2011 mmui facing diversity carrefour in asia

GLOBAL BUSINESS ENVIRONMENT

MMUI 2010

Bernardus Erry Nugroho (1006793113) John Anthonius (1006793706) Fanny Siskarina (1006793441) Luciana (1006793800)

Facing Diversity

Case Study of Carrefour in

Emerging Asia China – India – Indonesia

As of 2010, Carrefour S.A. was the largest global retailer in Europe and the second largest of the world in terms of revenue1. Carrefour develops with a multiformat approach ranging from its core hypermarket chains to supermarkets, convenience and hard discount stores. For professionals, Carrefour is also developing the cash & carry format. At year-end 2009, Carrefour had over 15,600 stores in 34 countries.

1 http://www.stores.org/2010/Top-250-List

Facin

g Div

ersity| 2

Figure 1: Carrefour’s Store Network, taken from Carrefour’s 2009 Annual Activity and Sustainability Report

F a c i n g D i v e r s i t y | 3

As hypermarkets chain, Carrefour combines a supermarket and a department store with an expansive retail facilities carrying a wide and attractive range of products under one roof, including full groceries lines and general merchandise. In order to realize its vision to become the preferred retailer wherever it operates and to ensure sustainable and profitable growth, Carrefour is currently focusing its global business activities in Europe, Latin America, and Asia. Carrefour’s objective is to be the strong leader in key markets and be able to perform improvement in the organization and operating model. Taking chance in the rapid growth in emerging markets especially in Asia and Latin America represents the Carrefour group’s third priority. In order to improve competitiveness and optimize its knowledge of customers, the Group will focus most of its development resources on countries with stronger growth potential; this includes China, India, and Indonesia which we will discuss in this paper. As of 2009, Carrefour invested a total amount of $ 21.6 billion on tangible assets, increased $ 337 million compared to in 2008. The huge amount of investment mainly included sales area operated by the Group. A breakdown of the investment on each Point of Sales (PoS) in China and Indonesia in 2009 is presented below.

CHINA Hypermarkets Supermarkets Hard discount store

Number of store 156 268

Sales area (thousand sq.m) 1,230 61

Sales area 1 store (sq.m) 7,885 228

Investment 1 store (EUR) 3,172,748 91,590

Investment 1 store (USD) 4,550,355 131,359

Investment 1 store (IDR) 42,961,572,823 1,240,208,491

INDONESIA Hypermarkets Supermarkets Hard discount stores

Number of store 61 15

Sales area (thousand sq.m) 382 23

Sales area 1 store (sq.m) 6,262 1,533

Investment 1 store (EUR) 2,519,930 617,009

Investment 1 store (USD) 3,614,084 884,914

Investment 1 store (IDR) 34,121,898,543 8,354,803,430

Table 1 & 2: Calculation on Carrefour’s Investment, data taken from Carrefour’s 2009 Financial Report

Reviewing the scale of investment and the magnitude of the risk inherent in hypermarket format as its core business, Carrefour’s investment strategy is very much different compared to the scale of investment and risk of smaller modern retailers with supermarket and convenience format. The large difference in the characteristics of a hypermarket with a supermarket or convenience store is reflected on the large scale of investment needed. Based on analysis of Carrefour’s 2009 financial report, the initial investment of a hypermarket reached more than thirty-five times the investment needed to build a hard discount store

in China and four times the investment neededIndonesia.

Chart 1: Investment per Point of Sales in China and Indonesia

Considering the high investment andmandatory that the Group success and sustainability of the businesscompany needs to avoid any overall Group’s performance Careful planning by including all aspectimpression of trial and errorsustainability of the Group’s This paper aims to analyze its business activities in Asiaas in Europe mainly due to The discussion will focus significantly. Focus of analysisrepresent countries with high

$4,550,355

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$5,000,000

Investment

PER

Hypermarkets

F a c i n g D i v e r s i t y

the investment needed for development of

nvestment per Point of Sales in China and Indonesia, taken from Carrefour’s 2009 Financial R

investment and risks for construction of a take careful consideration of all aspects

sustainability of the business. The Group as a highany business failure because it will have major impact

performance.

by including all aspects of business environment error is absolutely necessary to ensure business ’s growth.

the challenging business environment facedin Asia. As a region, Asia is very different fromdue to its high diversity that may not be obtained

on exposure diversity aspects that affectof analysis is the country China, India and

countries with high economic growth and high heterogeinity

$4,550,355

$3,614,084

$884,914

$131,359

China Indonesia

Store Format

INVESTMENT

PER POINT OF SALES

Hypermarkets Supermarkets Hard discount stores

35x

c i n g D i v e r s i t y | 4

for development of a supermarket in

, taken from Carrefour’s 2009 Financial Report

for construction of a hypermarket, it is aspects that will affect the

highly capital-intensive have major impact on the

of business environment that far from the business success and

faced by Carrefour in different from other areas such

obtained elsewhere.

affect the business and Indonesia, which

heterogeinity.

$884,914

Indonesia

4x


Retail Business Environment

The business environment can be understood in terms of four factors: Factor (Input) Conditions, Context for Firm Strategy and Rivalry, Demand Conditions, and Related & Supporting Industries. Factor (Input) Condition: presence of high quality, specialized inputs available to firms, for e.g.: human resources, capital resources, physical infrastructure, administrative infrastructure, information infrastructure, scientific and technological infrastructure, natural resources. Context for Firm Strategy and Rivalry Context: a local context and rules that encourage investment and sustained upgrading–e.g., intellectual property protection, meritocratic incentive system across institutions, open and vigorous competition among locally based rivals. Demand Conditions: sophisticated and demanding local customer(s), local customer needs that anticipate that elsewhere, unusual local demand in specialized segments that can be served regionally and globally. Related and Supporting Industries: access to capable, locally based suppliers and firms in related fields, presence of clusters instead of isolated industries. In order to show better the different environment between Asia and other regions, we will take France into our comparison with the three Asian countries China, India, and Indonesia.

CarrefourInput

Conditions

Strategy & Rivalry

Demand Conditions

Related & Supporting Industries

Goal &

Strategy

I S S U E


BUSINESS ENVIRONEMENT CHINA INDIA INDONESIA FRANCE

Key Indicators, 2009

Population (millions) 1,345.80 1,198.00 230 62.3

GDP (US$ billions) 4,909.00 1,236.00 539.4 2,675.90

GDP per capita (US$) 3,678 1,031 2,329 42,747

GDP (PPP) as share (%) of world total 12.52 5.06 1.38 3.03

Factor (Input) Condition, 2009

Infrastructure (rank 1 = best condition) 50 86 82 4

Venture capital availability (rank 1 = very easy) 27 31 9 32

Technological readiness (rank 1 = most ready) 78 86 91 12

Context for Firm Strategy and Rivalry, 2009

Market Size (rank 1 = largest market) 2 4 15 7

Intensity of local competition (rank 1 = intense) 19 30 54 17

Extent of market dominance (rank 1 = spread) 23 26 42 22

Demand Conditions, 2009

Buyer sophistication (rank 1 = based on

performance attributes)

7 43 35

26

Related and Supporting Industries, 2009

Local supplier quantity (rank 1 = very numerous) 19 7 43 17

Local supplier quality (rank 1 = very good) 54 60 61 10

Table 3: Data & rank are based on Global Competitiveness Report 2010-2011 by World Economic Forum

Two most important input conditions with biggest impacts to Carrefour’s business strategy in emerging Asia are economical and sociocultural business environments. Without intention to minimize the influence of other business environment factors such as politics, technology, legal and ecology aspects, economical and sociocultural business environments relates more directly to the potential for business growth and consumer behavior as the main object of the retail business.

Economical

Business

Environment

Sociocultural

Business

Environment

CarrefourPreferred

retailer


Economical Business Environment

During the past 30 years China's economy has changed from a centrally planned system that was largely closed to international trade to a more market-oriented that has a rapidly growing private sector. A major component supporting China's rapid economic growth has been exports growth. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. Indonesia is the largest national economy in Southeast Asia. It has a market-based economy in which the government plays a significant role by owning more than 164 state-owned enterprises.

GDP Growth

Chart 2: GDP Growth Rate 2007-2011, taken from http://www.tradingeconomics.com

During 2007–Q1 2011, GDP growth in China varied between 6.2%-13%, in India between 5.8%-9.6%, and in Indonesia between 4.08%-6.9%. Compared to that of France which varied between -1.6%-0.8%, the average standard of living in those three Asian countries is steadily increasing.

Distribution of Revenue Household final consumption expenditure is the market value of all goods and services, including durable products (such as cars, washing machines, and home computers), purchased by households. It excludes purchases of dwellings but includes imputed rent for owner-occupied dwellings.


Chart 3: Household Final Consumption Expenditure 1967-2009, taken from http://www.tradingeconomics.com

Overall, the annual percentage growth of consumption was increasing in China and India before declining after 2008 (along with that of France) due to 2008 global financial crisis. Indonesia seemed not much affected by the crisis as the annual percentage growth remained stable. The percentage of consumption per GDP of China was only 35% which was the lowest compared with other three countries. Meanwhile, the growth rate of consumption of China was 9.7% as of Q1 2011 which was the highest in the world. China still has extensive room for market growth.

Consumer Confidence According to Wikipedia, consumer confidence is the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. Measures of average consumer confidence can be useful indicators of how much consumers are likely to spend. In essence, if consumer confidence is higher, consumers are making more purchases, boosting the economic expansion. On the other hand, if


confidence is lower, consumers tend to save more than they spend, prompting the contraction of the economy.

Chart 4: Consumer Confidence 2000-2011, taken from http://www.tradingeconomics.com

China’s consumer confidence was decreasing during 2010 but returned to increase due to slowing inflation in December. India’s consumer confidence was steadily increasing while Indonesia’s was declining, compared to decreasing in France.

Inflation

Chart 5: Inflation 2008-2011, taken from http://www.tradingeconomics.com

Inflation rate in China was steadily increasing while India was declining. Indonesia’s inflation rate was also declining after increasing in 2010. France’s inflation rate remained stable. Moderate inflation results in higher goods prices and will directly drive up the sales amount of retail enterprises, thus, helps retail sales growth.


Credit Public credit registry coverage reports the number of individuals and firms listed in a public credit registry with current information on repayment history, unpaid debts, or credit outstanding. The number is expressed as a percentage of the adult population.

Chart 6: Public Credit Registry Coverage (% of Adults) 2006-2010, taken from http://www.tradingeconomics.com

As seen in above chart, percentage of adults that have credit was increasing in China and India while declining in Indonesia, compared to increasing in France. This means more people use credit as a method of payment excluding in Indonesia.

Chart 7: Domestic Credit to Private Sector (% of GDP), taken from http://www.tradingeconomics.com

During Q1 2011, inflation rates in China, India and Indonesia varied between 5%-9%, compared to 2% of France. Due to inflation, level of prices was increasing which could lead to decreasing purchase power. In order to cope with inflation, people could either increase their credit as an alternative to afford product expense or decrease their spending. It’s a good option that Carrefour consider credit sales to sustain sales.


During 2009 in India, inflation rate and credit went linear, for exception in 2008. Meaning, when inflation increases, credit also increases. In China, the pattern reversed. Inflation increases, the credit declines. While in Indonesia, between inflation and credit does not have a constant pattern.

Minimum Turnover of One PoS & Number of Target Market Turnover, 2009 CHINA INDONESIA

Net Sales 2009 (in millions of euros) 3,473 812

Net Sales 2009 (in millions of USD) 4,981 1,165

Total sales area (thousand sq.m) 1,291 405

Sales area 1 hypermarket (sq.m) 7,885 6,262

Net Sales per hypermarket (USD) 30,420,670 18,007,120

GDP per capita (USD) per year 3,678 2,329

Final consumption expenditure 34% 61%

Distribution of revenue (USD) per year 1,251 1,421

No of ppl req for 1 hypmrkt (BEP 1 yr) 24,326 12,675

Population (millions) 1,346 230

Middle Class 23% 36%

Middle class population 309,534,000

Middle up class population 21,600,000

Number of possible hypermarkets 12,724 1,704

Tabel 2: data taken from Carrefour’s financial report & Global Competitiveness Report 2010-2011 by WEF

By considering number of middle class population around 309.5 million people in China and 21.6 million people in Indonesia, there were about 12,724 potential market in China and 1,704 potential market in Indonesia in 2009.

Sociocultural Environment

Products People Buy in Hypermarket Product categories in the three Asian countries vary across regions and are highly diversified. Localization is key and including local products in the product assortment is highly important. The ranges of private label are mostly economy products due to low acceptance among consumers. In east coast China consumers prefer fresh food, while western and middle China prefer frozen fish. India consumers in urban areas prefer food & apparel while those in rural areas buy more seeds, urea, FMCG goods and farm produce. Indonesia consumers buy FMCG, electronics, instant noodles and fresh food.

Chart 8: Traditional Grocery Trade 2009 vs 2000, taken from Retail & Shopper Trends Asia Pacific 2010 by :ielsen


Based on survey by Nielsen (chart 8 & 9), proposition people buy grocery and FMCG products in modern retail market is increasing compared to traditional market.

Chart 9: Total FMCG Growth in 2009, taken from Retail & Shopper Trends Asia Pacific 2010 by :ielsen

The chart below shows that in each category of product, Indonesian consumers tend to spend more than Chinese and Indian consumers. Consumer’s willingness in Indonesia to buy meat is almost ten times higher than in China and India, and willingness to buy bottled water is more than twice compared to China and India. This could lead to better strategy of supply chain of products to make sure their availability in Carrefour Indonesia.

-10%

10%

30%

50%

70%

Dairy Products

Feminine Hygiene

Bottled Water

Carbonated Drinks

Meat Mobile Phone

Consumer's Willingness to Buy Products

India Indonesia China

Based on survey by Nielsen, Indonesia grocerypharmaceutical in 2009 increasecompared to 2008. In additiondelivery was 8 million, increased 48% compared to was under one million rupiah.

Chart 10: Indonesia Retail & Consumer Trend

How People Do ShoppingIn India and Indonesia, housewives make up more than 50% of all main grocery shoppers compared to just 10% in China.and Indonesia purchase decisionstocking their purchase basket.China are female maids which generally are more Consumers in China and India are more focused on promotions compared to Indonesian consumers. Thus, price cut or other promotion strategy can drive and Indian consumers to purchase more Across the region shoppers tthey tried to limit their overall spending and use more convenient alternatives.

Chart 11: % of main shoppers

F a c i n g D i v e r s i t y

Based on survey by Nielsen, Indonesia grocery, food, personal care, home care, and in 2009 increased by 5.9%, 5%, 8.5%, 6%, and 7.9% respectively

In addition, electronic sales increased by 7.6%; while s 8 million, increased 48% compared to 2008, with 90% of

n rupiah.

: Indonesia Retail & Consumer Trend-Oct 2009, by :ielsen

How People Do Shopping In India and Indonesia, housewives make up more than 50% of all main grocery shoppers compared to just 10% in China. This can indicate that in countries like India

purchase decision is driven by housewives which are more selective in stocking their purchase basket. On the other hand, approximately 75% of shoppers in

which generally are more flexible and open to new products.

Consumers in China and India are more focused on promotions compared to Thus, price cut or other promotion strategy can drive

to purchase more.

Across the region shoppers tended to visit Hypermarkets less frequently during 2009 as they tried to limit their overall spending and use more convenient alternatives.

: % of main shoppers, 2009 Chart 12: % of shoppers focused on promotions

c i n g D i v e r s i t y | 13

personal care, home care, and 8.5%, 6%, and 7.9% respectively

electronic sales increased by 7.6%; while cell phone with 90% of the products sold

Oct 2009, by :ielsen

In India and Indonesia, housewives make up more than 50% of all main grocery dicate that in countries like India

are more selective in mately 75% of shoppers in

ible and open to new products.

Consumers in China and India are more focused on promotions compared to Thus, price cut or other promotion strategy can drive Chinese

ended to visit Hypermarkets less frequently during 2009 as they tried to limit their overall spending and use more convenient alternatives.

ocused on promotions, 2009


Chart 13: Frequency of visiting hypermarkets, 2009

Both in China and Indonesia, Carrefour targets on middle class people with hypermarket format; while in India it targets on middle class professional, retailers, and restaurants with cash-and-carry format. In the three countries, location determines consumers’ willingness to visit the store. Consumers prefer location within cities that close to where they live, have easy access, and can be reached by foot, bike, or car. Nevertheless, typical Indian consumer does not travel more than 6 km (3.75 miles) or 7 km to shop, and that few suburbanites own cars. Price and quality is an important factor for consumers in the three countries. Chinese consumers perceive hypermarkets to offer better quality products than local player. They spend more on luxury products, trade up across all product categories, will quickly abandon products for newer alternatives, put more faith in brand names, and in the same time they will always be smart shoppers regardless of price. Shopping for them is fun rather than a task. Nevertheless, chinese consumers were fussier shoppers and used multiple senses, especially chinese females which were more careful shoppers. Chinese consumers usually visit hypermarket three times a week. Number of visitors will increase during lunar new year (spring festival) with festive supplies and foods being the popular categories. Indian consumers perceive hypermarkets differently. Unlike western consumers, they think that bigger store has higher prices; while smaller shops can offer lower prices because their overheads are lower. In local markets, the dynamics of retail competition exist everywhere. Indian consumers are highly diversified with variations in the frequency with which people like to shop, variation in the kind of products that drive people to the store, and variation in the importance of the retail assortment. The Indian consumers are also noted for the high degree of value orientation (price sensitive-right product pricing), family orientation, and values of nurturing, care and affection. Even, luxury brands have to design a unique pricing strategy in order to get a foothold in the Indian market. Brand consciousness is increasing but varies across different product categories, gender, etc. Brands with longer presence are more likely to be known and used, and brands with identities that support family values tend to be popular and accepted easily in the Indian market. In addition, product which communicate feelings and emotions gel with the Indian consumers.


One uniqueness of Indian consumers is they see traditional products along side modern products. For example, hair oils and tooth powder existing with shampoos and toothpaste. Indonesian consumer is among the most optimistic in emerging markets. Indonesia’s borrowing penetration is only 33%. This should drive demand further. Despite Indonesia being a low-income country, foreign brands tend to be more popular, especially for luxury products. There is a clear and consistent pattern in consumption of branded goods as income levels improve. The lack of local expertise, unlike in the case for China, may also put limited options for Indonesia’s consumers to choose. For luxury items, such as auto, carbonated drinks and electronics, Indonesia is among the highest in terms of preference towards foreign brands. Interestingly, however, for personal care, the Indonesia consumers’ preference for foreign brands was the lowest in the other emerging countries, which may suggest the potential demand for local brands if Indonesia’s manufacturing sector is able to produce domestically. Another evidence found is the low preference for foreign brands for branded goods such as sport shoes and garments and watches. Indonesia consumers usually visit hypermarket after working hour at weekdays and the number of visitors doubles during weekend. They perceive hypermarket as a one stop shopping and entertainment place to spend weekend with their family. During Idul Fitri festive, sales usually doubles for food and clothes categories.

Engine of Development Top five factors influencing Indian consumers to shop at hypermarkets are product quality, assortment selection and newness, service, store ambience and convenience, and price. Chinese consumers on the other hand are brand driven, but prefer middle brand that offer low price and good quality. They also focus on promotions. Indonesian consumers are also brand driven. They tend to see hypermarket as symbol of lifestyle.

CONCLUSION Carrefour is the second largest global retailer worldwide. China, India, and Indonesia are Asia’s growth engine which along with Latin America represent the Group’s third priority after France, and other “G4” countries. Considering the large scale of investment and the magnitude of risk inherent in hypermarket format as its core business, it is mandatory that the Group take careful consideration of all aspects that will affect the success and sustainability of the business and avoid any business failure. Due to high heterogeinity of Asian business environment that may not be obtained elsewhere, the Group needs to focus its business activities on its key market (China, India, and Indonesia) in order to optimize its knowledge of customers and avoid the same mistake of its failure in some countries.


REFERENCE

2010 Top 250 Global Retailers

http://www.stores.org/2010/Top-250-List Carrefour’s 2009 Annual Activity and Sustainability Report

http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/RA/RA_Carrefour_PDF_WEB_2009VE.pdf

Carrefour’s Strategic Orientations http://www.carrefour.com/cdc/group/our-strategy/ Carrefour’s SG Premium Conference Dec 2010

http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/Presentation_aux_analystes/SGPREMIUM_3%20DEC_2010.pdf

Carrefour’s 2009 Financial Report http://www.carrefour.com/docroot/groupe/C4com/Pieces_jointes/Assemblee_generale/RFI_VGB_BAT_def_ve.pdf

Rotman’s Global Competitiveness http://www.rotman.utoronto.ca/research/competitive.htm

WEF’s Global Competitiveness Report 2010-2011 http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pdf

Various economic indicators http://www.tradingeconomics.com Nielsen’s Retail and Shopper Trends Asia Pacific 2010

http://hk.nielsen.com/documents/APACRetailandShopperTrendsReport2010.pdf Credit Suisse’s Emerging Consumer Survey 2011

https://www.credit-suisse.com/news/doc/media_releases/consumer_survey_0701_small.pdf

Nielsen’s Indonesia Retail & Consumer Trend October 2009 Carrefour’s Shanghai Group http://www.ln.edu.hk/mkt/staff/gcui/Carrefour.pdf French retailer Carrefour opens first wholesale store in India

http://www.sify.com/finance/french-retailer-carrefour-opens-first-wholesale-store-in-india-news-default-km4pasfgdig.html

Will Wal-Mart Succeed in India? Perhaps...But It Won't Be Easy http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4133 Consumer Behavior in India

http://www.google.co.id/url?sa=t&source=web&cd=2&ved=0CB8QFjAB&url=http%3A%2F%2Fedms.matrade.gov.my%2Fdomdoc%2FReports.nsf%2F0%2F2F841B9F6D04D5944825709000263441%2F%24File%2FPMSChennai05-ConsumerBehavior_1.doc%3FOpenElement&ei=-O_PTfe-C4aJrAfTjvjCCg&usg=AFQjCNFEiuzeyQLtDTmXTqRsCogn--jTYg

New Insights into Modern India Shopper Behavior and Implications for Global Retailers and Local Policymakers

http://www.google.co.id/url?sa=t&source=web&cd=1&ved=0CBkQFjAA&url=http%3A%2F%2Fwww.cci.som.yale.edu%2Fsites%2Fcci.som.yale.edu%2Ffiles%2FIndian%2520consumer%2520survey%2520-arpita_final%2520100702.ppt&ei=mvHPTZ_4BpCsrAeU3vnCCg&usg=AFQjCNGenR2CGb-Maree1DoVLerBtPf4TQ

Credit Suisse’s Indonesia Consumer Survey 2011 http://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=868401141&serialid=bOXyWRGos2LStSMDEdWMyrGkXijx4xcRY2neqvmX7Ls%3D

Exchange rates http://www.exchange-rates.org/Rate/EUR/USD/12-31-2009

2011 mmui facing diversity carrefour in asia

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