Carrefour Group4

7/29/2019 Carrefour Group4

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Carrefour China

MKT 6120A Group4

Daniel TO, Tim FIFE, John , Sabrina TAI, Jie LIN, Caleigh CHAN


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Agenda

Rule 1: Set up a complete marketing plan

Rule 2: Understanding the effects of a changing China market environment

Rule 3: Understanding the intrinsic differences in the China market

Rule 4: In doing business know yourself and your competitors thoroughly

Rule 5: Rely mainly on your own company strength.

Rule 6: Adapt quickly to the Chinese market culture

Rule 7: Follow absolutely the Chinese laws Rule 8: Find a trustworthy partner with political strength

Rule 9: Have patience and perseverance. Must not compete with time.

Rule 10: Be very conservative with your financial budgeting at the beginning

- Follow the ten rules -


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Rule 1Set up a complete marketing plan


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Setting Up a Complete Marketing Plan

In 1980s Carrefour entered Taiwan, Singapore,

South Korea and Thailand.

In Taiwan they formed a JV with Uni President

Enterprises Corporation

Originally planned on hypermarkets of 10,000

square meters, later due to market research used

around 3500 square meter stores in urban areas.


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Beginnings in China

1995 entered a JV with Zhong Chung

Formed company called Chuang Yi Jia

Opened first hypermarket in Shanghai

Between 1995 and 2001 opened stores by

forming agreements with various local

governments.

By 2001 27 Hypermarkets in 12 Cities

Planned on continuing to expand


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Rule 2Understanding the effects of a

changing China market environment


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China market environment

Prior to 1980, the retail industry in China wascontrolled by the government comprising of wetmarkets and government owned grocery stores

In 1992, the government opened up the sector toforeign investors

6 Major CitiesBeijing, Shanghai, Tianjin,Guangzhou, Dalian and Qingdao plus 5 specialeconomic zones including Shenzhen, Zhuhai,

Xiamen and Hainan Island Prior to its entry into the WTO, China relaxed its

polices even further


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China market environment

First Mover Advantage: Carrefour was the first

international retailer to set up operations in

Asia

Entered Taiwan in 1989

Opened its first store in China in 1995


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Rule 3Understanding the intrinsicdifferences in the China market


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Intrinsic differences in the China market

Local preferences vary greatly betweenprovinces

For example, fresh fish can be sold in cities

closer to the costal lines such as Shanghai Only frozen fish is sold in cities in Middle and

Western China

In the Shanghai hypermarkets, over 50% ofthe televisions stocked are flat screens; storesin rural areas stock only 20% flat screens


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Rule 4

In doing business know yourself

and your competitors thoroughly


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Know Your Competitors


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Wal-Mart

Known for its success in USMarket.

Opened 1st store in1996

Stores are up to 21000

square meters with parkinglots, in outskirts of town.

Good Relationship withChinese Govt Donated $1 Billion to

Tsinghua University in 2004 to

establish institute of retailingresearch.

Huge exporter of ChineseProducts.


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Trust-Mart

Entered the China

market in 1997

In 2006 had over 100

stores in 34 cities In 2007, Wal-Mart

acquired a 35% share of

Trust-Mart.


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Tesco

Entered China in 2004through merger withTaiwanese based Hymall(50% stake).

2006 increased to 90% stake.

In 2006 had 45 stores underHymall name.

2007 opened first storeunder Tesco name. Other stores changed name

to Hymall Tesco

Plans on opening TescoExpress convenience stores


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WuMart

Started in the 1990s byDr. Zhang Wenzhong He developed a IT system

for retailers, no onewanted to use it so he

opened WuMart. By 2006, WuMart had 503

stores in Beijing 12 Hypermarkets, 47

supermarkets, 436

convenience stores, and 8drug stores.

Aggressively marketingutilizing Olympics in 2008.


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Summary of Competition

In 2007 both Carrefour and Wal-mart opened

their 100th stores.

Market is still highly fragmented.

Companies are moving to Tier 2 cities because

of lack of location in Tier 1 cities.

Although Carrefour had an advantage

previously, it could easily lose it in the future.


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Rule 5Rely mainly on your own

company strength


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SWOT Analysis

- Experience and learningfrom Chinese consumersand business in Taiwan

- Decentralization

- Deep Localization

- Reluctant brand imagevs. Poor stakeholderrelationship

- Fast-growing middle-class households

- Fast Urbanization

- Speed-up marketConsolidation

- Intense competition

Strength Weakness

Opportunity Threat


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Rule 6Adapt quickly to the Chinese market culture


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Targeting vs. Positioning

Targeting:

Urban middle-income class ( If broader definition, high-

income class is included)

Positioning:

Modern shopping experience provider where consumers can

find the lowest price with the best quality and service in a

comfortable/convenient shopping environment

5 concepts to support positioning

One stop shopping, Lowest price, Fresh good,

Self service, Free parking


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Marketing Strategy

Centralized Principle:

Adopt quickly to the Chinese culture

Understanding Chinese consumer is the key

- 3 basic market researches per store per year

Proactively make changes for local culture

differences

- Adopt fresh concept in traditional market whileadopt frozen concept in western China


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Evidence of Adaptation

Adaptation on Product: wide range of product offers (e.g.

sold live fish to meet local needs), procured majority of its

products locally to ensure food freshness.

Adaptation on Product Familiarization: China consumers not

very often to drink wine, Carrefour simply explained to

Shanghai customers which wine to have fish or noodle.

Adaptation on Pricing: lower prices approach because

Chinese consumers are price conscious.

Adaptation on Operation: employed local supply chain (use

18-wheel trucks and three-wheel bicycles for operation).

Adaptation on Store Management: decorated stores in

accordance with Chinese traditional habits with theme,

and kept store in clean environment.


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Executions at Chinese Retail Market

On Procurement: procured most of goods from local

suppliers which catered to its local operations, this

approach also helped on margin of retail business.

On Logistics Management: the infrastructure and

quality of transportation condition and rail network

varies, Carrefour employed the services of local

distributors who were well-versed with local networks.

On Store Selection and Management:

chose store locations carefully by support of fact

findings from field study.

JV company to open hypermarket Chuang Yi Jia inShanghai, the residential area, where caters to

needs of middle class of city.

Daily operation was conducted by local store

managers.


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Customer Facing Strategy

Customer Perception: Chinese consumers care about price

all the time! Carrefour keeps low prices to be top of

consumers mind.

Consumption Preferences: Carrefour sold live fish at where

the store nearby coastline

Buying Behavior: Asian consumers prefer short travel time,buy small quantities >> Carrefour promoted under one

roof and advocated convenience to attract consumers to

their stores.

Customer Services: trained store staff to provide customerservices to retain customers and increase traffic flow.

Customer Bonding: planned to introduce loyalty cards by

the end of 2006 to retain existing customers and attract

new customers in China


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Execution of Marketing Plan & Strategy:

1/ Product

more than thousand products thatCarrefour sold under its own label as

of 2006

convenience for Chinese customers.

Product mix would be varied fromstore-to-store

For example, consumers lived near

coastline can buy live fish at Carrefour

store; consumers at middle and

western China would buy frozen fish.
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2/ Price

Chinese consumers are price conscious

It offers prices at 20-40% below the

market price of its competing branded

products

private labels sold at 10-20% lower thanother branded products with superior

quality.

Carrefour scanned prices of competitors, it

keeps eyes on its competitors best selling

products to make itself stay competitive.

store managers adjusted price to meet

market needs, you may see four different

pries of same products at four different

Carrefour stores

meaning: Good-for-value!


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3/ Place/Distribution decorate stores with traditional atmosphere and

stacked the stores with thematic products insome festivals e.g. Lunar New year

picked store location by careful study on critical

factors: space, purchasing power of target

segment, purchasing potential and buying habits.

Some stores were situated in big shopping malls

and their adjoining neighborhoods in sub-urban

areas.

To tackle distribution problem, worked with local

distributors and used their services to deliver

direct to the stores because flexibility does

matter.
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4/ Promotion

concept of

everything under one roof

,

selling wide variety of goods, a key attribute to

attract consumers

Carrefour did not frequently organized

promotional campaigns and just typically ran 50to 100 advertised circulars per year (at 2.1% of

discount store sales on advertising)

No neck-cutting price promotion (unlike Wal-

Mart, it has everyday-lowest-price)

Planning the promotion of loyalty card to some

frequent purchase customers.

f k l
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5/ People operating in 29 countries with 12,028 stores;

employed 436,000 people by December

2005

Invested in HR and treasured people as

companys assets.

Carrefour adapted decentralization to

empower store managers to make decisions

to cater for local consumers.

provided training and incentives to retain

good people.

Trainings given to internal staff and alsoexternal partners (e.g. farmer and vendors)

for good sake of business operation

i f k i l &
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6/ Process

partnered with local distributors to ensuresmooth and flexible delivery process

each Carrefours store managed around 40,000

products >> process of delivery is critical!

Carrefour educated its suppliers on business

efficiency and provided necessary assistances

so as to ensure the delivery process not to

affect stores operations.

concerned process of goods sold from store toconsumers, as smooth operation not only

saved transportation cost but also shorten the

time of delivery and replenishment
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7/ Physical Evidence

Store ambience is cleaner, sizable, spaciousand familiar with Chinese consumers (live fish

made them feel in wet and fresh market).

More checkout counters to cater to frequent

Chinese shoppers at smaller quantities.

Decorated its stores with traditional practices

and stacked the stores with special theme

during festival period.

Stack design, stack, display and uniform of

shop assistants were affecting the perceptionof customers.

Carrefour trained store staff to serve in order

to provide better shopping experiences for

customers.


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Rule 7Follow absolutely the Chinese laws


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Follow Absolutely the Law

Open stores in capital cities of provinces & autonomous regions, municipalities

directly under the central government, cities separately listed in the plan, and

special economic zones

Chinese operators had to provide no less than 35% of the total capital in the

jointly-operated commercial enterprises

No more than three in each stated

areaGovernment approval required

Carrefour manages

to break them all!

These rules were relaxed with Chinas entry into the WTO in 2004

Experimental Measures on Commercial Enterprises with

Foreign Investment published in 1999


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The Breaking of The Law

Why?

Carrefour wanted to

expand rapidly in China

Central governmentprocess too slow and

might not getpermission

Expectations of law beingrelaxed with entrance to

WTO anyway

Would get first mover

advantage in manyprime retail sites

Side-stepping the slow central

government approval process by

working directly with provincial and

city governments, which were alsokeen to expand their local economies

Go to the local mayor, the communist

party member and say I'll bring you a

Carrefour store, pay taxes, create jobs,

and pay rent"'

How?


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The Punishment

Two years before Carrefour could continue expanding its store operationsin China

Restarted by obeying Beijing's call to go west and invest in less populousand affluent places like Urumqi

Circular on Punishments for Carrefours Deviant Behaviours

in Conducting Merchandising Business in ChinaRestructure its 27 stores, and rapidly

transfer 35 percent of its 100%ownership of three local stores to two

trading firms.

Set up 10 procurement centresacross the country, to procure

Chinese goods to sell in its storesall over the world

Forbidden from expanding further inChina until agreement with central

government was eventually reached

Seek approval from the centralgovernment for each of its 27 stores

again

The lesson learned is that China can

overlook the law but then suddenly

apply them at a later date even ifthese laws could be imminently

changed in the future.

Still P bl


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Still Problems..

Foreign retailers must passannual inspections before they

can open new stores

Local governments areresponsible for ensuring thatforeign retailers comply with

regulations

Hence the maintenance of localrelationships remains essential

for Carrefour to preventfavouritism to local competitors

Entrance to the WTO was accompanied by a relaxation of laws for foreign

retailers operating in China, problems with law compliance still exist

April 2006, Carrefour fined for selling fake

Louis Vuitton handbags at a price

equivalent to about US$6 each in its stores.

A Shenzhen-based supplier had bought the

fake bags from a Shanghai street vendorafter it found itself short of stock

August 2007, fresh produce managers in

Beijing and Shenzhen investigated by police

for bribery in the form of indirect kickbacks;

acceptance of credit cards, lottery prizes and

payments made in exchange for hostingpromotional campaigns by suppliers

Although Carrefour may wish to

strictly abide to Chinese law at a

company level, because of the

decentralised management of the

business, it is still at the mercy of its

local managers and suppliers to follow

this law

Regulatory Problems

Bribery & Corruption


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Rule 8Find a trustworthy partner

with political strength


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Find a Trustworthy Partner with Strength

Chinese management

consulting firm Zhong ChuangCarrefour

Commercial enterprise company Chuang Yi

Jia

1995 First of Carrefours

hypermarkets in a

residential area of

Shanghai

Shanghai based Linhau

Supermarket Chain

One of the largest in

China

Selected Tier 1 cities

throughout China by usingpartnerships

Affluent Tier 2 cities such as Dongguan and Zhuhai

Create regional

offices.

End of December 2007, Carrefour had a total of 112 hypermarkets in China


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The Benefits of Partnerships in China

Relationship,

knowledge and

Supply Chain

Benefits

Faster GrowthCheaper

Operational Costs

Legal Process


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The Carrefour Partner Selection Process

Choose a weak, silent partner, or a co-operative, active,

value-added partner Know your partner

Align your goals

Set the correct marriage terms

Relationship

All of partners in China must have a long-term view The partner must have a very good network at local level

Markets where Carrefour already have a strong marketposition and recognised commercial model

Operational

The partner must have cash to be financially secure tocope with future expansion and existing liabilities

Assets must be integrated relatively quickly, do not add tofixed costs

Assets must increase cash flow and improve ROCE

Financial

Ever since China entered the WTO in 2004, Carrefour no longer has to tie up with

possibly unsuitable partners to gain exposure to a particular city or region

Instead it can choose to either enter it though its own fully owned subsidiary, or

through careful selection of a partner that can positively add to its business

Supply Chain Management and


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Supply Chain Management and

Localisation Relationships

A highlyfragmented andunsophisticatedindustry withvarious barriersover a vast landmass

Import taxes ifsource fromabroad

Some 75% ofChinaspopulation areover 50 Tier 2and Tier 3 cities


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The Carrefour Supply Chain Approach

Carrefour used many of these problems to its advantagerelative to its competitors with its localisation strategy

85% - 90% of its

goods procured

locally

Close supplier vendor

relationships

Local purchasingcentres set up. By

2007, 11 purchase

centres had been

established across the

country

Huge cost savings

Faster, more reliable delivery

Better Inventory

Management


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Rule 9

Have patience andperseverance.

Must not compete

with time.

Rule 10

Be very conservativewith your

financial budgeting at

the beginning

VS.

f ( hi ) i f


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Carrefour (China) Operation Performance

Review

Key Performance Indicators:Net Sales Per Year, Number of stores opened in

China

2001 2002 2003 2004 2005 2006 20073 3 5 5 5 6 5

1.01 1.03 1.14 1.39 1.78 2.14 2.55

2% 10% 22% 28% 20% 19%

24 32 40 62 78 90 112

0 0 55 164 225 255 275

24 32 95 226 303 345 387

33% 197% 138% 34% 14% 12%

Carrefour Group Performance Indicator

Total no. of store in China

Growth Rate of Stores Expansion in China:

Ranking in Top 20 Retailers in China

Net sales per year (Billion, Excl VAT)

Growth Rate on Net Sales:

No. of Hyper/Supermarkets

No. of Hard Discount Store - Dia/Champion

C f (Chi ) O ti P f


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Review

Key Performance Indicators: Sales in thousand sq. meters,

Growth rates of profit contributed to Group

VS

Groups annual growth rate on profits

Sales in thousand sq meters 2001 2002 2003 2004 2005 2006 2007

190 259 321 464 569 723 848

0 0 0 9 10 0 0

Hard Discount Store 0 0 15 42 56 61 63190 259 336 515 635 784 911

9,151 9,767 10,042 10,672 11,080 11,753 13,050

2.08% 2.65% 3.35% 4.83% 5.73% 6.67% 6.98%

1.30% 10.83% 18.01% 24.13% 15.73% 13.39%

7.00% 7.40% 4.10% -2.90% 6.60% 3.40%% Growth rate of Profit for Group:

Hypermarkets

Supermarkets

Sales in thousand sq meters in China

Group Sales in thousand sq meters

% of Sales in thousand sq meters China held:

% Growth rate of profit contribution to Group:

C f (Chi ) O ti P f


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Review

Profit Contribution to Group:

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2001 2002 2003 2004 2005 2006

Growth Rate of Profit Contributed to Group VSGroup's annual growth rate on Profits

% Growth rate of Profit for Group: % Growth rate of profit contribution to Group:

14%

4%

C f (Chi ) O ti P f


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Review

Stories behind numbers: Year 2001-2002

Net Sales Growth Rate 2%, lowest. On average 20%

(Year 2002- Year 2007)

Violated Central Governments restriction onmaximum stake ownership in retail join

venture/Number of outlets could operate per city

Resolved in late 2001 (35% shares transferred to its

local join venture partners.)Result: Stopped expansion in 18 months. Slow growth.

Carrefo r (China) Operation Performance


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Review


The growth rates on net sales and number of stores

increased rapidly later years.

2001 2002 2003 2004 2005 2006 2007

3 3 5 5 5 6 5

1.01 1.03 1.14 1.39 1.78 2.14 2.55

2% 10% 22% 28% 20% 19%

24 32 40 62 78 90 1120 0 55 164 225 255 275

24 32 95 226 303 345 387

33% 197% 138% 34% 14% 12%

Carrefour Group Performance Indicator

Total no. of store in China

Growth Rate of Stores Expansion in China:

Ranking in Top 20 Retailers in China

Net sales per year (Billion, Excl VAT)

Growth Rate on Net Sales:

No. of Hyper/SupermarketsNo. of Hard Discount Store - Dia/Champion



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Review


What can a foreign firm learn from Carrefour

Experience??

Patience, Perseverance are the keys of success when

doing business in China


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Review

Stories behind numbers:

Year 2003-2006

Year 2001, China Member of WTO. New opportunities for

medium-term growth for Carrefour China.

Year 2003, Set up Champion Supermarket. Till

Year 2005, total 14 Stores

(JV Beijing Shoulian Supermarket Limited)

Year 2003, Established first Hard discount store, Dia-

Convenient Stores. Expansion Rapidly

(JV Shanghai Lianhua Limited)

Total initial capital investment 254 million


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Review


Champion Supermarket underperformed Total operating loss amounted to 14 million Competition or overlapping business

Discontinued in Year 2006

Sales in thousand sq meters 2001 2002 2003 2004 2005 2006 2007

190 259 321 464 569 723 848

0 0 0 9 10 0 0

Hard Discount Store 0 0 15 42 56 61 63

190 259 336 515 635 784 911

9,151 9,767 10,042 10,672 11,080 11,753 13,050

2.08% 2.65% 3.35% 4.83% 5.73% 6.67% 6.98%

1.30% 10.83% 18.01% 24.13% 15.73% 13.39%

7.00% 7.40% 4.10% -2.90% 6.60% 3.40%% Growth rate of Profit for Group:

Hypermarkets

Supermarkets

Sales in thousand sq meters in China

Group Sales in thousand sq meters

% of Sales in thousand sq meters China held:

% Growth rate of profit contribution to Group:


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Review

Stories behind numbers:

Year 2003-2006

What can a foreign firm learn from Carrefour

experienced??

Monitoring financial performance closely and

adjusting the strategy on time are the keys ofsuccess when doing business in China

THIS IS A SUCCESSFUL STORY FOR

CARREFOUR IN CHINA


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