Carrefour SA

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Carrefour SA

5, avenue du General de Gaulle
91005 Lisses
France
1 60 86 96 52
Fax: 1 60 86 35 79

Public Company
Incorporated: 1959
Employees: 40,000
Sales: FFr 117 billion (US$21.7 billion)
Stock Exchanges: Paris New York
SICs: 5411 Grocery Stores; 5331 Variety Stores

One of Europe’s leading retailers in supermarkets and hypermarkets, Carrefour SA oversees the operations of over 200 stores in France and abroad. The company’s founders created the concept of the hypermarket, an expanded supermarket offering a wide variety of merchandise—including groceries, electronics, clothing, and automotive supplies—that allowed consumers to accomplish most of their shopping at one store. Hypermarkets became a rapid success, revolutionizing the retail industry in France and worldwide.

Carrefour emerged in 1959 as a collaboration between two entrepreneurs, Marcel Fournier and Louis Defforey, in Annecy, a city in eastern France that had become increasingly industrialized since World War II. Both men came from successful, enterprising families, and each was anxious to expand his own business by building large supermarkets. Fournier had already established the department store Grand Magasin de Nouveautes Fournier d’Annecy and had connections in the Casino supermarket company, while Defforey was president of Badin-Def-forey in Lagnieu.

In the 1950s, the French grocery industry consisted largely of family operations. Traditional grocery stores, committed to providing a variety of high quality products, accounted for 83 percent of food sales. However, as fewer young people entered into family businesses, and grocers’ unions, independent wholesalers, and food cooperatives increased in number, a need for alternatives to the smaller markets developed. At the same time, big department stores, generally located in the center of cities, often proved inconvenient, and the high prices they charged for luxury items and value-added services were prompting consumers to look elsewhere for nonfood items.

Moreover, the concept of free service was becoming increasingly popular. Free service, prevalent in retail by the 1990s, was invented in 1916. Prior to its institution, consumers relied heavily on assistance from sales clerks in selecting and obtaining merchandise. Under the free service system, however, customers used bags, carts, or baskets to collect their needs— placed within easy reach and individually priced—while sales clerks served primarily as cashiers.

The supermarket, which first appeared in France in 1954, used the concept of free service. With larger facilities located outside the center of cities, supermarkets could provide fresher produce, a greater variety of products, and lower prices than the traditional grocery store. However, by the end of the decade, only 33 free service supermarkets were in operation in France, and none of them were modeled after the large, discount supermarkets in the United States.

Thus, in May 1959, Fournier and Defforey decided to incorporate these virtually unexploited concepts for their store in Annecy. An offering of 7,000 shares of stock was made to ten stockholders, and a facility already under construction in Annecy was purchased. The ground floor of the building was to be used as the supermarket, while the upper floors, containing apartments, were to be sold to help finance the business. Marcel Fournier was elected president and Denis Defforey, Louis’s son, was chosen as general director. Fournier named the business Carrefour, the French transliteration of the Greek word agora, or marketplace.

During this time, a businessman named Edouard Leclerc, who was establishing supermarkets in the Rhone-Alps region, announced plans to open a store in Annecy. Fournier and Defforey knew that they had to open their store before Leclerc opened his, in order to be able to compete. Thus, Fournier offered the basement of his department store, Grand Magasin de Nouveautes Fournier, for Carrefour’s use. This annex was opened on January 7, 1960, six months before the opening of the larger store, and was an immediate success. In fact, four days after it opened, the annex was already out of goods and had to close for one day to restock. The threat of competition from Leclerc prompted Fournier and Defforey to offer the lowest prices they could, and, as it turned out, Leclerc never built the competitive supermarket in Annecy.

In order to familiarize the public with supermarkets, Carrefour embarked on an advertising campaign before opening its main store. The publicity was effective. The store opened on June 3, 1960, achieving sales that far surpassed expectations and drawing 15,000 customers in the first two days. In a little over three weeks, Carrefour had sales of FFr 290,000, a figure most independent grocers reported for an entire year. To prevent traffic jams, the store expanded its parking lot, but the company’s management was soon convinced that supermarkets in urban areas were impractical.

Between 1961 and 1962, business at Carrefour increased 45 percent and salaries increased as well. The following year, another supermarket was opened in Cran-Gevrier, in the Annecy region, this time with a vast parking lot. Moreover, Carrefour installed its own discount service station in the parking lot of its first store, selling gasoline without a name brand for five centimes less per liter than the average price; making neither a profit nor a loss, the company’s gas station was intended as a protest against the French government’s high gasoline taxes. Carrefour’s discounts angered smaller business owners, a reaction that would prove typical throughout much of Carrefour’s history.

During this time, the company decided to expand into the Paris region, purchasing a tract of land 30 kilometers south of the capital in Sainte-Genevieve-des-Bois, where costs were lower and more space was available. Before construction began at the new site, Louis Defforey and his brother Jacques went to the United States to observe the American commercial structure. Seminars given by Bernardo Trujillo on such modern sales practices as free service, discount prices, and large facilities, convinced the Defforeys to completely modify Carrefour’s initial plans for the store outside Paris. While Carrefour did not adopt the huge dimensions of American stores with many cashiers and large aisles, they did construct a relatively large facility and integrated the idea of low prices on every product by purchasing merchandise from wholesalers and producers. They also followed Trujillo’s advice about investing less in luxury construction. The store opened in June 1963 and was referred to by the press as a hypermarket, reflecting its 2,500 square meters of space, 400 parking places, and abundance of both food and nonfood merchandise. The store was an immediate success, with each customer purchasing, on average, three times more than in a regular supermarket.

Carrefour’s success was based on its discount prices, decentralization of power, reduced emphasis on aesthetics and equipment costs, and accelerated rotation of stocks. The hypermarket appealed to younger people and new suburban dwellers, as well as the budget-conscious consumer affected by the high inflation rates in the 1960s. Carrefour’s innovations in weighing, pricing, wrapping, cashing, and refrigerating made its hypermarket integral to the ensuing revolution in French retail. However, not everyone was pleased with these developments. The company had an adverse affect on small businesses, and an independent butchers’ union blocked Carrefour’s trucks at an abattoir in 1964 to protest the store’s discounts. Moreover, some complained that shopping at the hypermarket was an impersonal experience, lacking in the traditional rapport between shop-owner and loyal customer.

In January 1965, to avoid government restrictions on expansion, Carrefour formed two divisions: Carrefour Supermarche was led by Marcel Fournier and Denis Defforey, while Grands Magasins Carrefour, a subsidiary, was led by Jacques Defforey and Bernard Fournier. A hypermarket of 10,000 square meters was opened near Lyon in 1966 as well as another of 20,000 square meters in Vitrolles. The following year, an office was opened in Paris to collect, compare, and distribute results from all the stores, and in 1968 Marcel Fournier moved his office from Annecy to Paris.

Carrefour also actively sought involvement with other companies in Europe, including Delhaize Freres-Le-Lion in Belgium, Mercure in Switzerland, Wheatsheaf Investment in Great Britain, and Italware in Italy, and made major efforts to expand into Mediterranean regions in Europe. During its international expansion, Carrefour was careful to appeal to new clientele by marketing local products, rather than exporting French products. Initially developing new stores through joint subsidiary companies in partnership with local retailers, Carrefour eventually acquired full interest in these stores. Competitors such as Auchan, Casino, and Euromarche followed Carrefour’s lead over the next ten years, greatly increasing the number of hypermarkets in France.

In June 1970, Carrefour stocks went on sale at the Bourse in Paris. With high inflation in the mid-1970s, competition for food prices was fierce, and when the 1973 Royer law put restrictions on the development of large stores in France, Carrefour began to focus increasingly on expansion abroad. Between 1978 and 1982, the greatest number of new Carrefour stores were established outside of France, particularly in Latin countries. Profits proved high at its stores in Brazil, Argentina, and Spain.

By 1982 the hypermarket industry had matured, resulting in active competition for prices, standardization of product lines, and the closing of some parts of the market. The food market stagnated, and Carrefour reduced the size of some of its stores. During this time, the company entered into more partnerships with other companies, including one with Castrorama, through which it sought to satisfy increased demand for leisure and hardware products. While Carrefour reported sales nearly double those of its immediate competitors—Casino, Viniprix, and Nouvelles Galeries—the company’s primary goal was to preserve existing markets and its commercial, financial, and developmental advantages.

Marcel Fournier, who had been awarded the Legion of Honor, died in 1985, and the institute of management founded by Carrefour was named after him. By that year, Carrefour had expanded to ten countries across three continents and had a net profit of FFr 520 million. As emphasis on brand image intensified on a national scale, Carrefour introduced its own private brands as a low cost alternative, while still emphasizing quality. In 1988, Carrefour was France’s leading hypermarket merchant and the top retail company in Europe, with 65 hypermarkets in France and approximately 115 in Europe and South America. In February of that year, the company opened a 330,000 square foot hypermarket outside Philadelphia, Pennsylvania. Initial financial problems due to low customer volume were overcome, and Carrefour opened a second hypermarket in the Philadelphia area in 1991. Carrefour continued to provide autonomy to each department head through its successful policy of decentralization and continued to focus on long-term results rather than immediate successes.

In the early 1990s, all members of the founding families of Carrefour left the company’s active direction and formed an advisory council. Carrefour sold its stores in Annecy and Cran-Gevrier to Casino, and, in return, Casino sold its hypermarket in Nantes to Carrefour, so that Carrefour only managed stores of more than 2,500 square meters. While France had reached the saturation point with 798 hypermarkets, Carrefour continued to expand in foreign markets, with its own stores or partnerships in Austria, Great Britain, the Netherlands, Switzerland, Germany, Belgium, Italy, Spain, Africa, Argentina, Brazil, and the United States.

In 1992, Carrefour planned to open two new stores in Great Britain in a joint venture with Costco, a warehouse club company. In addition, the company’s discount food chain, known as Ed, was also established in Great Britain and Italy, providing a limited range of products at extremely low prices. Through the acquisition of Euromarche that year, Carrefour gained control of several stores throughout Europe. It also opened new stores in Spain, Brazil, and Argentina and began plans for stores in Taiwan, Turkey, and Malaysia.

In 1993, Carrefour faced further challenges to its expansion in France in the form of a government-enforced freeze on new hypermarkets in rural parts of the country. Nevertheless, accustomed to such legislative and noncompetitive restrictions, the company was expected to continue its pattern of growth, particularly in foreign markets. Moreover, the company would likely rely on its reputation for innovation, as well as its commitment to modification, decentralization, competitive prices, and flexibility in its selection of products to ensure success in the rapidly changing retail market of the late twentieth century.

Principal Subsidiaries:

Carrefour (France); Immobiliere Carrefour; Essodis; Carrefour Italia Finanziaria (Italy); Erteco; Carrefour Nederland BV (Netherlands; 91%); S2P (60%); Sogara (50%); Sogramo (50%); Superest (50%); Carma (50%); Carcoop SA (50%); Carfuel (50%); Carrefour Holdings, Inc. (United States; 40%); But (30%); Comptoirs Modernes (22%); Viniprix (15%).