Carrefour Sa Business Information, Profile, and History

Company Perspectives:

The Group has formulated a policy based on convenience, trust, low prices and quality products and services. All over the world, Carrefour is working to bring consumer products within the reach of the greatest number of people. It is succeeding by tightly integrating its stores into the local fabric, adapting its product lines and services, providing continuing professional training to its employees and taking actions to support local sustainable development in the regions where it operates.

History of Carrefour Sa

As the world's second largest retailer, Carrefour SA operates more than 10,300 stores in France and abroad under more than two dozen names including Carrefour, Champion, Shopi, Marché Plus, Dia, Ed, and Promocash. The company merged with Promodès SA in 2000 to become Europe's leading operator of supermarkets, convenience stores, discount stores, cash-and-carry outlets, and hypermarkets. The company's founders created the concept of the hypermarket, an expanded supermarket offering a wide variety of merchandise--including groceries, electronics, clothing, and automotive supplies--that allowed consumers to accomplish most of their shopping at one store. Hypermarkets became a rapid success, revolutionizing the retail industry in France and worldwide.

Company Origins

Carrefour emerged in 1959 as a collaboration between two entrepreneurs, Marcel Fournier and Louis Defforey, in Annecy, a city in eastern France that had become increasingly industrialized since World War II. Both men came from successful, enterprising families, and each was anxious to expand his own business by building large supermarkets. Fournier already had established the department store Grand Magasin de Nouveautés Fournier d'Annecy and had connections in the Casino supermarket company, and Defforey was president of Badin-Defforey in Lagnieu.

In the 1950s the French grocery industry consisted primarily of family operations. Traditional grocery stores, committed to providing a variety of high-quality products, accounted for 83 percent of food sales. As fewer young people entered into family businesses, however, and grocers' unions, independent wholesalers, and food cooperatives increased in number, a need for alternatives to the smaller markets developed. At the same time, big department stores, generally located in the center of cities, often proved inconvenient, and the high prices they charged for luxury items and value-added services were prompting consumers to look elsewhere for nonfood items.

Moreover, the concept of free service was becoming increasingly popular. Free service, prevalent in retail by the 1990s, was invented in 1916. Prior to its institution, consumers relied heavily on assistance from sales clerks in selecting and obtaining merchandise. Under the free service system, however, customers used bags, carts, or baskets to collect their needs--placed within easy reach and individually priced--while sales clerks served primarily as cashiers.

The supermarket, which first appeared in France in 1954, used the concept of free service. With larger facilities located outside the center of cities, supermarkets could provide fresher produce, a greater variety of products, and lower prices than the traditional grocery store. By the end of the decade, however, only 33 free service supermarkets were in operation in France, and none of them was modeled after the large discount supermarkets in the United States.

Thus, in May 1959, Fournier and Defforey decided to incorporate these virtually unexploited concepts for their store in Annecy. An offering of 7,000 shares of stock was made to ten stockholders, and a facility already under construction in Annecy was purchased. The ground floor of the building was to be used as the supermarket, while the upper floors, containing apartments, were to be sold to help finance the business. Marcel Fournier was elected president, and Denis Defforey, Louis's son, was chosen as general director. Fournier named the business Carrefour, the French transliteration of the Greek word agora, or marketplace.

During this time, a businessman named Edouard Leclerc, who was establishing supermarkets in the Rhine-Alps region, announced plans to open a store in Annecy. Fournier and Defforey knew that, to be able to compete, they had to open their store before Leclerc opened his. Thus Fournier offered the basement of his department store, Grand Magasin de Nouveautés Fournier, for Carrefour's use. This annex was opened on January 7, 1960, six months before the opening of the larger store, and was an immediate success. In fact, four days after it opened, the annex was already out of goods and had to close for one day to restock. The threat of competition from Leclerc prompted Fournier and Defforey to offer the lowest prices they could, and, as it turned out, Leclerc never built the competitive supermarket in Annecy.

To familiarize the public with supermarkets, Carrefour embarked on an advertising campaign before opening its main store. The publicity was effective. The store opened on June 3, 1960, achieving sales that far surpassed expectations and drawing 15,000 customers in the first two days. In a little more than three weeks, Carrefour had sales of FFr 290,000, a figure most independent grocers reported for an entire year. To prevent traffic jams, the store expanded its parking lot, but the company's management soon was convinced that supermarkets in urban areas were impractical.

Expansion in the 1960s

Between 1961 and 1962, business at Carrefour increased 45 percent and salaries increased as well. The following year, another supermarket was opened in Cran-Gevrier, in the Annecy region, this time with a vast parking lot. Moreover, Carrefour installed its own discount service station in the parking lot of its first store, selling gasoline without a name brand for five centimes less per liter than the average price; making neither a profit nor a loss, the company's gas station was intended as a protest against the French government's high gasoline taxes. Carrefour's discounts angered smaller business owners, a reaction that would prove typical throughout much of Carrefour's history.

During this time, the company decided to expand into the Paris region, purchasing a tract of land 30 kilometers south of the capital in Sainte-Geneviève-des-Bois, where costs were lower and more space was available. Before construction began at the new site, Louis Defforey and his brother Jacques went to the United States to observe the American commercial structure. Seminars given by Bernardo Trujillo on such modern sales practices as free service, discount prices, and large facilities convinced the Defforeys to completely modify Carrefour's initial plans for the store outside Paris. Although Carrefour did not adopt the huge dimensions of American stores with many cashiers and large aisles, they did construct a relatively large facility and integrated the idea of low prices on every product by purchasing merchandise from wholesalers and producers. They also followed Trujillo's advice about investing less in luxury construction. The store opened in June 1963 and was referred to by the press as a hypermarket, reflecting its 2,500 square meters of space, 400 parking places, and abundance of both food and nonfood merchandise. The store was an immediate success, with each customer purchasing, on average, three times more than in a regular supermarket.

Carrefour's success was based on its discount prices, decentralization of power, reduced emphasis on aesthetics and equipment costs, and accelerated rotation of stocks. The hypermarket appealed to younger people and new suburban dwellers, as well as the budget-conscious consumer affected by the high inflation rates in the 1960s. Carrefour's innovations in weighing, pricing, wrapping, cashing, and refrigerating made its hypermarket integral to the ensuing revolution in French retail. Not everyone, however, was pleased with these developments. The company had an adverse effect on small businesses, and an independent butchers' union blocked Carrefour's trucks at an abattoir in 1964 to protest the store's discounts. Moreover, some complained that shopping at the hypermarket was an impersonal experience, lacking in the traditional rapport between shopowner and loyal customer.

In January 1965, to avoid government restrictions on expansion, Carrefour formed two divisions: Carrefour Supermarché was led by Marcel Fournier and Denis Defforey, and Grands Magasins Carrefour, a subsidiary, was led by Jacques Defforey and Bernard Fournier. A hypermarket of 10,000 square meters was opened near Lyon in 1966 as well as another of 20,000 square meters in Vitrolles. The following year, an office was opened in Paris to collect, compare, and distribute results from all the stores, and in 1968 Marcel Fournier moved his office from Annecy to Paris.

International Growth in the 1970s-80s

Carrefour also actively sought involvement with other companies in Europe, including Delhaize Fréres-Le-Lion in Belgium, Mercure in Switzerland, Wheatsheaf Investment in Great Britain, and Italware in Italy, and made major efforts to expand into Mediterranean regions in Europe. During its international expansion, Carrefour was careful to appeal to new clientele by marketing local products, rather than exporting French products. Initially developing new stores through joint subsidiary companies in partnership with local retailers, Carrefour eventually acquired full interest in these stores. Competitors such as Auchan, Casino, and Euromarchè followed Carrefour's lead over the next ten years, greatly increasing the number of hypermarkets in France.

In June 1970 Carrefour stocks went on sale at the Bourse in Paris. With high inflation in the mid-1970s, competition for food prices was fierce, and when the 1973 Royer law put restrictions on the development of large stores in France, Carrefour began to focus increasingly on expansion abroad. Between 1978 and 1982, the greatest number of new Carrefour stores was established outside of France, particularly in Latin countries. Profits proved high at its stores in Brazil, Argentina, and Spain.

By 1982 the hypermarket industry had matured, resulting in active competition for prices, standardization of product lines, and the closing of some parts of the market. The food market stagnated, and Carrefour reduced the size of some of its stores. During this time, the company entered into more partnerships with other companies, including one with Castrorama, through which it sought to satisfy increased demand for leisure and hardware products. Although Carrefour reported sales nearly double those of its immediate competitors--Casino, Viniprix, and Nouvelles Galeries--the company's primary goal was to preserve existing markets and its commercial, financial, and developmental advantages.

Marcel Fournier, who had been awarded the Legion of Honor, died in 1985, and the institute of management founded by Carrefour was named after him. By that year, Carrefour had expanded to ten countries across three continents and had a net profit of FFr 520 million. As emphasis on brand image intensified on a national scale, Carrefour introduced its own private brands as a low-cost alternative, while still emphasizing quality. In 1988 Carrefour was France's leading hypermarket merchant and the top retail company in Europe, with 65 hypermarkets in France and approximately 115 in Europe and South America. In February of that year, the company opened a 330,000-square-foot hypermarket outside Philadelphia, Pennsylvania. Initial financial problems due to low customer volume were overcome, and Carrefour opened a second hypermarket in the Philadelphia area in 1991. Carrefour continued to provide autonomy to each department head through its successful policy of decentralization and continued to focus on long-term results rather than immediate successes.

Continued Growth in the 1990s

In the early 1990s all members of the founding families of Carrefour left the company's active direction and formed an advisory council. Carrefour sold its stores in Annecy and Cran-Gevrier to Casino, and, in return, Casino sold its hypermarket in Nantes to Carrefour, so that Carrefour only managed stores of more than 2,500 square meters. In 1991 Carrefour acquired competitor Euromarché for $850 million and Montlaur, a bankrupt grocery chain, for $175 million. Although France had reached the saturation point with 798 hypermarkets and governmental regulations restricted the opening of new hypermarkets, Carrefour continued to expand in foreign markets, with its own stores or partnerships in Austria, Great Britain, The Netherlands, Switzerland, Germany, Belgium, Italy, Spain, Africa, Argentina, Brazil, and the United States.

In 1992 Carrefour planned to open two new stores in Great Britain in a joint venture with Costco, a warehouse club company. In addition, the company's discount food chain, known as Ed, was established in Great Britain and Italy, providing a limited range of products at extremely low prices. Carrefour also opened new stores in Spain, Brazil, and Argentina and began plans for stores in Taiwan, Turkey, and Malaysia.

In 1993 Carrefour faced further challenges to its expansion in France in the form of a government-enforced freeze on new hypermarkets in rural parts of the country. Nevertheless, accustomed to such legislative, noncompetitive restrictions, the company continued its pattern of growth, particularly in foreign markets. In an exception to that international expansion, the company closed its two stores in the United States in 1993 and had no plans for opening others there. It continued to pull out of the U.S. market by selling its 11 percent interest in Costco, a warehouse retailer in the United States. It retained its 20 percent stake in Costco UK, however, and as of 1998 it owned 6 percent of Office Depot, a U.S. office supply discounter, and 8 percent of PETsMART, a U.S. discount pet supply retailer.

Expansion in Central and South America was especially strong in the 1990s. Carrefour moved into Mexico in 1993, opening the first of a chain of hypermarkets. Of the 30 stores the company opened in 1996, 15 were in Mexico, Brazil, and Argentina. By 1997 Carrefour operated approximately 60 stores in South America and was generating $7 billion in sales in Brazil and Argentina alone. Hoping to build on its successful growth in the area, Carrefour planned to open ten hypermarkets in Chile over the next decade.

By 1995 Carrefour operated more stores internationally than it did in France. Asia provided another fertile ground for Carrefour's international expansion. The company opened its first store in Seoul, South Korea, in 1996, after the South Korean government lifted some of its restrictions on foreign retailers. When the financial crisis in Asia hit in the late 1990s, Carrefour was already operating 26 hypermarkets in the region. Because of its discount strategy and the steady demand for food and other basics sold by the company, Carrefour was weathering the recession. In fact, Carrefour opened 20 more stores in Asia in 1997 and 1998.

Restrictions on the company's growth in France increased in 1996. In an effort to protect small shopkeepers, the French government placed a six-month ban on the opening of any store measuring more than 300 square meters (3,230 square feet). Unable to open new stores, Carrefour continued to expand in France by acquiring its competitors. In 1996 it bought a 41 percent interest in the owner of the Cora supermarket chain, GMB.

Carrefour's performance in France was hurt by an economic slowdown in 1996 and 1997. Carrefour store sales rose in the first half of 1998, however, by 4.1 percent. The company was in the process of refurbishing its stores in 1998; it hoped to complete 19 that year and then extend the program in the following year.

Internationally, Carrefour bought eight Eldorado stores in Brazil in 1997 and converted them in 1998 to the Carrefour name. The company planned to open 34 new stores by the end of 1998, including its first stores in Colombia, Chile, and Indonesia. Carrefour thus remained committed to growth in France through increases in same-store sales and the acquisition of rival stores and to expansion internationally through both acquisitions and the opening of new stores.

Strategic Acquisitions in the Late 1990s and Beyond

Indeed, the company made two key purchases in 1998 and 2000 that would catapult it into the top spot in Europe as well as secure its position as the world's second largest retailer. Carrefour acquired the remaining shares of Comptoirs Modernes SA that it did not already own for approximately $3 billion in 1998. The acquisition added more than 790 supermarkets--operating under the Stoc, Comod, and Marché Plus names--into Carrefour's expanding arsenal.

The company began planning its next big move in 1999 when it made a $16.5 billion play for competitor Promodès SA. Founded in 1961 by Paul-Auguste Halley and Leonor Duval Lemonnier, Promodès originally started as a wholesale food distributor but over time grew into one of the world's largest operators of hypermarkets, supermarkets, convenience stores, and discount stores. Management from both firms hammered out the terms of the deal over a three week period and agreed that a union would provide the growth needed to remain competitive in the industry. Not only would the merger make it the largest retailer in Europe and the second largest in the world, it would give it a competitive edge over Wal-Mart Stores Inc., the U.S. giant that was looking to move into Carrefour's territory.

The deal cleared regulatory hurdles and was completed in early 2000. With more than 8,800 stores in 26 countries and revenues of nearly $65 billion, Carrefour entered the new millennium on solid ground. While management worked on the merger integration process, the company remained focused on growth. It formed GlobalNetXchange, an online supply house, with Sears and Oracle in 2000. It also opened its first hypermarket in Japan that year and purchased Belgium-based GB and Gruppo GS of Italy.

In 2001 the company sold its interest in Picard Surgelés. The following year it spun off its 10 percent interest in PETsMART. The firm continued to strengthen its hold over the Italian and Polish markets and also moved into the Scandinavian market in 2003. It established its first Champion supermarket in Beijing in April 2004.

Since the Promodès acquisition, Carrefour had faced increased competition and weakening sales in its homeland and its market share began to fall in France, Spain, and Brazil. Rumors began to surface that Carrefour would either become a takeover target by the likes of Wal-Mart or make another large acquisition to fend off unwanted advances. In December 2003, Paul-Louis Halley and his wife died in a plane crash--the two represented the Halley family, Carrefour's largest shareholder. Their deaths gave rise to further speculation that changes could be on the horizon for Carrefour.

Principal Operating Units: Champion; Dia; Ed; Carrefour; 8 a Huit; Promocash; Shopi; Proxi; Prodirest; Norte; GB; GS; Puntocash; Marché Plus; ooshop; DiperDi; Dock's Market.

Principal Competitors: Auchan S.A.; Casino Guichard-Perrachon S.A.; Association des Centres Distributeurs E. Leclerc.

Chronology

• Key Dates:
• 1959: Marcel Fournier and Louis Defforey establish Carrefour.
• 1960: The first Carrefour store opens and is an immediate success.
• 1963: Carrefour establishes its first hypermart.
• 1970: The company goes public.
• 1985: Fournier dies; by now the company has expanded to ten countries.
• 1991: Euromarché is acquired.
• 1998: The company purchases Comptoirs Modernes SA.
• 2000: Carrefour merges with Promodès SA to become Europe's largest retailer.