Carrefour Restores Low-Price Strategy In Hypermarkets To Fight Discounters
Six months after Lars Olofsson became chief executive of French retailer Carrefour SA, his efforts to tame the problems that felled two of his predecessors are on display at a huge "hypermarket" south of Paris.
At the store in Villabé, Mr. Olofsson is testing a new strategy meant to restore Carrefour's low-price reputation among consumers who have come to see it as too expensive, especially amid the recession.
The store's signs are bigger, bolder and simpler than they were a few months ago. Small gray and white signs have been replaced by large yellow discount posters above the aisles, with prices in bold, red print
In the past, almost all Carrefour stores had banners bearing the slogan "Quality for All." Now most in-store advertising is about price.
On Tuesday, Mr. Olofsson makes his first detailed report to investors on progress repositioning Carrefour's price image. But Carrefour's problems are bigger than just prices: Its future appears endangered by the hypermarket approach of selling everything from appliances, to clothes and groceries
With smaller households and a growing craving for convenience, shoppers are less interested in driving to out-of-town hypermarkets to load up on groceries. Meanwhile, their non-food needs are largely met by specialist clothing chains such as Inditex SA's Zara or electronics retailer Darty, owned by Kesa Electricals PLC.Carrefour -- the world's second-largest retailer by sales after Wal-Mart Stores Inc. -- has struggled to blunt the inroads by these specialists. Net profit dropped steeply last year, and in November, the previous chief executive was ousted and replaced in January by Mr. Olofsson, who joined from Nestlé SA. In April, the retailer reported its first quarterly sales drop in six years.
Carrefour operates in 33 countries and had €86.97 billion ($120.36 billion) in net sales last year. But its problems are most pressing in France, which accounts for 44% of group sales.
Carrefour's food business is under attack from cheaper rivals and deep discounters such as Germany's Aldi
In a recent interview, the 57-year-old Mr. Olofsson said he hopes the vast reach of Carrefour's hypermarkets will help it quickly alter its image.
"We have one million customers a day in our hypermarkets," he said. By changing the way it communicates value, "we can very rapidly start, at least, to change perceptions," he said.
Mr. Olofsson, tall and imposing with crew-cut white hair, is tackling the problems with a mix of tactics borrowed from other retailers.
He wants to cut prices and boost price marketing, like recent comeback kid William Morrison Supermarkets PLC of Britain. He wants to revive Carrefour's hypermarkets, partly by tailoring each store to its clientele, much like Kroger Co., which uses information from customer loyalty cards to stock individual stores. And he wants to open smaller stores, like Tesco PLC and J Sainsbury PLC in Britain.
Mr. Olofsson said one of Carrefour's biggest mistakes was its history of inconsistent pricing practices, shifting from comparatively high prices and strong margins for a time, then to lower prices and bigger volumes.
"Ikea, Wal-Mart, Tesco, Zara, H&M -- they have for the last 20, 30 years hammered on the same nail every time," he said.
Early signs of his prescription appear at a Carrefour hypermarket in Auteuil, an affluent suburb of Paris. To match the merchandise to the wealthy shoppers in the area, the newly renovated store sells 20% more produce, including more organic fare.
It has added luxury brands such as Fauchon, from a Parisian gourmet food store of the same name, and a "farm shop" for exotic fruits and vegetables prepared for cooking.
Most non-food offerings have been reduced by 40%, but the sales area for perfume and beauty products has doubled.
Carrefour prices, Mr. Olofsson decided, are competitive, but not evident to consumers. So Carrefour revamped its promotional flyers to highlight low prices.
Flyers now show fewer products per page and emphasize discounts such as "three-for-two" or 50% off for loyalty-card holders.
In May, Carrefour launched its biggest advertising campaign in years, for a new range of value items called "Carrefour Discount."
Analysts applaud his ideas but many caution that they are similar to those of his predecessors, who never fully put them in practice.
