More pressure for processors, Carrefour promises price cuts

By Ahmed ElAmin

- Last updated on GMT

Related tags: Retailing

France's Carrefour, the world's second largest retailer after
Wal-Mart, has upped the stakes in the supermarket battle for market
share by announcing further price cuts and overseas expansion arein
the offing.

The price cut announcement yesterday signals the food and goods retailer may also put pressure on its suppliers, whose margins are also hurting. Like many of its competitors the supermarket group is currently engaged in price wars in many of its markets, including in its base in France, where it is attempting to regain market share fromrival chains. As a result margins have fallen. The pressure on price, low sales growth and consolidation are the top trends affecting the group's market in Europe. Carrefour is the top retailer in the French market, number one in Europe and isa leader in Asia. Food accounts for 60 per cent of the group's sales worldwide. The company said yesterday declining profitability at its core French stores led to a 6.8 per cent drop in earnings for the first half of 2005. Net profit fell to €687m in the first half. The group's overall operating profit fell 3.1 per cent to €1.26bn. First-half revenue rose 2.6 per cent to 35.4bn. In France price cuts has allowed the company to boost market share by only 0.2 per cent, Carrefour reported. Operating profit fell in France by 14.8 per cent. France accounts for about half ofCarrefour's sales. Carrefour's general strategy has been to sell off under performing assets and buy other retailers. The company has also continued its expansion into Asia and Latin America. A new management team, amove towards more joint ventures in foreign markets and a more collaborative relationship with key suppliers also underpin the group's push to drive growth. Another strategy has been to gain a foothold in the discount retail market. Consumers have been spurning the hypermarkets format in favor of discount chains such as Germany's Aldi and Lidl. The company's chief executive, Jose Luis Duran, said yesterday he expects France to contribute less and less over the next few years to the profitability of the group. "Larger contributions from our new growth areas in Europe, Asia and Latin America mean that France will contribute less to the profitability of the group," he said during hispresentation. Operating profit at the company's overseas operations rose by 23.6 per cent. In July the group completed the buyout of French low-cost supermarket Penny Market from Germany's Rewe. The company also sold catering supplies group Prodirest to transGourmet, a joint venturebetween Rewe and Coop, a Swiss company. So far this year Carrefour has acquired hypermarkets in Brazil and Poland, and acquired majority stakes of chains in Cyprus, Turkey, Italy and Romania. It has also sold 13 shopping malls and 19 hypermarkets under a leaseback agreement in Poland, the Czech Republic, Slovakia and Turkey. At the end of 2004, the group traded from 42 hypermarkets, 77supermarkets and 239 discount stores in the four countries. Carrefour said the €376m raised from the transaction will be used to finance new stores in a region where it opened 68 outlets in 2004. Since the beginning of this year, Carrefour has divested its businesses in Mexico, where it was being badly beaten by Wal-Mart, and in Japan, where it was struggling. Wal-Mart, the world's number one retailer, is the bear stalking Carrefour's growth markets. Wal-Mart is attacking Carrefour's leading positions in Asia, especially China, and has announced plans toexpand in Europe from its bases in the UK and Germany. External links to companies or organisations mentioned in this story: Carrefour

Related topics: Manufacturers, Pricing Pressures

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