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Strategic Preview: Q1January – March 2014

8 April 2014 Gildas AïtamerRetail Analyst

STRATEGIC PREVIEW

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1. Expectations for the Quarter

2. France: Q1 Strategic Changes

3. Global: Q1 Strategic Changes

4. Outlook

5. What’s new at Planet Retail

Strategic Preview: Carrefour Q1

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France: Carrefour is aiming to double export sales of its Reflets de France product line year-on-year. To meet this objective, several strategies could be explored:

• Export to other Carrefour international operations, with enhanced presence in stores in CEE and the BRICs, primarily in outlets located in more affluent areas. This move is not fundamentally new as the equivalent Italian private label has been available in Belgian stores since last year.

• Export to new markets via local distributors. Germany and the UK are thought to be the most likely initial destinations given the proximity and potential volumes. British grocery e-commerce operator Ocado already distributes the private label range. However, Planet Retail believes further markets where demand exists for French produce such as the US or Japan could offer even more long-term potential.

We regard Carrefour’s pushing of its premium regional cuisine lines as a cost-efficient method of increasing economies of scale while differentiating itself from competition abroad.

Carrefour’s move echoes Casino’s internationalisation strategy for its French private labels. The retailer’s own brands are available across most of its international operations. Casino has signed several international distribution agreements and has recently announced that a distribution contract for its high-end Monoprix Gourmet line is to be concluded this year.

Boosting private label volumes

2. France: Q1 Strategic Changes2. France: Q1 Strategic Changes

Reflets de France is already available on Chinese shelves, but at twice the price as in French stores.

Introduced in 1996, the line generated some EUR320 million (USD438 million) of sales in 2013.

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Italy: Carrefour has introduced a new loyalty scheme named “Payback”. We believe the decision was motivated by a wider reshaping of

the commercial strategy of Carrefour Italy.

The American Express “Payback” scheme encourages co-operation with other businesses to provide enhanced value for cardholders. This move will help Carrefour differentiate from the currently better-performing Coop Italia and Conad which operate their own loyalty programmes.

However, while revolutionary for Carrefour, such a scheme is merely keeping pace with rival Auchan. The latter has a partnership with Europe’s other heavyweight loyalty operator, Nectar, which includes Italian partners such as Dixons Retail’s UniEuro electronic superstores.

Carrefour, to its credit, has adopted a less costly solution with Payback, which will allow it to reach new customers via its partner network. This, however, is at the expense of control over this particular marketing channel. It will be interesting to see if the venture actually proves beneficial to Carrefour and will be sustained in the long run.

New loyalty programme in Italy

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In Italy, the Payback card also offers points at Esso petrol stations, 3Mobile telecoms or with Alitalia airlines.

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Germany’s Rewe Group also joined the programme a few weeks later, as its first nationwide loyalty scheme.

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Turkey: CarrefourSA to change fresh food supply policy. Much as in other markets, Carrefour is trying to break free from

wholesalers for fresh produce as it favours supply directly from farmers. We see this as a way to offering fresher produce by streamlining the supply chain and cutting out costly intermediaries.

This policy change and convenience store expansion requires sharper investments in supply chain and back office functions. We believe that CarrefourSA was lagging behind in these matters, but recent investment in this area should provide a stronger base going forward.

Argentina: Carrefour is to invest some ARS800 million (USD127 million) this year in the country This amount is roughly in line with previous years. Planet Retail was

anticipating a hike of funding to around ARS1 billion (USD158 million) following the wider investment strategy as outlined by Plassat.

The bulk of the funds will be dedicated to small-box outlets which are ideal for small, but high frequency, purchases – worth considering in the context of high inflation.

In a market still dominated by traditional retailing, homegrown rivals Cooperativa Obrera’s eponymous convenience banner as well as Coto's Minimercado Coto have engaged in a degree of cautious expansion of late.

International round-up

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In Argentina, Carrefour is putting a strong emphasis on its convenience stores. 80 openings have already been confirmed for 2014.

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The new supply approach should enable CarrefourSA fresh produce to reach the shelves within 36 hours of intake, against 72 hours previously.