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Three years ago Carrefour seemed to be on the cusp of a transformative deal.
The French supermarket group was in talks with Canada’s Alimentation Couche-Tard to sell itself in a €16.2bn deal which would have created a transatlantic retail giant.
However that proposal was rapidly shut down by France’s finance ministry within a matter of days, on the grounds that it threatened the country’s food security. Later that year, Carrefour and smaller privately held French rival Auchan ended talks over a €19.4bn tie-up after the two sides failed to agree on terms and Carrefour faced opposition from some of its top shareholders.
In the intervening years the Paris-listed group’s share price has stagnated at around €15 while it trades at a sizeable discount to the MSCI Europe Food & Staples Retailing index. Carrefour’s market capitalisation has also shrunk by more than a quarter to under €10bn since chief executive Alexandre Bompard took the helm in 2017.
That is partly why the 52-year-old executive has been examining a wide range of options with its advisers to boost valuation, four people with knowledge of the situation said.
Scenarios have included disposals, including Carrefour’s operations in Italy or Poland, one of the people said, who cautioned the deliberations which were first reported by Bloomberg were at a preliminary stage.
“What is certain is that Bompard is looking for a way out of Carrefour’s current situation. He can’t be satisfied with the current valuation,” said one of the people. “Conversations like this always take a long time to come to a decision because you’re weighing it against alternative scenarios such as a transaction on the whole.”
Bompard has been frustrated by Carrefour’s performance, several people familiar with the situation said. But gaining momentum in the competitive, low margin grocery retail business is notoriously difficult — especially as inflation has put pressure on consumers.
It is even more challenging in the fractured, highly competitive French market, which accounted for over a third of Carrefour’s global 14,930-strong store network and just under half of its €94.1bn in sales and operating income of €2.26bn last year.
The fifth largest supermarket group in Europe by sales, Carrefour has gained market share in its core French market in the past year — moving from 19 per cent at the start of the year to 21.4 per cent according to Kantar — thanks to investment in cutting prices and acquiring smaller rivals Cora and Match from Belgium’s Louis Delhaize group earlier this year.
Over the years Bompard has aggressively cut costs and prices to woo customers and invested in ecommerce to catch up with competitors. He has also converted underperforming large format stores into franchises.
Carrefour has more than halved its product price gap with Leclerc, the historical price leader in France, compared to last year, analysts at Barclays noted.
However while sales and cash generation have improved, operating margins have been difficult to budge and have declined slightly over the past three years, moving from 3.06 per cent in 2021 to 2.67 per cent last year.
Sales in France fell 3 per cent on a like-for-like basis to €11.7bn in its most recent quarter although volumes improved as the company invests in pricing amid fierce competition.
“This competitive pricing strategy is bearing fruit — Carrefour has started to regain market share in volume terms,” analysts at Barclays wrote. “A recovery in French margins is key for future earnings growth. The management team’s focus is on turning around domestic operations.”
Carrefour declined to comment for this story.
The question is what now. Selling out of non-core markets is a tactic Carrefour has employed before. It exited China, which was lossmaking, in 2019 as part of a global consolidation strategy after a period of rapid expansion that stretched the company’s resources. It also sold out of Taiwan in 2022, and departed Colombia in 2012.
“Exit multiples were very good for Colombia and Taiwan. Sales like this have been done before in the industry, and by Carrefour. It makes sense to retrench on the core when business is challenging,” said Cedric Lecasble, analyst at Stifel.
Spain and Brazil are both strong markets for Carrefour so are unlikely to be top candidates if Carrefour were to move forward with asset sales, Lecasble added. However mature, non-core European markets like Italy, Belgium, Romania or Poland could make sense, he said.
The most radical solution would be a sale, such as to private equity groups. While the option has been floated by advisers over the years, the idea is fraught with difficulty, the people said. People close to the company insist it is not on the table.
Pharmaceutical giant Sanofi’s proposed deal to sell its consumer health division to American private equity firm Clayton Dubilier & Rice in October set off a political firestorm. The French state has decided to take a small stake in the €16bn spin-off in order to guarantee its interests on issues like jobs and health supply chains.
“Carrefour is one of the biggest employers in the country, and a private equity sale implies cost retrenchments and job cuts. The opposition on the social and political sides would be huge,” said Lecasble.
Those constraints, plus the difficulties of the sector, may dampen interest. When the prospect had been floated to private equity in the past “the reaction has been: to do what with it?” said another banker in Paris. “The exit and synergies aren’t obvious.”
But with the share price still depressed and management keen for answers, “now could be a time to look at it, and other options, again,” said a third banker.
