Casino, Carrefour: rapid change in French retailing

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On Sunday 16 July, the battle for the Casino takeover was over. Czech billionaire Daniel Kretinsky, together with Frenchman Marc Ladreit de Lacharrière, took control of the group with 50,000 employees in France, including 2,500 at its headquarters in Saint-Étienne, with a turnover of 30 billion euros and the brands Monoprix, Franprix, Casino and Vival.

The “3F” trio – Iliad founder Xavier Niel, banker Matthieu Pigasse and Franprix franchisee Moez-Alexandre Zouari – which in turn defended the Teract project with the cooperative group InVivo, is thus gone.

The casino and its emblematic CEO Jean-Charles Naouri are weakened by a colossal debt of 6.4 billion euros that has brought it to the brink of bankruptcy and whose renegotiation has been entrusted to two court-appointed trustees since 25 May.

In the midst of this capitalist soap opera in France, Carrefour has announced its biggest takeover in 20 years, to everyone’s surprise.

Carrefour has reached an agreement with the Belgian retailer Louis Delhaize to acquire the Cora and Match brands for 1.05 billion euros. The 60 Cora hypermarkets and 113 Match supermarkets in France had sales of 4.3 billion euros last year. They will contribute to the retailer’s 42 billion euros in France.

This operation has two objectives: To catch up with Leclerc (22.5% market share according to Kantar) and to distance itself from the number 3 Intermarché (15.3%), which has signed an agreement to take over 180 casino shops.

For Christophe Burtin, partner at Kea grande conso et retail, and Nicolas Cohen-Solal, partner strategy & operations at Eight Advisory, which has assisted 3F, Teract and the InVivo cooperative, as well as Casino, in a possible merger, the sequence illustrates some of the short- and medium-term challenges facing the retail sector.

Sales recovering after 2 years of inflation dragging them down; pressure on land following the passing of a law that puts a stop to the artificial exploitation of land; and with it, a mechanical consolidation of players.

They answer Consultor’s questions.

At Eight Advisory you had a front row seat when it came to the casino. What was the 3F, Teract and InVivo bid that you worked on?

Nicolas Cohen-Solal: We supported Teract in its strategic partnership plan with Casino. Teract and Casino wanted to combine their distribution activities in France with an industrial project based on two main axes: First, Teract proposed to Casino to take over its fresh produce departments (fruit, vegetables and bakery products) in the form of concessions. Secondly, Teract was to set up a shopping platform covering all common categories, with a range of products from short distribution channels and local products. In collaboration with InVivo (185 French cooperatives, 9 billion euros turnover, editor’s note), a network was set up for each region and each shop. So the business had several facets, an industrial project and a capital project. The project was not completed, mainly because of Casino’s financial difficulties.

If the business with Casino did not materialise, could it work with others?

Nicolas Cohen-Solal: At the beginning of July, Casino announced an alliance with Prosol (the fruit, vegetable, fish and cheese division of Grand Frais, editor’s note) for its fresh produce departments. Somehow, Teract’s idea must have whetted Casino’s appetite in this area. There is a good reason for this: fresh produce departments both generate sales and drive customers away. Offering local and nearby produce can set you apart from the competition. Studies have also shown that the presence of a traditional oven in a bakery aisle greatly increases footfall and sales for the entire shop.

Christophe Burtin: The Teract project aimed to secure supplies at a time when the climate is going to the dogs, which probably escaped no one’s notice. In times of abundance, it was easy to get products onto supermarket shelves and the balance of power was in the supermarkets’ favour. In times of scarcity – soft wheat, durum, mustard – farmers are entrepreneurs and have to sell their produce at the right price. Added to this are the Egalim laws, which are supposed to improve farmers’ remuneration. As a result, traders are under pressure, especially when it comes to fresh produce. In the industry, this is called the “revenge of the refrigerator”. Having relied heavily on the fridge, we could see a return to canned and dry products. With this in mind, the InVivo/Teract tandem was a smart decision. It aimed to improve the value chain from raw material to shop. A bit like what Xavier Niel, Matthieu Pigasse and Moez-Alexandre Zouari want to do with InVivo by transforming InVivo’s garden centres (Gamm Vert, Jardiland, Delbard, Jardineries du Terroir, editor’s note) into distribution points for fresh, local products.

Nicolas Cohen-Solal: In this project, we found that there were very few long-term agreements between retailers and farmers. Long-term commitments would allow for better anticipation and organisation and help to relax the whole value chain.

In the end, Daniel Kretinsky prevailed. Was this the right decision to revive Casino?

Christophe Burtin: It was certainly right for Casino to pull out all the stops in Paris, where it held a dominant position with Franprix and Monoprix. This competitive advantage has eroded for a number of reasons. Over time, everyone has come to Paris. There is a supermarket on every corner. Then, demographically, Paris is emptying. And finally, during and since the civil war, the capital has been deprived of tourists who do a lot of supermarket shopping. For now, Daniel Kretinsky is counting on experienced personalities (Philippe Palazzi, former COO of Metro and former CEO of Lactalis, and Jean-Paul Mochet, former president of Franprix and Monoprix) to take the reins at the casino.

Will this be enough to manage a price war between retailers?

Christophe Burtin: Retail is like a Maslow’s pyramid. Before we talk about digital and experiential offerings, we need to focus on a minimum of convenience. Consumers are not fooled and they know very well the difference between shops that are nicer than others. Shopping comfort is the first point you need to address. Are there holes in the tiles of the shelves? Peeling paint? Shopping trolleys that don’t roll smoothly? Hypermarkets, with their high energy consumption, freezers, ovens and regular 500 employees, are small factories that require constant reinvestment while keeping prices very low. Equipment must be the first investment. Hypermarkets are also suffering from cost inflation. The independents have understood this very well: While others were investing all over the world, they invested in their shops in France.

Just as the casino soap opera was coming to an end, Carrefour diverted attention by announcing the acquisition of Cora and Match. Were you surprised?

Nicolas Cohen-Solal: Not at all. We knew that Cora had raised questions about its costs and logistics. They had been looking for answers for some time. But the takeover came just when we least expected it!

Christophe Burtin: I am not surprised either. Cora was one of the many subsidiaries Carrefour counted in all regions before he decided to reintegrate it.

To catch up with Leclerc and keep Intermarché at a distance: Is the idea of competition the only driving force behind this takeover?

Nicolas Cohen-Solal: In our view, one of the most important issues is the 2021 climate law, which prohibits the creation of new retail shops in order to limit the artificial increase in floor space. It has recently been reinforced by a second law (of 20 July 2023, which aims to facilitate the implementation of targets to combat artificial land use, ed.). In this context, it will become very complicated, if not impossible, for supermarket chains to create new space. The race for square metres cannot be prolonged any longer, while in recent years the number of square metres has increased more than the sales volume in the shops. To gain market share, the various players will work to consolidate the market. Market consolidation has begun.

Christophe Burtin: It is often said that supermarkets in France are too concentrated. Some neighbouring countries, like Switzerland and the UK, are much more concentrated. In France, the target is a 25% market share. But with Leclerc, Système U, Lidl, Aldi, Auchan, Intermarché, Carrefour and Casino, you still have 8 central groups sharing the market – not to mention the chains.

Does that mean that their number could be halved?

Christophe Burtin: That is a possibility and we haven’t heard the last of it. In fact, it is not only the supermarkets that are consolidating. Daniel Kretinsky is also a shareholder in Métro and Fnac. With the acquisition of Casino, he is building a strong network.

Apart from consolidation, to what extent are these two businesses symptomatic of the challenges facing the retail sector?

Nicolas Cohen-Solal: The first is to revive consumption. With price inflation of 21% in 2 years, supermarkets have suffered volume losses in certain departments and consumption patterns have changed due to lower purchasing power. We are now seeing a drop in prices of certain agricultural commodities and energy. The challenge is to bring prices down to regulate inflation. The Ministry of Economy has put a foot in the door by opening price negotiations between suppliers and traders outside the annual negotiation period. The aim is for consumers to benefit from the price cuts as soon as possible. This may, as we have seen, lead to Pernod-Ricard withdrawing from Leclerc, the second most sold product in supermarkets after Cristalline. This is the time of year: after 2 years of high inflation, the market needs to adjust quickly.