Standing at the crossroads

    Standing at the crossroads

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    Even as rivals are chalking out plans to expand, French retail major Carrefour has chosen to go slow in India.

    French retail major Carrefour, the second-largest in the world in terms of revenue (euro 90 billion) after Walmart, is going slow in India, even as its rivals are chalking out bold expansion plans in the country.

    Ever since Carrefour launched its first store in India — a cash-and-carry wholesale format store at Seelampur, East Delhi — in late 2010, the retailer has maintained an awkward silence on its expansion plan for the country. The social initiative by the group in adoptiing a (MCD) school in the vicinity of its store was a rare announcement made by Carrefour in recent times as far as India is concerned.

    WHAT’S :
    * Goods are sold at wholesale outlets/warehouses
    * Customers are retailers, professional users, caterers, institutional buyers and other businesses, who need special licences to buy
    * Invoices are settled on the spot in cash and carry the goods

    FDI IN CASH & CARRY:
    * No restriction on FDI limit in this format, making the entry of foreign players easy
    * FDI is not permitted in multi-brand retail while that in single-brand retail is capped at 51 per cent

    Interestingly, Carrefour’s only cash-and-carry store in Asia at present is in India. The group has a total of 151 cash-and-carry stores — 137 in France, 13 in Europe (excluding France) and 1 in Asia.

    Experts point out three specific reasons why Carrefour is quiet on its India expansion. First, it wants to be clear about the country’s FDI policy on multi-brand retail before it formulates a concrete cash-and-carry here. (Currently, FDI is not permitted in multi-brand retail, but the government is said to be in a review mode. And, Carrefour has kept its potential Indian partner for multi-brand retail guessing). Second, the French retailer set up shop in India only towards the end of December last year and it may still be watching the market before embarking on an expansion plan. Third, economic slowdown, cost cuts and related business decisions in many of its European markets have forced it to turn more than cautious.

    A questionnaire sent by Business Standard to Carrefour on its India plans went unanswered. But on the launch of the first India store, , CEO of Carrefour, had said: “The opening of this first store marks Carrefour’s entry into the Indian market and will be followed shortly by more cash-and-carry stores. This first step is essential to allow Carrefour teams to fully understand the specificities of the Indian market and then build our presence in other formats.”

    However, in April, in its first quarter sales report, Carrefour listed out its “transformation plan” as priority for the year. The plan includes cost cuts and purchasing gains. The company presentation did mention expansion in select countries and formats, without mentioning names. Carrefour had launched a turnaround plan in 2009 with the aim of saving euro 4.5 billion by 2012.

    Since it is a business of scale, how will Carrefour keep it viable in India without expanding? Purnendu Kumar, associate vice-president, (a consulting working in the retail space), argues the first store must be seen as a pilot project. It has only been a little over four months since its India entry. “People take time after the first store to launch their second,” he adds, citing the example of other players like Walmart and Metro. Both had taken a break of several months before expanding their respective chains.

    N V Sivakumar, leader (retail, consumer and industrial products), India, says: “Carrefour has been carefully studying the Indian market.” He adds: “We expect Carrefour to open more stores soon.” On whether the French retailer’s strategy for India could have anything to do with the economic situation in Europe, he refused to comment. According to Sivakumar, India’s cash-and-carry retail has large market potential, and, till date, is relatively under-penetrated. “The market is witnessing the entry of new players and those with a presence already in India are expanding their store networks.”

    India’s retail sector offers growth potential across most major categories due its large market size, of $350 billion, low organised retail penetration of 5 to 8 per cent, and enviable demographics, he adds. Wholesale or cash-and-carry represents an opportunity worth $140 billion out of the $350-billion annual retail business in the country.

    But, there are worries on the ground. Raj Jain, chief executive, , had told this newspaper in an interview that the biggest challenge for the wholesale/cash-and-carry businesses in India was the absence of an efficient supply chain. “Moving products from one place to another is difficult. Also, there’s a complex taxation structure, making things worse. Add to that the worry of real estate suitable for the wholesale business,” Jain had said. Sivakumar also points out access to real estate and supply chains are the two impediments that have prevented cash-and-carry players from expanding more quickly.

    Of late, Carrefour has been in the midst of some trouble in its home market France and the rest of Europe. Only last week, CEO Olofsson announced that executive director for France, James McCann, was leaving, and for the time being he would himself take over the company activities in France. Although Carrefour Property was to be listed, that plan has been shelved for now. But 100 per cent spin-off of Dia — the group’s hard discount unit — is on the cards. For this, an analyst meeting was held on May 17. Its general assembly meet, to go over important business decisions and numbers, is slated for June 21.

    Carrefour’s sales in the European growth markets were down 2.5 per cent in the first quarter at constant exchange rates. However, Latin America, and Asia (mainly China) grew significantly. While sales in Asia increased by 7.8 per cent at constant exchange rates. In China, it grew by 12 per cent at constant exchange rates. The group had to face two profit warnings last year.

    Carrefour India’s consolidated sales stood at euro 5 million in the first quarter of this year (January to March 31). In comparison, China’s was euro 1,600 million, Taiwan’s euro 435 million, Malaysia’s euro 110 million and Singapore’s euro 21 million. The group’s consolidated Asia sales for the first quarter was pegged at euro 2,438 million. China has as many as 182 Carrefour hypermarkets.

    The group has 151 cash-and-carry outlets, it has 1,401 hypermarkets, 2,945 supermarkets, 5,059 convenience stores and 6,404 hard discount stores. Even as 231 stores were opened or acquired in the first quarter, totalling 116,000 sq m, the French retailer shut down as many as 208 stores, totalling 104,000 sq m during the same period. For full 2011, Carrefour plans to open stores over 800,000 sq m, translating into over 1,000 outlets, according to its first-quarter sales presentation.

    Carrefour today looks standing at crossroads, as the meaning of its name suggests!

    Source : Business Standard