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Albert Heijn aims to conquer Germany

Ahold, the Dutch parent group of Albert Heijn, has announced disappointing results for the second quarter. As a counter-measure, the holding plans to invade Germany through “AH to go”, a convenience concept focussing on immediate food consumption.

Small stores, huge possibilities

Ahold believes convenience stores to be the sector with the fastest possible growth, explains Gino Van Ossel, professor at Vlerick management school. “AH to go is actually more like a food service, not unlike Exki (just less expensive): more aimed at immediate consumption than 'real' convenience stores like Carrefour Express or Delhaize Shop&Go”. 

 

An AH to go has three main parts: food “for now” (immediate consumption), food “for later” (still the same day though) and about a 1000 other articles like coffee or tooth paste. Due to the locations where AH to go is already present, like train stations or Schiphol airport, most of the purchases are in the “for now” department. 

Easy to expand

The average surface of a Dutch AH to go is 125 m², meaning that it is an easy concept to expand – exactly why Ahold chose this concept to use for its invasion in the German market. Van Ossel: “Locations of that size are relatively easy to acquire in Germany, as opposed to supermarkets. If you want to find good locations for supermarkets, you simply have to buy an existing one. Besides, in a market so controlled by hard discounters, there is simply no place for a chain like Albert Heijn. They have to find another way – like this service concept – to avoid entering a price war in Germany.” 

 

 The investments needed for the introduction of AH to go in Germany would be rather small: “there is no need for a huge number of folders or a customer card system in what is essentially a large sandwich shop. Just a small number of small, strategically well chosen shops can be enough.”

Soon also in Belgium?

Much like their Belgian strategy, Ahold first looks for cities close to the Dutch border – like Düsseldorf or Cologne. Despite having only recently been discovered by AH's “normal” stores, the Belgian market might be the next target for AH to go as well. “The concept is over ten years old and has proven its worth in the Netherlands. It is time to go abroad: there has been an experiment in the US and there still is one in Sweden, with ICA to go – administered by our joint-venture with Hakon Invest. We can not deny being interested in expanding to Belgium as well”, says PR responsible Jochem van Laarsschot.

 

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Fashion

Thierry Garnier new director of Carrefour China/Taiwan

French supermarket chain Carrefour has appointed Thierry Garnier as executive director of China and Taiwan. Garnier was executive director for growth markets until a musical chairs scene at the top of the world's second largest supermarket chain gave that role to Pierre Bouchut.

Bouchut punished for Brazil failure

Earlier this month, Bouchut had to leave his post of Carrefour CFO after failing to secure the takeover of Brazilian Grupo Pão de Açúcar. Pierre-Jean Sivignon (former Philips CFO and vice president) took over that post and Bouchut was demoted to director of growth markets, replacing Garnier. The chain then announced it would “find a suitable position for Garnier” - which turns out to be in China. 

 

Garnier, 45 years old, has risen through the ranks of the Carrefour directors since 2008, when he became managing director international, before becoming executive director of “South East Asia, European countries, India and International Partnerships.” Since 2010 he has been executive director for growth markets, a position he will hold until April 2012. For Eric Legros, the man he will be replacing, a new function will be created: that of Executive Director Group Merchandise.

A kingdom of 245 hypermarkets

Present in China since 1995, Carrefour currently owns 185 hypermarkets. Last year, it strengthened its position in China by acquiring a majority of Baolongcang, a chain of 11 hypermarkets in Hebei province near Peking. Much like in the rest of the world, Carrefour has to look up to see rivals Walmart, who have near 200 hypermarkets and a new discount chain to serve the poorer rural population. 

 

In Garnier's other country, Taiwan, Carrefour's network consists of 60 hypermarkets and 3 supermarkets. 

 

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Fashion

Carrefour distributes 1.3 billion euro in cheques

Carrefour France has decided to start an aggressive campaign today to win back the large number of customers that left the chain in the last few months. The main weapon is the distribution of 1.3 billion euro worth of cheques to anyone visiting a Carrefour hypermarket.

1.3 billion worth of cheques distributed 

The principle is simple: 13 million visitors receive a booklet with 100 euro worth in coupons. Each week, two sections are chosen where customers receive a 10 euro reduction for any purchase larger than 30 euro – restricted to 20 euro per week. As the French school year is about to start, this week's sections are school utensils and children's clothing. 

 

“We invest heavily to allow our customers to make purchases in these difficult economic circumstances – especially in such key moments like the start of a new school year”, says new CEO Noël Prioux. “We hope to raise customer retention by 2 or 3% in this period”.

 "Back to school" campaigns

This action is only the beginning of the relaunch of Carrefour's French hypermarkets, which started the year so disastrously and now really need to do every possible thing to compensate for that. “The start of the school year is a very important moment to show our new self to all of our customers”, says Prioux, knowing that exactly those terrible results on the French market have lost Prioux's predecessor James McCann his job.

 

Carrefour already reduced prices for 500 'best sellers' in food and 500 other products by 5 to 12%. Another measure, allowing customers to buy certain articles per piece instead of only in large volumes, immediately resulted in a better score for the hypermarkets this month, compared to last July.

 "Save the hypermarkets"

Operation “save the hypermarkets”, absolute top priority according to Carrefour's worldwide big chief Lars Olofsson, is finally taking off – about time, as sales were 0.4% lower than the year before and food sales even went down 1.7%. 

 

Carrefour's competitors in the hypermarket world Auchan also struggled in 2010 and Casino's Géant hypermarkets – while harvesting a 3.5% increase in food sales – were also unable to stop the general trend of lower turnover. Only Leclerc and (supermarket chain) Système U are having a decent year – and even the latter had to admit that 2011 was “not such a good summer, mostly due to the weather”.

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Fashion

Coop's Swiss agreement with suppliers saves duopoly

Much to Coop Switzerland's relief, they finally succeeded in offering 700 brands at reduced prices after almost sidelining themselves in the price war with Migros.

 

Last week, Coop Switzerland posted an emphatic message titled “Enough is enough” on its website, saying Euro-zone multinationals are “exchange rate leeches” as they kept profits from changes in the Euro – Swiss Franc exchange rate for themselves. This web page has recently been deleted, as Coop – just like its competitor Migros – has reached an agreement with these suppliers. 

Coop - Migros: 2-0

Today, a proud 'Great success!' features in capitals on the Swiss Coop website, accompanied by logos of international A-brands whose prices have been lowered by 10 to 20 per cent. In two ways Coop defeats rival Migros: Coop boasts 700 articles reduced in price (compared to 'only' 500 for Migros) and its price reductions were valid immediately (last Saturday) – as opposed to Migros's price reductions that only came into force today (Monday). 

 

Coop's management will be very relieved with this agreement, as pressure was immense. Its competitor Migros had already succeeded in convincing large suppliers to share its exchange rate gains with their customers in the form of lower prices, whereas Coop had not found such an agreement before last Saturday. As it was very unlikely that Coop's previous website post inclined its suppliers into being obliging, chances were there that Coop had sidelined itself.

In customers' and suppliers' best interests

With this agreement, Coop can claim a major success for its customers. Of the three companies explicitly named in their previous post, only Mars's articles are already included in the price reductions. L'Oréal and Ferrero, the two others, are not (yet) – but according to rumours there are also negotiations with those two.

 

As a situation with two dominant retailers is far better for suppliers than one with one predominant chain, it was clear that it was also in the suppliers' best interest to reach an agreement with Coop. If they have realised other concessions from Coop, it is pretty certain that they will be kept as covert as the Swiss banking secrecy.

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Fashion

Swiss retailers Migros and Coop battle for prestige

 “Mars, L'Oréal and Ferrero are exchange rate leeches” is Coop Switzerland's outspoken opinion on its own website. The message is the climax of the Swiss price war between Migros and Coop caused by the strong Swiss Franc. While Migros has announced a wide price reduction, Coop has declared war on several A-brand multinationals.

For months already, Coop has been asking its international suppliers to share their exchange rate gains with Coop('s customers) through price reductions, but to no avail. Coop has decided that “Enough is enough” and it has announced to delist 95 international branded articles.

Naming & shaming

The Swiss cooperative is in such big trouble that it has adopted the naming & shaming tactics to force its suppliers into compliance. It is striking that two of the three companies Coop explicitly names on its website, L'Oréal and Ferrero, did agree to similar price reductions with Coop's rivals Migros.

 

Last Tuesday, 16 August, Migros announced it will lower the price of 500 products as exchange rate changes will be shared with the customers. This announcement came just one day after Coop's original complaint in this matter.

"Hard, but fair"

Now Migros proudly announced another range of price reductions, with – amongst others – Nestlé, Beiersdorf, Procter & Gamble and Unilever joining the agreement. “Hard but fair negotiations with our partners, with whom we have been cooperating for many years, have now resulted in price reductions of between 10 and 20 per cent”, as Migros chairman Herbert Bolliger boasted.

Migros's discounter Denner had already announced to lower prices of 50 brands like Pampers and Gillette (both Procter & Gamble) earlier this month. PlanetRetail stated Denner itself paid for these price reductions, partly through a larger parallel import, and claimed that these price reductions were meant to exercise pressure on suppliers still unwilling to share exchange rate gains – meaning that Migros succeeds where Coop fails (so far).

All about prestige

The clash between the two is all about prestige, as producers have been complaining about Migros's and Coop's market power in Switzerland. While true for smaller and medium sized producers, Coop's focus on large multinationals renders this complaint moot. “It is unacceptable that large international producers, based in the Euro-zone, keep the exchange rate gains only for themselves” says Coop's director of purchase Jürg Peritz, who does not exclude further delistings.

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Fashion

Asda suffers from Netto takeover and petrol prices

Asda, Walmart's British daughter, has experienced a slower second-quarter growth due to higher prices for petrol – causing fewer consumers to turn up at their stores. “Economic indicators show that 2011 will be a challenging year for the British consumers, but we are convinced that both Asda and the renewed Netto stores will be well equipped to start the second half of the year.”, says Doug McMillon, president of Walmart International.


In the second quarter of this year, the like-for-like turnover went up 0.5%, slightly less than the 0.8% of the first quarter. The operational turnover suffered from the £19 million Asda paid for a part of discount chain Netto and the fact that the number of consumers visiting one of the stores dropped 1.2%.

 Changed consumer perception

Particularly worrisome for Asda is the changed perception amongst British customers: much like their American counterparts, they think that Asda/Walmart is too expensive and choose for hard discounters like Aldi or Lidl instead. Asda's market share dropped 16.7% in the twelve weeks ending on 7 August, according to Kantar Worldpanel's market survey.

Successful Netto takeover

Asda's new strategy focuses on convenience stores of between 450 and 2500 m², of which it hopes to open 250 new instances in the next three years. This strategy was inspired by the success of renewed Netto stores after their takeover by Asda: they witnessed an average sales growth of over 50%.

“At first, we wanted 100 additional new stores of this smaller size, but due to the success of the first few stores, we have decided to raise that number to 250 at least”, says Asda-chairman Andy Clarke. The Daily Maile quotes further: “Next week, the 100th renewed Netto opens its doors, a highly successful endeavour because of its prices, quality and service.” The price policy is remarkable indeed, as the groups maintains the same prices in the larger Asda stores as in the small Netto ones.

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Walmart to buy Carrefour Brazil for 9 billion dollar?

Lars Olofsson, Carrefour's CEO, is travelling to Brazil to “motivate and reassure his Brazilian management”, according to an official statement. That might be necessary, as despite repeated denying, rumours about selling the Brazilian branch to Walmart keep getting stronger.

"6 to 9 billion dollar"

Now the transaction also has a price tag on it: between 6 and 9 billion dollar – but much like any other information about this case, it too has already been denied as it can not possibly be profitable for Walmart. The latter would be much better off opening their own hypermarkets in Brazil, while Carrefour would be crazy to completely leave one of the most important emerging markets in the world.

"UBS asked to prepare takeover"

Another – already denied – rumour was that Walmart has asked business bank UBS to prepare a possible takeover. The Americans have been active in Brazil since 1995 and are the third largest player in the distribution market after taking over Brompeco in 2004. The two bigger groups, Carrefour and Pão de Açúcar, had been in a soap-like series of courting and betrayal until Pão de Açúcar owners Casino (Carrefour's arch rivals) vetoed their possible merger just a few weeks ago.

Looking forward to 31 August

Avid followers of this soap series already look forward to 31 August, when Carrefour will release its semi-annual results. Judging by the profit warning in June, they will not be good and they will probably plunge Carrefour's shares even deeper – and they are already down 38% since January. The only advocate of Walmart taking over Carrefour Brazil is probably investment group Blue Capital, holding 14% of Carrefour shares and earlier already advocate of separating from Spanish branch Dia.

 

During the announcement of Carrefour's results, new director of the French branch Noël Prioux will explain his plans to relaunch Carrefour on its home market, while Lars Olofsson will present his “team of war” and strategies for emerging countries China and... Brazil. 

 

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Fashion

Carrefour to sell Brazilian activities to Wal-Mart?

After the definitive cancellation of its Brazilian merger plans with Pão de Açúcar, rumours have spread that Carrefour wants to swing the other way and sell its Brazilian activities. These rumours also say that Wal-Mart would be an interested buyer, shooting the American chain's shares sky-high on Wall Street... even though Carrefour denies the rumours vigorously.

Aiming for the #1 spot in Brazil 

The Brazilian financial newspaper Valor Econômico was the first to spread the 'news' that Carrefour was holding negociations with Wal-Mart about the sale of the former's activities in Brazil. Wal-Mart is at present Brazil's number three, but a takeover of Carrefour's Brazilian activities would take them straight to number one.

 

Kevin Gardner, Wal-Mart spokesman, says that his company will not respond to rumours. According to VE however, Wal-Mart's senior vice-president international business John Peter Suarez has declared last June that his group was looking for takeover opportunities to conquer the market leader spot in Brazil. 

Important markets 

Carrefour too is looking to grow in emerging markets like Brazil, Indonesia and China to compensate for its home market disappointments. Also in June, CEO Lars Olofsson said that there was no way Carrefour was going to sell its activities in emerging markets as they were too important for the group. After Carrefour's takeover of  Pão de Açúcar failed, CFO Pierre Bouchut repeated the same message. 

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Tesco seeks legal action after being fined €12 million

British supermarket group Tesco threatens with legal actions against the British Office of Fair Trading, after the Office fined them 10.4 million pounds (11.8 million euro) for price fixing in 2002 and 2003. 

Big Four implied in price fixing scheme

With the fines, the OFT concludes an investigation into a price fixing scheme involving all of the British “Big Four”: Tesco, Sainsbury's, Wal-Mart's Asda and Morrisons (via their Safeway daughter). They are found guilty of exchanging their selling prices through IT-systems of dairy producers Arla, Dairy Crest, McLelland, The Cheese Company and Wiseman. The OFT had calculated that British consumers paid up to 310 million euro too much because of this scheme – but did not include that figure in its final report.

All but Tesco receive leniency as total fine drops 57%

Dairy producer Arla Foods received no fine as they were the whistle-blowers on this case, and seven of the eight others received considerably lower fines than originally planned due to lack of evidence and pleading guilty. Only Tesco was stuck with its original fine of almost 12 million euro – still lower than Sainsbury's 'lenient' fine of 12.6 million. Even though only Tesco received its original high fine, OFT chairman John Fingleton says these fines prove that his office takes the battle against price fixing seriously. The total fine for the nine companies is 56 million euro, a long way down from the original 132 million.

Legal action against OFT

Tesco's reaction was one of fury and denial. The Guardian quoted Lucy Neville-Rolfe, director of corporate & legal affairs at Tesco, saying to be “disheartened and disturbed that the OFT continues to pursue this costly and time-consuming case at the expense of both the taxpayer and UK business. We have always said we did not collude on prices on cheese and we stand firm in our rebuttal of these ongoing allegations.” Tesco denied having fixed dairy prices and promised to defend its position "vigorously" and "through the courts if necessary". Should the OFT maintain these fines, Tesco will again call for the Office to be dismantled completely.

 

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Russia's largest retailer introduces "reversed" franchising

X5 Retail Group, Russia's largest retail holding, chooses the system of “reversed franchise” to make expansion of their retail network easier. This new simplified system of franchising has a lower threshold for franchisees (lower costs, no monthly licence fee, no own purchase investments), but lets the franchisee keep a commission of 13 to 18% of his business's turnover. This reversed franchise system had been announced in April last year and has been tested since November. 

Like a store manager

From a Western point of view, such a “reversed” franchisee is more like a store manager than like a real franchisee, but in the Russian market this could be a huge step to fully introducing the franchise system. It is very possible that entrepreneurs want more after experiencing this system's success and turn their business into a “hard franchise”. 

Merger in 2006

The rapidly growing X5 group was formed in 2006 by a merger of soft discounter Pyaterochka and supermarket chain Perekrestok and was expanded in 2008 with hypermarkets Karusel and again in 2010 with Kopeyka.  20% of the chain's 3400 stores are managed by (hard) franchisers, The group wants to use the new system mainly to expand in the region around Moscow and in the city of Nizhny Novgorod, 400km to the east of the capital. 

Paul Martins joins

These expansion ambitions also reflect in changes in X5's management team, as the group announced that Paul Martins, ex-Casino and now Tesco, will join the board of management next Saturday as commercial director. 

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Fashion

Carrefour CFO Bouchut pays price for Brazilian failure

After the failure of its Brazilian takeover plans, Carrefour has replaced their instigator - and its Chief Financial Officer - Pierre Bouchut with ex-Philips CFO Pierre-Jean Sivignon, aged 54 and last year's “CFO of the year” in the Netherlands. 

From Philips to Carrefour

Sivignon will take his new office on 1 September, five months after leaving Dutch electronics giant Philips where he had been CFO,  Executive Vice President and Member of the Board of Management since 2005. Carrefour's headquarters issued a press statement welcoming his “financial expertise, international experience of over 30 years and his leadership skills” as “strong assets to continue the transformation of Carrefour”. 

'Punished' for Brazilian fiasco

Pierre Bouchut will continue his work as CFO alongside Sivignon for two months, after which he will take over the office of Executive Director for Growth Markets from Thierry Garnier, whose “new roles which will be announced in the coming weeks”. Analysts think Bouchut is paying the price for the failed takeover of Grupo Pão de Açúcar, that chose to continue its cooperation with Carrefour's arch rivals (and Bouchut's former employers) Casino. His appointment to the Growth Markets department, alongside his connections with holding company Blue Capital - in which major shareholders Bernard Arnault (LVMH) and Colony Capital (private investment fund) cooperate – gives fuel to the rumours of a split of the supermarket group. 

French game of musical chairs

This is only the latest episode of Carrefour's musical chairs soap, after the departures of James McCann, director of Carrefour France, in May and Vicente Trius, director of Carrefour Europe minus France, in February. The managerial mess also shows in the company results: Carrefour expects its operational profits to drop 23% in the first half of this year. Its shares fare even worse and dropped from 52 euro to 18.7 euro in four years time.

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