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Copy of Carrefours History
Transcript of Copy of Carrefours History
Carrefour is a French Multinational Retailer founded in 1958.
Today it has grown to become one of the largest "Hypermarket" chains in the world with 1452 stores worldwide.
Carrefour has branches located in Europe, Latin America, Middle East and Asia.
CARREFOUR'S MISADVENTURE IN RUSSIA
Carrefour is one of the worlds largest "Hypermarket chains". This presentation addresses the company's expansion into Russia and the issues it faced while in operation. It analyses the reasons of Carrefour's exit from Russia and examines the reasons for its failure in such a successful potential market.Finally the presentation concludes by discussing if the Russian retail market is a potential choice for future foreign oppurtunities.
Russia has a population of 145million and by 2009 became Europes fastest growing consumer economy, expecting to overtake UK and Germany by the end of 2012.
The retail market in Russia was expected to grow to $745billion in 2011.
Russia has witnessed large growth in its retail industry due to its exponential increase in disposable incomes as a result of oil wealth.
In 2001 per capita income was at US$1,185; by 2007 this had increased to US$4,803.
Russians spend 94% of their monthly earnings.
According to AT Kearney’s Global Retail Development Index (A leading global management consulting firm), Russia remains one of the most favoured destinations for global retailers as a potential market.
Russia's growth in Retail has been mainly in areas such as Supermarkets, electrical stores and Fashion retailers, all part of Carrefour's product range.
What were the factors that led to Carrefour's sudden exit from the Russian retail market?
Carrefour found it extremely difficult to conduct business with the existing level of bureaucracy in Russia. This meant that even the smallest of tasks required alot of time and effort due to government delays and procedure.
There was a high level of corruption present in Russia, companies had to bribe the authorities to get certain jobs done.
MNC's were required to hire "Krisha's" which were local firms to handle payments and enabled the MNCs to run smoothly.
Carrefour's bid to purchase 'Seventh Continent' another major retailer in Russia was rejected.This became a matter of concern as it's goal was to become the leading retailer in Russia which required that it acquire other major retailers.
"Stores in emerging markets are the only ones doing well and offering good growth prospects, so selling them makes no sense other than making short-term financial gain." Do you agree with this statement?
Critically analyze the Russian retail market in light of Porter’s five forces model. Do you think the market is lucrative enough to attract more foreign players? Explain.
In 2008, Russia’s retailing industry valued US$480 bn
Food retailing accounted for 45.3% = US$217.44 bn
Fastest growing consumer economy (2009)
Population of 143 million
Moscow & St.Petersburg two largest city in Russia
Most concentrated retail activities.
Highly saturated market:Scientists > Management Graduates
High degree of Bureaucracy (Red tape & complicated legislatives)
Unpredictability & unreliability (tax authorities & judiciary)
Corruption and uncertainty – difficult operating environment
Hire security firm
Partner local company
Sell as Franchise
Porter’s 5 Forces Model:
Porter’s 5 Forces Model for Russia Retail Market:
Do you think the market is lucrative enough to attract more foreign players?
Question 3 Continued...
High population rate
Growth in consumer economy, Low unemployment with a growth in wages and a reduction in inflation
High level of consumption
Consumer’s demand is satisfied
Availability of resources is high
Strong current account with less public debt
High degree of bureaucracy and complicated legislative framework
Industrial output declined in early 2013
Persisting high inflation from 2012
High level of competition
Lack of credit to retailers for carrying out the acquisition
High debt burden of the local retailers
Slowing economic growth
•Carrefour showed its interest in the Russian market in the mid-1990s at first. It also finalized two prime locations but, exited from the country because of the 1998 financial crisis.
•Carrefour said sales in its home market, France, where the company generates more than 40% of annual sales, fell 3.4% in the third quarter to €10.4 billion, as a weak performance in non-food sales continue to weigh on hypermarket sales.
•Although the economic downturn has dampened Russia's retail prospects, Verdict continues to believe that the long-term growth potential of the market remains attractive. However, despite strong growth potential, the market is still plagued by severe obstacles and barriers to entry, including a complicated legislative framework, and widespread bureaucracy and red tape.
•During the global economic crisis of 2009, Carrefour opened its second store in Russia.
•It was announced that the crisis would not change Carrefour’s plans knowing very well that Russia was under recession for the first time in a decade.
Russia’s market is indeed lucrative enough but due to high local competition, poor levels of government legal control and difficulty in acquiring a local player or partner, foreign players such as Carrefour may reconsider investing in Russia.