Most people in the United States are familiar with Walmart, the world’s largest retailer, but few of them know anything about Carrefour, the world’s second largest retailer. Carrefour was founded in 1959 by the Fournier and Defforey families. In 1975, the company jumped across the Atlantic and opened its first store in Brazil. It expanded into Argentina in 1982. In 1989, the company leaped the Pacific and opened up shop in Taiwan. Through the 1990s, Carrefour continued its expansion throughout Europe (Greece, Turkey, Poland) and added Mexico, Malaysia, Thailand, Korea, Hong Kong, and Singapore to the list of locations in which it operates abroad. In 2008 alone, the company opened 1,191 new stores worldwide. The company currently boasts 15,500 stores (either company-owned or franchised) worldwide; it employs approximately 475,000 people, and it operates in 34 countries. Despite that global presence, Lars Olofsson, the new chief executive of Carrefour, states that the company’s latest strategy is to “strengthen at home [in France, Spain, Belgium, and Italy], then either dominate or withdraw abroad” [“Carrefour Chief Pursues Strategy to Strengthen Home Market,” by Matthew Saltmarsh, New York Times, 3 June 2010]. Saltmarsh reports:

“Mr. Olofsson, a Swede who speaks fluent French, was brought in to replace José Luis Duran by the retailer’s largest shareholders, including the prominent businessman Bernard Arnault. Mr. Olofsson came from the Swiss food giant Nestlé. ‘Carrefour had lost track of being client and consumer focused and lost a certain track of price competitiveness,’ Mr. Olofsson said during an interview. … Just after taking the helm, he initiated what he called a ‘reset’ in the core markets of France, Spain, Belgium and Italy. That meant focusing on re-branding and refurbishing stores, automating checkout lanes at hypermarkets, introducing recession-friendly value brands, overhauling the information technology systems and better leveraging its huge buying power to improve price competitiveness.”

Although the company enjoys a long history of global expansion, it has also withdrawn from markets in which it found itself unable to compete. Saltmarsh describes where the company plans on expanding and where it might withdraw:

“As the ship steadies, [Olofsson] plans to invest further in China, Brazil and India. But where prospects are less certain, the group may scale back. ‘If you cannot become leader, sooner or later you will have a competitive problem,’ he said. ‘If ever I have an offer in markets where I don’t believe we can become leader, I’m prepared to have a look at it.’ Carrefour did this before Mr. Olofsson took over, leaving Japan, Switzerland and Mexico. Under his leadership, it has also pulled out of Russia, and scaled back in southern Italy, Portugal and Belgium, where he has just signed a deal with unions to allow for job cuts and the sale of some stores. Next up could be Thailand, where, ‘we were the pioneer, but we didn’t concentrate our efforts, and we lost leadership,’ he said.”

Saltmarsh reports that Carrefour “really does have scale.” He backs up that claim by noting that Carrefour is “the second-largest retailer globally by sales behind Wal-Mart Stores and the largest in Europe, with a range of formats from hypermarkets to hard discount and local convenience stores.” Scale can generally be leveraged into a competitive edge (ask anyone who deals with Walmart). Noting its global statistics, Olofsson boasts, “There’s no distributor in the world that has that kind of geographical footprint.” Supply Chain analyst Steve Banker notes that as part of Carrefour’s strategy of strengthening its position at home, the company “is ramping up consolidation centers (CC) in Europe. The retailer currently has eight centers operating in France with twelve more in development. Carrefour is also conducting a network design study to determine where to locate additional centers throughout the rest of Europe. Individual centers are now receiving goods from about 100 manufacturers. Once its network of CCs in France is complete, Carrefour will be receiving goods from 580 suppliers” [“Spotlight on Carrefour’s Consolidation Centers,” Logistics Viewpoints, 19 May 2010]. Banker continues:

“The concept behind these centers is fairly simple. They are designed for smaller suppliers. These suppliers ship their goods to a consolidation center run by one of Carrefour’s third party logistic (3PL) partners instead of directly to a Carrefour distribution center (DC). Smaller suppliers whose goods don’t sell through quickly in stores present problems to retailers. The retailer can take truckload shipments, but then it has to warehouse the goods for longer periods of time, incurring increased inventory carrying costs and spoilage. Or the retailer can take less-than-truckload shipments, which raises the cost of the goods, clutters the DC yard, and makes the receiving process more labor intensive. If a consolidation center covers a broad enough region, both goals can be achieved. The consolidation center can receive full truckload shipments and also receive shipments more frequently. On the outbound side, the 3PL takes orders from the retailer, Carrefour in this case. The truck is loaded with individual pallets from different manufacturers, the correct value-added services for the retailer are performed (e.g., retail specific labels, pallets, and electronic commerce), and the goods are shipped to the retail DC at truckload rates. If the process is well synchronized, many of these goods can flow through the retail DC to outbound shipping without having to be put away and then repacked.”

Even though Carrefour’s primary focus is strengthening its position in key European countries, it is not ignoring business abroad. There have been reports that, in China, Carrefour is “in talks with local hypermarket operator Baolongcang to buy out its outlets” [“Carrefour China in talks for Baolongcang outlets,” by Planet Retail, Retail Week, 3 June 2010]. Saltmarsh reports that Olofsson foresees “the day when Brazil overtakes Spain as the company’s No.2 market, behind France.” Saltmarsh also notes that “Carrefour has … been trying to weave its way through labyrinthine regulations for a toehold in India.” An article in The Economist discusses the bet that Carrefour is making in India [“A wholesale invasion,” 20 May 2010]. One of the biggest hurdles that Carrefour will face, the article reports, is opposition by the huge number of mom & pop stores that will likely go out of business if Carrefour’s hyperstores succeed. The article begins in one such shop:

“Anand Gupta’s small and dimly lit-grocery shop in a middle-class Delhi neighborhood does not allow customers much of a look at its crowded shelves. It stocks a range of dry goods, but little variety: a single brand of rice, one of flour and three of shampoo. Mr Gupta has no till and does his stocktaking in pencil. His grandfather, who opened the shop in the 1940s, would notice only one change: that the daily delivery is made by lorry instead of a fleet of bicycles and bullock carts. This is how most shopping operates in India, where ‘organised’ outlets (supermarkets, hypermarkets and department stores) account for just 5% of the $450 billion retail market. The rest is done in tiny mom-and-pop, or kirana, shops. But that is beginning to change, as big retailers try to cash in on what AT Kearney, a consultancy, last year called the leading emerging retail market. Robust economic growth, a fast-expanding middle class and mushrooming malls all help organized retail to boom. The latest retail giant to arrive is Carrefour, which will open its first outlet in Delhi in July [2009], with more shops scheduled for other cities this year. The French firm follows Wal-Mart, the world’s biggest retailer, which last year opened its doors in Amritsar, in northern India.”

The article goes on to explain that large retailers like Carrefour and Walmart have been reluctant to enter the Indian market because of the restrictive laws they face there. It continues:

“Carrefour has waited nearly a decade, deterred by restrictive laws that let foreigners invest only in single-brand stores, in which they can own a 51% stake. Thus, far from serving the kirana-bound customers whom it wishes to reach, Carrefour will be limited to a cash-and-carry model, selling to hotels and restaurants. Yet it hopes that this will soon change and talks of the investment climate improving. Others concur. Raj Jain, Wal-Mart’s local chief, envisages opening a dozen more stores in the next couple of years. ‘There are much more positive noises in government than there were even a year ago,’ says Rajiv Kumar, head of ICRIER, a local think-tank. The government has kept foreign retailers at arm’s length in an effort to protect millions of shopkeepers and their suppliers. Protests erupted across the country in 2007 when Reliance Industries, India’s biggest company, tried to set up a network of supermarkets. So the government asked ICRIER to gauge the impact of the organised sector. It found that the arrival of a formal retailer caused sales in nearby small shops to drop by 23% within one year. But five years on the small shops were broadly back where they had started.”

The article reports that Carrefour and Walmart aren’t the only big retailers hoping to find new consumers in India. “Godrej, a consumer-products firm, is expanding its network of Nature’s Basket delicatessen-type stores across several big cities. Tata, with technical support from Britain’s Tesco, has opened Star Bazaar supermarkets. Bharti Enterprises has a similar deal with Wal-Mart for a chain of Easy Day grocery stores. Department stores and book chains are springing up, without obvious protest. As domestic retailers flourish, foreign ones are keen to get a toehold.” If facing bureaucratic hurdles weren’t difficult enough, The Economist reports that large retailers must also deal with infrastructure challenges.

“Bad roads, unreliable power supplies and other infrastructure problems will take a long time to fix and require expensive solutions. Domestic retailers have been frustrated by the simple task of getting the right quantities of products to their shelves. The deep pockets of the multinationals may be needed before European-style hypermarkets truly arrive in India.”

There is little doubt that Indians could benefit from better infrastructure, improved supply chains, and greater diversity in available products. Large retailers, however, aren’t likely to dig deeply into their pockets to help upgrade infrastructure unless some sort of consortium can be arranged. Profit margins are too slim and competition too fierce for retailers to go it alone. As for Carrefour, Bloomberg BusinessWeek reports that “it may opt for a franchise model in India, allowing the world’s second-largest retailer to expand in the market while meeting laws barring foreign companies from owning multibrand retail stores” [“Carrefour Working on Franchising Setup for India (Update2),” by Saikat Chatterjee and Andrew Roberts, 11 May 2010].

In the decades ahead, Carrefour and Walmart will continue to have an enormous impact on supply chains as they continue to expand into emerging markets. Competition between the two giant retailers will be keen since each is determined to dominate the markets they are trying to penetrate.