French retail dominated the headlines last week with the likes of Carrefour, Auchan and Casino updating the market on their recent performance.
The story was a familiar one across the board, with strong sales gains in emerging markets helping to offset domestic weakness for all three of these retail behemoths.
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Carrefour, Auchan and Casino have all done an excellent job increasing their exposure to rapidly expanding emerging markets, particularly in Asia and Latin America. And, when you take a look at their domestic sales figures over the past few years, it is clear that reducing their reliance on domestic sales is an absolute must.
But why have these French retailers faired so poorly at home?
According to the latest figures from Banque de France, overall retail sales dipped 0.7% in 2009. However, while these retailers have undoubtedly been hit by a more cautious consumer environment, France’s slowing sales were still well ahead of the EU average – which saw revenues down 2.1% during the year.
Moreover, two of France’s top five retailers have been able to grow sales in France despite constricted consumer spending. E.Leclerc – France’s largest retailer – and Systeme-U both posted strong domestic sales and expanded their share of the French market during 2009.
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By GlobalDataSo, while the French market is a tough one to operate in at the moment, that difficulty alone is not enough to explain the problems faced by three of the country’s five top retailers. In which case, we must turn to strategy and market positioning.
The well documented long-term decline of the hypermarket sector effectively leaves these retailers stuck between a rock and a hard place.
High petrol prices, the increasing importance of online shopping and demographic factors – such as an ageing population and growing number of single-person households – mean that French consumers are increasingly turning away from the out-of-town hypermarket shopping. Nevertheless, Auchan, Casino and Carrefour are still dependant on their hypermarket businesses, which generate a high proportion of domestic sales.
With the sector in seemingly terminal decline, it will not be enough for them to re-think their hypermarket offerings – with changes to store layout, selling space and product assortment seemingly inevitable. They should be also look to reinvent the hypermarket format itself and offer consumers ‘something different’ to once again coax them away from supermarkets and convenience channels.
Another sector that has disproportionately felt the affects of the downturn in Europe has been the discount format, which has hurt Casino’s French performance in particular. Food deflation has resulted in declining grocery bills – effectively taking the pressure of European consumers to trade down. This means that throughout the continent discounters have come under increasing pressure at a time when one might have expected them to flourish.
Finally, the likes of Carrefour have been hurt by their perceived price positioning. For some time now, Carrefour has struggled to overturn consumer opinion that it is a high priced option. The company has embarked on a series of price cutting campaigns and marketing pushes that highlight the value offered in store. It has also focused on the development of its entry-level own label range, which – it hopes – will not only improve how consumers think of its value offer but also build loyalty to the Carrefour brand.
However, as discounting and price cutting intensifies in what is already a highly-competitive environment, France’s retailers must tread carefully in order to maintain a rational market. While all of the country’s major retailers have focused on efficiency improvements, it is important that they do not sacrifice these margin gains in order to bolster the top line.
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