Carrefour regulars looking for a discount might be dismayed by its latest markdown. Earlier this week the French retailer sold 80 percent of its China ownership stake to domestic retailer Suning.com for RMB 4.8 billion (USD 698 million), a valuation of 0.2 times its 2018 sales. That is well below the 0.8 times industry average, which is “likely due to poor financial results,” according to Bloomberg.
It is a stark reversal of fortunes for one of the first foreign retailers in China. Since its debut in 1995, Carrefour has gone on to operate 210 supermarkets and 24 convenience stores nationwide. However, its 2018 sales in China stood at RMB 28.20 billion (USD 4.10 billion), a roughly 10 percent decline from the previous year, according to Channel News Asia.
Once seen as a leading foreign retailer in China, Carrefour has more recently fallen on hard times
Contending With the Rise of E-Commerce
Carrefour is the latest in a string of foreign retailers paring back their China presence, including Tesco, Marks & Spencer, and Best Buy, according to Quartz, who partly ascribe the French retailer’s retreat as a protective measure before it attempts to take on consumer juggernaut Amazon back in the US.
With regards to China, Carrefour and its fellow foreign grocers “have not adapted fast enough,” according to Michael Zakkour, author of The New Retail: Born in China, Going Global. He told the Beijinger that Chinese e-commerce giants like Alibaba and JD have a lockdown on the domestic market, and Amazon is thriving internationally, thanks to “complete integration of online, offline, logistics, and technology that is the heart of new retail.”
Chinese e-commerce brands like JD and Alibaba have left foreign retailers like Carrefour in the dust
Carrefour and its foreign ilk, meanwhile, faltered as e-commerce took hold in China, according to retail analyst Cathy Roberson. She says: “Logistics and tech trends move so fast in China. I’ve always considered it ahead of the US and Europe in e-commerce trends. And foreign retailers not following such trends find themselves losing out.”
Zakkour adds that “for big physical footprint food retailers it is almost impossible to succeed without partnering with an established Chinese company.” Jeffrey Towson, a business professor at Peking University, concurs. He told the Beijinger: “The competition in Chinese retail is intense, and foreign retailers have no real advantages. It’s just a tough business and most are struggling. A good move for traditional retailers is to partner with a leading e-commerce player, like Walmart working with JD.” But such lifeline partnerships proved elusive for Carrefour, according to Bloomberg, which said its offset of stakes to Suning “comes after a long search for a partner for the French company’s struggling Chinese operations.”
Carrefour did not reply to the Beijinger’s interview request before press time. However, a representative from a major foreign food company that has worked with the French retailer on the mainland provided some illuminating insights about the deal with Suning. Speaking on the condition of anonymity, he told the Beijinger that Carrefour only reached a profit margin of maximum 1.4 percent here last year. Carrefour then “finally decided to exit from China because it is a very difficult market for foreign retailers to compete.”
Chinese retail giant Suning bought 80 percent of Carrefour’s stake on the mainland
Customer Dissatisfaction
One customer who is unfazed by Carrefour’s China downturn, and who asked to remain anonymous, recalls how after finding a rotting fish in a tank at one of their Beijing branches, his complaints to an attendant not only fell on deaf ears, but that employee then tried to sell him the rotting fish before placing it on ice next to other seafood for sale. “You’ve been warned,” the customer later told followers on social media.
Nicole Bonnah, deputy managing editor at beijingkids, says Carrefour’s customer service and deliveries have gradually become unreliable. She adds: “I’ve used them ever since I moved to Beijing. These last two months, all my deliveries have been delayed, sometimes until the next day, with no notice for same-day deliveries.”
Customers have noted a sharp decline in Carrefour’s delivery services over the past couple of months
Such delivery shortcomings certainly don’t bode well for any retailer attempting to stay afloat, much less prosper, in China. According to Zakkour, the e-commerce author, success here boils down to one thing: choice, and specifically, “choice on where to buy, when to buy, what to buy, anywhere, anytime, and to have it delivered and fulfilled with superior speed and service.” Alibaba’s Hema market, in Zakkour’s view, is far more successful in that regard than any foreign brand.
READ: Hema Supermarket Offers a Taste of the Sea
Brick and Mortar Nostalgia
And while Carrefour has lagged behind when it comes to such cutting-edge services, many foreign customers will sorely miss its stores and stock if they disappear entirely. Ana Lourenco, an expat who runs a popular WeChat group called Foodies in Beijing, told us that she relies on the French big box store because, “I cook half of my meals at home, and I live in the suburbs. So Carrefour is one of the only options for imports here.” She even prefers it to other supermarkets stocked with Western goods since, “Carrefour imports are mostly from the Carrefour brand, so they end up being cheaper and there’s a lot more choice.”
Experts say Carrefour’s Mainland decline is part of a trend in foreign retailer paring back their China presence
Meanwhile, Stefan Berder, a Shanghai expat who has known to be effusive about the retailer’s wares on social media, tells the Beijinger how Carrefour was indispensable when Western options were more scarce in China. He also believes the French retailer remained valuable even as imports became more common. “I’d go there for my foreign cravings, like fresh bread, meat, some French products, at better prices than specialty stores,” he says.
However, Berder holds out hope that the deal with Suning won’t lead the stores to “change too much because I think their import sections are quite popular with a lot of people.”
Many certainly share that hope, with Lourenco saying, “I was very upset when I heard the news [about the Suning deal]actually, and plan on stocking up,” adding that the loss of Carrefour will “definitely leave a void for me.”
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Email: kylemullin@truerun.com
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