International analysis: Is Carrefour’s strategic plan equal to the market?

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Despite challenges in formats and geography, Carrefour’s 2012 results were above expectations and saw its first rise in domestic profit.

Carrefour’s focus for 2013 will be low prices, openings and maintaining margin

Sales for the year rose 0.9% to E76.8bn (£67.08bn), as net income soared more than threefold to E1.23bn (£1.07bn), thanks to last year’s series of divestments and a significant lowering of debt.

Once again, Carrefour’s main expansion and like-for-like sales growth came from Latin America, while France and Asia dwindled.

By contrast, European operations suffered from the weak economic environment, hampered by Spain and Italy.

The results will comfort chief executive Georges Plassat as he activates the second phase of Carrefour’s three-year strategic plan. Market exits are complete - freeing up over E2.5bn (£2.18bn) and paving the way for increased investment. The funds will be used both for store openings and refurbishment, especially in France and China, where the store network is growing old.

Plassat sees greater independence for French hypermarket managers as another way to stimulate sales. To support store operations, Carrefour has been trying to develop a coherent approach to its back-office operations. The retailer has already shortened its inventory by five days, but needs to be careful to avoid previous issues with out-of-stocks. Plassat’s effort to decentralise operations is a step in the right direction, although merely playing catch-up with French independent retailers such as E Leclerc, ITM and Système U.

As in 2012, Carrefour will continue to work on the relevance of its assortment, product quality and its price image. By increasing focus on fresh and local produce, it hopes to entice more customers through its doors

This will not be done to the detriment of the non-food offering - which remains the format’s bête noire - where fewer seasonal promotions and more manufacturer brands will be introduced.

Yet Carrefour must intensify synergies between its online and offline operations. Similarly, a real challenge exists for the Drive format, which is not yet at break-even and Carrefour is to slow down openings.

Carrefour’s priorities for 2013 will be to sustain a low price strategy, open new stores and maintain its margin in France.

However, its recovery might be jeopardised by a gloomy international outlook and intensifying competition.