic expansion opportunities in Latin America and fast-growing markets like China and Turkey.

In Brazil, Planet Retail expects the grocery retail sector to grow by 51% to $755bn (£464bn) by 2015. In the discount segment there will be a battle for share among the big global players - Walmart’s Todo Dia chain is poised to double in size while discount market leader Dia is expected to add more than 200 stores within five years. Run independently of Carrefour, Dia stands a much better chance of capitalising on this growth.

Natalie Berg, global research director, Planet Retail. For more information contact us on:

Tel: +44 (0)20 7728 5600

Email: info@planetretail.net

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