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Business – Lessons from carrefour

Raghavendra Kamath

Carrefour, the world’s second largest retailer, is all set to enter India – it will launch its own cash and carry venture this year. The buzz about the French retail giant finally tying the knot with Kishore Biyani’s Future Group is also getting louder.

Though Carrefour has its sourcing office in the country for over two decades, it has been playing hard to get over the last five years as negotiations with almost all big Indian companies – Bharti, Wadias, DLF, Parasvnath and Reliance Retail – ended without any results. According to reports, the long wait is about to come to an end with the Future Group being the lucky one.

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So what will Carrefour, which had a turnover of 92 billion euros (Rs 6.25 lakh crore), over half of which came from international operations, bring to the table when it starts its operations in India? What makes the brand tick in 35 countries all over the world? A lot, really, say retail experts. Here are some of them.

LOCALISATION

“Localisation has been the biggest strength of Carrefour in the countries it operates — from local tie-ups to hiring local executives to run stores, local sourcing to merchandising, they do it well,” says Purnendu Kumar, associate vice president of Technopak Advisors, a business consultancy.

Retail experts say China was a classic example of how Carrefour adapted to local conditions. Carrefour entered China in 1995 by forming a joint venture with the Chinese management consulting firm Zhong Chuang, and established a firm called ‘Jia Chuang’. When most foreign retailers viewed China as a large market, Carrefour saw it as many small markets.

It designed stores and launched private labels to suit Chinese consumers and each store ran independently. It hired local people in key positions and kept the staffing lean. “Since their hypermarkets are large, they hired qualified professionals to run it and gave them as much freedom as possible, thereby each store manager ended up running a store like a CEO,” says Hemant Kalbag, partner and vice-president at business consultancy AT Kearney.

Each store manager could take decisions depending on the local traditions and customs. “Since retail activities are all about contact with people, the group consistently emphasizes local recruitment plus management and staff training on the job wherever they work,” says the Carrefour group’s website.

SUPPLY CHAIN STRATEGIES

Carrefour mostly uses ‘direct procurement strategy’ in the markets it operates. It sources 90-95 per cent of the products on its shelves locally, depending on the country in markets such as Brazil, Argentina, Colombia, Italy and Greece. This helped Carrefour to maintain lower prices compared to other foreign retailers, in international markets.

And India is no exception to its strategy. Carrefour currently works with about 90 suppliers/ farmers in Uttar Pradesh, Andhra Pradesh, Delhi, Punjab and Haryana; directly dealing with the farmers for quality production and effective supply chain management. The various products being exported from India include organic clothing, fruits and vegetables to Europe, UAE, Indonesia, Europe, Thailand, Singapore and Malaysia. Carrefour exports goods worth $ 170 million (Rs 782 crore) from India.

It also keeps its supply chain very economical and flexible. It uses vehicle from trucks to bikes depending on the need, area to be covered and cost, says a former Carrefour employee.

Initially, Carrefour used the Electronic Data Interchange (EDI) for procurement, which required electronic linking of stores, warehouses and suppliers through computer networks. After 2003, the retailer adopted Integrated Composite Application Network (ICAN) software to integrate its stores, distribution centres and supply chain partners in various countries. “They have efficient processes, supply chain, back-end systems which are working very well for them. Retail is nothing but making right choices about merchandising, supply chain and systems,” says Kalbag of AT Kearney.

STORE OPENINGS

Decentralisation is another key strategy of Carrefour. In China, all foreign retailers followed the centralisation policy, with one headquarter controlling the operations of all stores in the country, Carrefour did exactly the opposite. It set up regional offices in each of the Chinese provinces and that office took care of shops in that particular region.

It is also adapting stores to local needs. Carrefour has been making its hypermarkets compact depending on lifestyles of customers in countries where it operates. According to the company, its average size of hypermarket has come down to 54,000 sq ft in 2008, just two-thirds the size of a store opened in 2004. In Bogotá, for example, Carrefour opened two hypermarkets with less than 26,000 sq.ft of sales area. In Taiwan, Carrefour’s growth is being driven by compact and mini formats, some of which are located in shopping malls and offer a wide array of services and leisure activities.

So what is taking them so long to enter India when their international rivals are already here? Make no mistake: the retail giant is doing its homework well.”They have hired a lot of people in the National Capital Region where the staffers’ job is just to check the varieties of different products available in the stores of Indian retailers, their pricing and so on. They want to be the best in offering and pricing when they enter” says a former Carrefour executive who did not want to be quoted.

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January 28, 2010 - Posted by | Uncategorized |

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