#132 Carrefour. Who knew that global retail is that difficult?
For the longest time, French-based retail giant Carrefour made a good poster child for internationalization. With a presence in twice as many countries as British competitor Tesco, its expansion into foreign markets has been broader in scope and faster in speed than any other global retailer’s. Carrefour was one of the first grocers who saw opportunity in Southeast Asia where it entered in the 1990s. At the same time, its failures also came at a much grander scale. Carrefour pulled out of the USA as early as 1994; it left Mexico in 1995; Hong Kong in 2000; the Czech Republic and Japan in 2005; South Korea in 2006; Portugal and Switzerland in 2007; Russia in 2009; Colombia and Thailand in 2010; Greece, Malaysia and Singapore in 2012. In recent years, it has also been considering its units in China, Indonesia, Poland, Taiwan, Turkey, and other markets for divestiture. It almost looks like Carrefour has been undergoing a shift in strategy, and entered a great period of de-internationalization.
Then again, this may just be the nature of that beast called globalization. Some markets grow, others decline. One can never be certain of success, and sometimes companies just have to cut bait. Especially when the home market (in Carrefour’s case, France) still generates more than 40% of total global sales. Some of the countries that Carrefour entered were rather small and therefore, most likely, non-essential to the company’s overall performance. At one point, a prior CEO of Carrefour, Mr. Olofsson, had said that he was pulling out of countries where Carrefour has no realistic prospect of becoming market leader. Wasn’t the business world praising companies like General Electric (GE) for its focus on markets in which it could be number one or number two only?
And indeed, in most cases, Carrefour’s official reason for abandoning international markets was simple underperformance. The question is, what caused this underperformance? It certainly wasn’t part of a deliberate strategy such as in the case of GE. As the New York Times reported in one article about Carrefour’s exit from Japan, it was little sensitivity for the cultural specifics of consumer behavior. Similarly, Carrefour failed to adapt to the environment in South Korea, sometimes as simple as adjusting the height of the shelves down from 7.2 feet (2.2 meters) to match the typical Korean body type. In Singapore, Carrefour failed to understand that its own understanding of convenience – offering a very broad product portfolio under one roof – is not what Singaporean consumers are used to or were looking for; quite to the contrary, what was a competitive advantage in other markets turned against them there – having to travel to an inconveniently located hyper-store heightened Singaporeans’ perception of Carrefour’s prices being higher than those of local competitors. In Hong Kong, there simply was a shortage of locations for new stores that would have allowed Carrefour to grow to a size that was significant enough to create visibility and efficiency. In Russia, it realized too late that all the purchasing power was concentrated in the crowded Moscow market, and that quick acquisitions in other regions were not viable due to the lack of alternatives and an unexpected amount of complexity and bureaucracy.
Granted, retail is one of the most challenging sectors when it comes to globalization. Much of retail’s success is built around efficiency and standardization, which is often tested by cultural differences. Consumers in foreign markets frequently expect something very different from a new entrant, but at the same time they don’t respond positively to those very differences. In the end, what’s different turns them off, and what is the same doesn’t give them enough reason to switch from existing competitors. This is a lesson that many global retailers have learned in the past. Walmart failed in South Korea and Germany, Best Buy and Home Depot pulled out of China, Tesco shut down its Fresh and Easy stores in the US, Office Max left Japan. The list is long.
Given all these examples, did Carrefour not know that things would be getting challenging in distant markets? If they knew, we must ask why they did not do better? As the publication The Economist once speculated, Carrefour may simply have overreached internationally. Maybe the expansion was too rapid, and not enough attention was given to the development and execution of their entry strategy into all these foreign markets. Maybe, driven by pressure from key shareholders, Carrefour couldn’t take a long term view on developing these markets. And if Carrefour didn’t know, the question is why didn’t they? Shouldn’t a company of the size of Carrefour that, in the case of South Korea, invested in excess of $1 billion in a ten year period into the market, have the ability to select international target countries properly? We can only speculate, but all too often, companies take a one-sided look at international markets. Especially in food retail, where competition in the core markets of the West is intense and where margins are razor thin, opportunities for expansion and growth are slim. The markets of Southeast and East Asia, on the other hand, have growing middle class segments with a thirst for foreign brands. In identifying potential foreign target markets, this then easily leads companies like Carrefour to only consider the upside, and to ignore the risk and challenges that always lurk in such markets.
February 16, 2018 @ 11:21 am
From this article, it appears that Carrefour had expanded too quick out of an internationalization fad. I recently went to Taiwan and that was my first experience with Carrefour. To my surprise, Carrefour, seemed out of place because would be similar to the US equivalent of Target and Walmart in Taiwan. Carrefour, in my opinion, seemed out of place because most of the shops in Taiwan are small, quick convenience stores, similar to the 7 eleven in the US. Out of 3 cities I went, there was only one Carrefour
March 25, 2018 @ 10:06 pm
During my experience in Bali, I was initially choosing Carrefour over other local retailers because of the sense of quality I was perceiving when I was moving with my shopping car along the shelves, and because I was sure to find as good as everything I needed.
Carrefour in Bali is seen to be a high-end supermarket, not the most expensive, but yet within the top 3. Inside Carrefour there were predominantly “Bule” (this is the way locals call western people), simply because:
1. Single products were too expensive for locals,
2. the local culture and economical possibilities of the majority of the people did not allow to go to such a megastore and make the shopping car full for the whole week needs (customers had also to pay for the parking!).
Now that I think about it, I remember Carrefour struggling while I was there (in 2016). For example, it happened that for 1 week there was no rice available on the shelves (people there eat rice 3 times a day, so it is a “must have” in a supermarket) because according to the supplier (who I knew) Carrefour was delaying some payment.
By reading this post I got a clearer idea of the overall picture. The failure of Carrefour is not unique and remembers the other famous case (also reported in the post) of WalMart in Germany. Big organizations that decide to go global without a systematic approach, unfortunately moved by organizational bias and lack of knowledge.
In my opinion (but it is just speculation) both Carrefour and WalMart undertook an unsystematic international market entry strategy. This consists basically of following sequential steps: selection of target market, selection of entry mode, market entry, product adaptation, resource planning. This approach brings along many risks, as Carrefour´s case is demonstrating.
On the other hand, a proper systematic international market entry would have enhanced a much deeper understanding of corporate and product readiness, an accurate target market selection, the choice of the entry mode, before deciding to enter effectively this or that selected market.
If Carrefour would have followed a systematic approach, I think that the history would have turned differently. In fact, I am not sure that they would have decided to go global in this extent and with this strategy… even if to go global was a priority for them (because of the competition in the home market), a proper planning would have probably allowed them to consider some adaptation strategy in order to come towards the needs of the local customers. A product readiness analysis would have allowed them to overcome organizational bias and to increase the awareness in their possibilities abroad.
July 9, 2018 @ 1:46 am
The more difficult Carrefour is to do in global retailing because it is expanding to expand its business, blindly investing. It is true that the development of e-commerce has dramatically impacted the traditional retail industry. However, Carrefour is only growing the international market too fast in itself, but it has not developed from a long-term perspective and lacks the ability of strategic deployment and implementation. Carrefour has chosen these markets blindly in the face of vested interests, but there are many risks in these markets. Carrefour is not systematic in entering foreign markets. There are differences in the selection of international target markets, mainly due to pressure from shareholders.
The localization of an international company’s strategy can be in line with the consumption habits of local customers. However, Carrefour standardized at the same time, in the global market to the foreign market adaptability of lacking, especially on the local culture and consumption idea, this is one of the reasons caused it to exit the part of the country.
Carrefour should adopt a more adaptive strategy when developing the international market in the future. The company must continually study and study the local politics, economy, society, and culture. In this way, Carrefour can become an insider in foreign markets and integrate into the local community. The critical idea to become an insider is to learn to learn and cooperate, primarily to pay attention to the role of local talents, instead of blindly entering new markets for the sake of immediate interests.
July 13, 2018 @ 8:44 am
After reading the article, I was surprised that Carrefour had failed in those countries, such as Mexico, Hong Kong, the Czech Republic, Japan and South Korea etc. I think the failure of Carrefour in many countries is that Carrefour does not understand local consumption habits and cultural differences and localization is not enough.
Base on the class I have learned that I would recommend for Carrefour or those corporations, which want to go global, use the target market selection worksheet and entry mode selection worksheet to assess if it should enter this country. The first one can help Carrefour to identify and apply indicators that are objectively verifiable and quantitatively measurable. It indicates that assessing market opportunity and measuring market risk. The second one can look at internal which includes company-specific and product-specific and external factors which include customer-specific, competition-specific, channel-specific, and regulatory framework. After using two criteria to analyze, Carrefour can decide the most appropriate input model to enter a new country.
I am from Taiwan. Carrefour is a very popular retail and it is the largest retailer in Taiwan. The key to Carrefour’s success in Taiwan is that global localization, which has undergone a failure in markets such as South Korea and Japan and has changed its operations in Taiwan.
June 14, 2020 @ 5:33 pm
It is very interesting to read this article now. Actually, Carrefour is doing very well in Taiwan. They just acquired Wellcome, Jasons Market Place in Taiwan. They purchased a Hong-Kong based supermarket- Wellcome to expand their locations. At the same time, they will change Jasons Market to the “High-end Carrefour supermarkets.” I shocked when I saw the news. I think that Carrefour was decreased the revenue because customers’ purchase habits have been changed. In Taiwan, people like to go to a smaller supermarket because it is easier and faster to purchase the products. In the past few years, Carrefour changed some stores to “easy-Carrefour” which smaller than the original. However, they took over the other two big supermarkets to expand the company. I can not wait to see what will they do next.
October 20, 2020 @ 3:12 am
I’ve been a customer of Carrefour in France, Iran, Turkey, Singapour, and UAE during the last 10 years. Although I observe a lack of knowledge about the new market’s process and internationalization steps is a prominent factor in their failure. I was surprised when I noticed Carrefour opened a Singapour branch; I knew almost all Singaporeans shopped in Malaysia because of the differences in the currency exchange value between the Malaysian Ringgit and the Singapore Dollar. I would say one of Carrefour’s failure reasons was not to have a systematic approach. Not only wrong perceptions about cost, the time necessary but their selected target market, and then their market entry was often too hastily done. Therefore, after the market entry, they discovered a lot more in the market environment and their risks. They relied on their wrongful belief in their abilities based on prior experience and success.
On the other hand, they failed to localize its stores based on consumers’ product demands and preferences. For example, Carrefour entered the Asian market independently without a local partner. Therefore, they could not understand the market, culture, customer behavior, demands and failed to select suitable locations for its stores and the right products. “Firms that are systematic achieve better performance.”
February 25, 2021 @ 4:02 pm
I know the chain Carrefour from many holidays in France and was always quite fond of it because it is so heavily focused on French specialties. They usually have huge buildings, only accessible by car in France, but their selection is enormous. So I’ve always wondered why I’d never heard of Carrefour outside France.
From what I’ve gathered from this post, I think that Carrefour’s case is a bit similar to the one of Target in Canada, in that they were way too fast with their expansion. They went from zero to 100, instead of slowly trying to build their company up internationally. Also, in France they are really quite focused on France and the French culture, whereas they didn’t tailor their strategy to the other countries.
Given quite a few fails when it comes to expansion in retail (Walmart in Germany, Target in Canada), I think this could also have to do with oversaturation of the retail markets in quite a few parts of the world. Another thing that many retailers do not foresee is the difference in shopping habits; they often don’t seem to adhere to cultural preferences in the countries they’re trying to enter.