French giant has started to lose edge

CARREFOUR’S executives certainly need to do something to revive the retailer’s flagging fortunes. Anyone who has holidayed in France regularly over the last few years will have noticed that the supermarket giant is losing its edge. It used to be that one of the pleasures of hopping across the channel was a trip to l’hypermarché – with its counters of fresh cheeses and meats – which put most British supermarkets to shame. That’s not true any more: the best branches of Tesco and J Sainsbury can take on Carrefour any day. Of course, they aren’t strictly competing for the same customers in their domestic markets, except in Calais, perhaps. But it does show that something has gone wrong at the French supermarket in recent years.

The numbers tell a similar story. Carrefour posted revenue growth of 5.8 per cent last year, or 1.6 per cent when you strip out fuel sales, compared to 7.6 per cent for Tesco.

The markets certainly think there is more value in the British leader. Even though Tesco has lower annual sales (£62.5bn in 2009-10 compared to £73.2bn for Carrefour), it still has a higher market capitalisation (£32.33bn against £20.5bn, and that’s with a weaker pound).

A flotation or sale of around half of Carrefour’s discounter Dia is an idea worth pursuing: a leaner business could take better advantage of opportunities in emerging markets like Turkey, Brazil and Argentina. Analysts at RBS reckon a sale of 49 per cent of Carrefour Property and Dia would raise €5bn (£4.29bn), while an IPO of 49 per cent of each business would raise €7.8 a share.

That is certainly more attractive than management’s strategy of cutting costs while maintaining €1.5bn of investment in Carrefour’s French stores.
The sum of the parts is likely worth much more.