Carrefour Looks to Reinvent the Hypermarket
By Tom Ryan
Carrefour is testing a new hypermarket concept as Western Europeans
buy groceries closer to home or head to department and specialty stores for
apparel and beauty products.
"The problem is that clients are not that excited by us," Carrefour
chief executive Lars Olofsson told The Wall Street Journal last
week. "They’re either coming to us less often or shopping at supermarkets."
The
article noted that traffic has been declining at Western European hypermarkets
over the past several years. Europeans are buying fewer durable goods in general
amid the downturn. But Carrefour also said the hypermarket concept works better
in developing economies like China, Brazil and others in Eastern Europe where
people are buying first homes and apartments. The aging Western Europe population
has a smaller appetite for durables.
The aging population is also a factor, along with rising
female employment, in leading consumers to favor the convenience
of nearby supermarkets over out-of-town hypermarkets, according to the Journal.
Moreover, specialty retailers, such as Darty for electronics or H&M for
apparel are now offering lower prices close to home. Finally, rising gasoline
prices are making consumers hesitant to drive to the distant stores.
"The hypermarket hasn’t changed significantly since Carrefour invented
it 47 years ago, but consumers have," Mr. Olofsson told the Journal.
The
new prototype, Planet Carrefour, comes after Carrefour surveyed 50,000 shoppers
and potential clients about hypermarkets over the past year. The new concept
is designed to make the stores easier-to-shop but also addresses Europe’s aging
population.
At a pilot store in Ecully, France, one of the most noticeable changes
are more clearly defined zones, such as the "organic area," "fashion
area," "frozen
food area," and the "leisure/multimedia area." Transparent
cylinders hang from the ceiling to identify the store’s sections. Slow-selling
products such as bicycles have been removed and the number of DIY items have
been reduced.
The Journal said the expanded beauty department is Carrefour’s
largest, and "the clothing section, with wood floors and pop music piped
in, seems more like a fashion boutique than a grocery store." The prototype
also features expanded aisles, a separate entrance for food versus nonfood
shopping, as well as a sushi bar and free babysitting.
"We’re choosing areas where we think we can be different and unique
for our clients," said Mr. Olofsson. "Seventy percent of the time,
they’re mothers with kids."
Carrefour said it has been "very
encouraged" by the performance of
its two ‘Planet’ banners so far, with apparel sales having increased by 30
percent. The final version will be rolled out in its largest hypermarkets next
year.
Discussion Questions: Do large-format superstores in the U.S. face similar
challenges to Carrefour’s hypermarkets in Europe? What do you think of Carrefour’s
reinvention of the hypermarket?
Consumers shop where their lives are best served.
An aging population isn’t into durables, a young emerging audience is. Food and fashion choices vary in much the same manner. Thus, or it seems, the composition of the local population holds the key to any format’s re-invention.
Shopping in the US is different than in Europe. Our population is not as old, or aging as quickly. Our price of fuel is less than half of Europe’s and most of our cities feature big-box retailers, whereas Europeans have to travel outside their cities to reach these stores.
Carrefour is right to experiment with format changes. As consumers change, retailers must follow or become less relevant. And the concept for stores in one country may not be as easily accepted in others.
Perhaps the most notable comment in the article comes from Carrefour’s CEO. As Oloffson points out, the Hypermarket hasn’t changed in 47 years, but the consumer has. Some steps that Carrefour has taken, both in Europe, and soon in China, is that they will be listening more closely to the consumer.
Having a large box, with a wide assortment of merchandise alone, isn’t enough to pull consumers through the doors in Europe, the U.S. OR developing markets like China.
BIGresearch studies in the U.S., as well as the ‘China Quarterly’ in that we conduct in the PRC, clearly show that the Consumer in developed and developing areas of the world, as they become more affluent, will and do make choices. Carrefour is the dominant play for grocery in the PRC. However, they fall significantly behind specialty stores in consumer electronics, health & beauty, and apparel.
Scale is important, but it doesn’t provide all the answers–only the consumer, those coming into a retailer and those that are shopping elsewhere, can provide the answer. If Carrefour is taking the time to listen, they can reposition the business for resumed growth.
The structure of retail in the U.S. and Europe are not the same. While it is true that some of our big box retailers are located on the edges of our cities others are found in the cities and the suburbs. The European hypermarkets were almost all built on the edge or outside the cities. This means that their customer have to travel further that does those of the U.S.’s HVRs. As noted by Mr. Goldberg, while we may think fuel is expensive in the U.S. it is far less costly than that in the UK or Europe.
Changing formats is something that is common with all retailers to one extent or another. Target, for example, is again revamping its grocery section as is Wal-Mart. The rationale is simple, either adapt to the changing needs or your customers or perish.
It would appear that Carrefour has rightly identified some key demographic and social trends that will undoubtedly shape consumption over the next few decades.
What I think Carrefour and others will still have to adapt to is that it will take multiple store formats and retail approaches to tap the same market share. Consumers and their lifestyles are simply becoming increasingly diverse and harder to broadly segment. One size will no longer fit all when it comes to retail concepts.
I don’t believe that large-format superstores in the U.S. face similar challenges to Carrefour’s hypermarkets in Europe because the U.S. has very different channel dynamics in place than does most of Europe.
Every innovative retail format must ultimately be subject to a life cycle. Carrefour is wisely exploring alternatives to its decades-old formula, but the focus seems on tweaking details rather than questioning the fundamental store concept. It remains to be seen whether it can successfully adapt to its changing shoppers in this way. From where I stand, this feels like managing to not fail, rather than innovating to win.
In the U.S., our stores have tended to evolve from the discount mass marketer into groceries, rather than the other way. The stores tend not to be out of town; rather, they are close in and very convenient. Adding groceries to the store have several advantages to those retailers: driving additional frequency and increasing the average order value.
Since these retailers make the bulk of their margin on higher priced mass merchandise items, they can sell groceries at a very competitive rate, if not use them as loss-leaders.
The dynamic is very different; the closest analogy in the U.S. is probably a Costco or Sam’s Club, which have found more success from close-in locations than far-out.
As others have said, the demographics are different in the U.S. But still, we do have an aging baby boomer population. As that shift continues, it will be interesting to see if large format stores can segment their offering effectively, appealing to increasingly multi-ethnic young shoppers and the large baby boomer population. Or, conversely, can smaller format, more targeted offering make in-roads?
I’m not intimate with the details of Carrefour’s operations–things like product mix, price lines and decor–so it makes it rather hard to comment intelligently; but I suspect few of the respondents here are either, which makes me wonder if these comments carry more than a wisp of simplistic “Europe isn’t like here”ism; the reality is most of the factors cited (aging population, remote location, high fuel prices, etc.) have existed for decades, so I’m not sure how much they can be blamed for a drop off in sales. Perhaps the concept itself is becoming unpopular; and if that’s the case, then yes, CF’s issues may have applicability…even in the U.S.
Some challenges are the same, some different. Like Europe, the superstores in the U.S. need to get more convenient for their customer and into neighborhoods they’re not in now, which are mostly urban. Both scenarios call for multiple format development. However, where the U.S. differs is in the fact that Americans already drive just about everywhere (we love to drive!), so that need is less prevalent outside of urban. But the biggest challenge in the U.S. will be in changing margin goals once all the labor is included in smaller stores, especially with more fresh goods. That’ll be the hardest pill to swallow for U.S. businesses. Europe is already there.
Carrefour’s Chief Executive Olofsson’s comment is quite telling. If consumers are shopping at your store less often and shopping at the competition more, you need to find out why.
Surveying 50,000 consumers is a large amount of feedback and it sounds like Carrefour is using some of that in their store designs. I agree that consumer preferences in one country can vary significantly from another and that must be taken into account.
Offering more clearly defined shopping zones such as organic, fashion, frozen food, children, etc. is a plus and should be considered by U.S. hypermarkets. Large format stores often present a “shopping maze.” Consumers often resent spending too much time looking for items in the store. Clearer signing in stores, whether they are in the U.S. or elsewhere, assist consumers in finding what they want quickly and more efficiently.
Product, Price, Promotion and Place. Carrefour still does not understand the dynamic with their consumer and keep forgetting the important role that customer service plays. It is not the store that brings the consumer back, but the broad product selection at the right prices that appeals to the consumer…combined with great customer service. Consumers do not say “I am shopping at this store because the layout appeals to me,” but instead reflect on finding the products they are looking for (no OOS), at great prices, with incredible customer service. That is the hypermarket of today….