Third profit warning puts Carrefour under spotlight

The French giant has been hit by recessionary conditions but also has longer-term problems that it must address. Carving out a new position is the task facing new chief executive Lars Olofsson.

Last week’s trading update was brought forward to coincide with an investor presentation by Olofsson on how Carrefour will be transformed and he highlighted promising early results from changes made so far.

Olofsson has two main goals – to make Carrefour the “preferred retailer” in the markets it serves and to make it more efficient. He aims to revitalise the Carrefour brand, strengthen its price image and “reinvent” its hypermarkets. Group structure will also be simplified, best practice shared, the operating model overhauled and purchasing improved.

If all goes to plan, Carrefour expects to save €3.1bn (£2.67bn) in costs and €1.4bn (£1.21bn) from lower inventory levels, enabling the retailer to gain market share and margin. What remains unclear in key respects is how exactly this will be achieved.

Initiatives under way, such as the conversion of Ed stores to the hard discounter Dia fascia, the launch of a 400-strong discount range and the opening of new store-types such as convenience banner Carrefour City, have all been encouraging. But the big unanswered question is how hypermarkets will be rejuvenated.

Carrefour’s French hypermarkets account for a quarter of its global turnover, points out Planet Retail Carrefour analyst Magali Dubreil.But the stores have fallen from favour – partly due to poor price perception, but also as a result of shoppers’ desire to save money by avoiding car journeys to the edge of town, the appeal of specialist non-food stores and the demographic trend towards more single households, says Dubreil.

Bernstein analyst Chris Hogbin welcomed Olofsson’s “confident presentation” but cautioned: “Although Carrefour is largely pursuing the right vision, it is little different to the vision articulated by the previous chief executive four years ago that floundered on execution.

“Carrefour remains a highly complex business that has suffered from a silo mentality. Although [last week’s] presentations highlighted a willingness to tackle these issues, changing the culture and performance of the organisation will be a multi-year effort.”