By Scheherazade Daneshkhu
Carrefour’s new chief executive vowed yesterday to put France at the heart of a strategic recovery plan for the world’s second-largest retailer behind Wal-Mart, after it reported a 45 per cent drop in 2008 net profits.
“My priorities are France, France and France. You cannot have lasting success without a strong base,” said Lars Olofsson in his first public appearance since taking the helm in January.
He gave a blunt assessment of the problems facing the underperforming group, saying it had never fully merged with Promodes, the supermarket chain with which it combined in the 1990s.
The plan to convert 1,021 Champion stores, acquired in that merger, would be accelerated and finalised this year, five months ahead of schedule.
Olofsson vowed to restore Carrefour’s lost “leadership” role through price promotions and cost cuts, the introduction of more own-brand labels and more hard discount stores.
“I’m here today because I bluntly believe in Carrefour’s growth potential,” said the former senior executive at Nestlé, the Swiss-based food group. “Our objectives for the future are clear: generate profitable, sustainable, organic growth that outpaces that of the market, and improve our margins.”
Olofsson pledged €600m ($768m) in price cuts and promotional advertising to boost sales and gain market share this year and to close the gap between the public perception that its prices were relatively high.
Carrefour needed to be more “light-footed”, he said, indicating it had allowed itself to be outmanoeu-vred on price perceptions by domestic rival Leclerc.
The investment would be funded by €500m of cost cuts - three times more than achieved in 2008. The savings would come from more efficient operations and a reduction in administrative expenses. Capital spending would be limited to €2.5bn compared with €2.9bn in 2008.
Olofsson took over from José Luis Durán, whose ouster last autumn was precipitated by Bernard Arnault, chairman of LVMH, the luxury goods group, and Colony Capital, the US private equity group.
The two hold a 13 per stake in Carrefour through Blue Capital, their jointly-held investment vehicle.
Net sales rose by 5.9 per cent to €87bn and by 6.4 per cent on constant exchange rates, in line with previous guidance. Operating profits of €3bn were just 0.3 per cent up on 2007 and below expectations of €3.27bn.
Net profits fell by 45 per cent to €1.27bn, partly due to €524m of exceptional costs, of which €396m was linked to underperforming stores in Italy.
The net profit from recurring operations was €1.26bn, down 33 per cent from 2007. The dividend was held at €1.08 a share.
Carrefour’s performance was one of the weakest of the big supermarket groups last year. It has been hit by relatively large exposure - 28 per cent of sales - to non-food items, of which customers buy less in an economic downturn.
Its hypermarkets have also faced increased competition from hard discounters and local stores. Olofsson said the hypermarket concept was not dead but needed to be reinvented. Olofsson said although France was the priority, the underperformance in some other countries, including Italy and Belgium, also needed to be addressed.
He did not rule out selling out of those markets. Expansion in emerging markets would continue with the entry this year into Russia.
France accounts for 44 per cent of sales, while the rest of Europe concentrates another 38 per cent.
Operating profits in France dropped by 3 per cent last year and by 5 per cent in the rest of Europe, against a 31 per cent rise in Latin America and growth of 11 per cent in Asia.
Analysts at Natixis bank said: “The announcements made this morning went beyond what we anticipated.”
