Carrefour's Vale of Tears
Carrefour's figurehead Daniel Bernard said that his company's quotation has gone through "a vale of tears" since it acquired Promo des back in September 1999. He remains confident, though, that Carrefour will be victorious in the long run. Then again, he has to remain confident, because it's his position that is at stake.
Elsevier Food International, Vol. 4, Number 4, November 2001
Pascal Kuipers
It was at a turbulent press conference on 10 September, 1992 that Daniel Bernard was presented as Carrefour's new CEO, succeeding Michel Bon. "I grabbed the opportunity to return to France," said Bernard by way of explanation for his decision to accept the job, but his audience didn't seem convinced. There were murmurings that, in his last role as a board member at Metro International in Switzerland, Bernard had earned quadruple the salary of Michel Bon, while paying half the taxes. Referring to Bernard's sturdy build, a journalist from the French trade publication LSA described the newly elected CEO as being "Hewn from stone, but intimidated like a shrinking violet in a den of lions."
Maybe, then, it's shyness that explains why Bernard's kept a low profile in public life. His position as chairman and CEO of the world's second biggest retailer of course obliges him to represent Carrefour in the press and on stage, but the man prefers to limit such obligations to the absolute minimum. "I don't really matter. What matters are the clients and the stores. The rest has no importance at all," he told journalists from Le Nouvel Economiste, after the French magazine elected him Manager of the Year in 1995. Is this false modesty from a man who, way back in 1975, wrote, "I want to make a big name for myself in retailing"? This was 29 year old Daniel Bernard's answer to the question "What are your aspirations?" when applying for a trainee position with the French regional retailer La Ruche Picarde.
Bernard got the job and rapidly climbed the career ladder to become director of the La Ruche Picarde hypermarket chains Mammoth and Delta. A former colleague remembers Bernard saying back in the 1970s that he couldn't image what the store of the year 2000 would be like, given that the hypermarkets couldn't even get themselves cleaned properly each morning.
.jpg) Daniel Bernard (b. 1946) has been chairman of the board and CEO of Carrefour since 1998. Prior to joining the company he worked for another retail giant, the Germany's Metro AG, where from 1980 onwards he was chairman of Metro France. In 1989 he was appointed to the board of directors at Metro International in Switzerland. Prior to his Metro years, Bernard worked for La Ruche Picarde as director of the French hypermarket chains Mammoth and Delta (1975 to 1980). |
Business dualism
Such a remark is typical of the minutiae-obsessed Bernard, who firmly believes that "detail is the only thing that counts in this business." In 1980 he was offered the president's position at Metro's French operation. The offer came at the right moment: because Bernard felt his ambitions being thwarted by his then-boss and had long-admired a company that he referred to as, "The Mercedes of retailing." At Metro France, Bernard added wholesale activities and small and medium sized companies to the existing cash and carry business. Furthermore he succeeded in implementing strict German-style replenishment systems. His deeds didn't go unnoticed by Erwin Conradi, president of Metro's Holding in Switzerland, who promoted Bernard to the board of directors. Bernard was Conradi's heir to the throne, but he decided to return to France - and to Carrefour.
Bernard accepted his position as CEO of Carrefour on the condition that relations between owners and managers of the company were made crystal clear. This meant immediate termination of the control that the three founding families - headed by Jacques Fournier and the brothers Jacques and Denis Defforey -had over the company. Daniel Bernard is an advocate of business dualism: as the chief executive he is at the steering wheel of the company, while the supervisory board checks that the means and strategy employed match the company's identity. The executive board over which Bernard presided included one member of one of the founding families: Herve Defforey, son of founder Denis Defforey, whose experience lay not in retailing but in finance. This Munich-based banker was the former treasurer of the German car manufacturer BMW and thus had not just his age but German experience too in common with Carrefour's new CEO. In cutting the ties between owning and managing the business, the position of PDG (President Directeur General (equivalent to chairman and CEO) disappeared. This situation lasted until 1998, when Daniel Bernard was appointed PDG and the supervisory board was dissolved. The PDG position was thus re-installed at Carrefour - though here, unlike at most French retail businesses, an outsider sat on the throne.
Anarchist
When appointed CEO in 1992, Bernard was largely an unknown quantity in France. His top management experience abroad made him special because until that time very few French managers had held such positions.
Due to his 11 years' experience in Germany, he was nicknamed 'The German of Retailing'. In response to this idea, Bernard said last year that he was regarded by the Germans as an anarchist, whereas the French perceived him as being overly organised. Driving a small Volkswagen Golf instead of the big Mercedes commonly used by Metro's board members, and parking his humble car in the visitors car park instead of using the special board members' parking places must have made his German colleagues view him as something of an egalitarian. In fact, he's an interesting mix of influences. An admirer of German culture in general and the operas of Richard Wagner in particular, Bernard is the personification of German-French integration. Thus he was the ideal person to add more structure and discipline to the 'laissez-faire' operations that hampered Carrefour's performance in the early 1990s. Bernard centralised purchasing, which had previously been carried out autonomously by individual Carrefour franchisers and area managers. Logistics and information systems were also fragmented, so Bernard began to centralise these structures too. These were revolutionary moves for a company that had always had had a culture of decentralisation, but were necessary if Carrefour was to keep up to date. The new efficiency resulted in 30 per cent reduction in queues in front of the check outs, 50 per cent less costs in storage of fmcgs and 25 per cent more food items in the assortment.
In 1998, one year after he failed to acquire the independent French hypermarket retailer Cora, Bernard drastically changed Carrefour's strategy. Adding 700 supermarkets to the company's store base by acquiring Comptoirs Modernes, Carrefour traded its focus on hypermarkets for a multi format strategy. According to Bernard, this added balance to the group, because in his view both hypermarkets and supermarkets are set to be the dominant formats in retailing.
Another key element in Bernard's strategy is a vigorous pushing forward of Carrefour's international presence. By entering Spain in 1973 and crossing the Atlantic to Brazil two years later, Carrefour was the pioneer of international retailing. When Bernard joined Carrefour in 1992, the French retailer was represented in five foreign countries. Currently Carrefour is represented in 31 countries all over the world. "We consider companies in our industry to go through three stages: becoming international, exploiting different store formats and finally participating in consolidation," he said last April in the French newspaper Le Figaro. He concluded that Carrefour has experienced all levels, with the Promodès acquisition clearly demonstrating his company's ability on level three.
Quantified confidence
Daniel Bernard's finest hour occurred at a press conference in September 1999, at which he publicly announced the merger with Promodès. "By joining forces we will win the retail battle worldwide," he said confidently. The acquisition added over US$21 billion to Carrefour's purchasing clout and was in line with Bernard's multi-format strategy (adding hypermarkets, supermarkets and discount stores to Carrefours store base) and his drive for internationalisation (cross border Promodès was represented in six European countries, in Argentina, and with limited operations in Africa, the Middle East and Indonesia). In order to get the deal approved by the French competition authorities, Carrefour only had to divest eight hypermarkets - all of them from Promodès' Continente banner - and 24 supermarkets with total annual sales of just FRF 1.1 billion (US$179 million - 1999 exchange rate), which is not even one per cent of the acquired Prornodes business. "Daniel Bernard is very good at lobbying," said Michel-Edouard Leclerc, president and CEO of French retailer Leclerc in L'Expansion. A few years earlier (in 1995) Bernard laid the foundations for his lobbying network with the establishment of the FCD (federation des entreprises de commerce et de la distribution ¬federation of trade and retail companies), together with Paul-Louis Halley, president of. . Prornodes. FCD was a lobby tool providing an interface for retail with all public parties involved: organisations of manufacturers and farmers, but also politicians and government authorities.
Bernard explained the Carrefour-Promodès synergies in terms of strictness and flexibility (in 1995 he even used the terms "creativity" and "imagination" to describe Carrefour's excessive decentralisation). Carrefour's hypermarket focus and strictness on the one hand and Prornodes flexibility and multi-forma experience on the other would seem a natural fit. According to Bernard, the merged company was "a sailing boat waiting for the wind". By September 1999 he was confident that, once approval for the merger was given, a stiff breeze would blow this boat into fresh waters. He did not hesitate to quantify his confidence: double net profits within three years and €7 billion (US$7.5 billion - 1999 exchange rate) less purchasing, marketing and logistic costs.
Epic proportions
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Merging Carrefour and Promodès is a job of epic proportions. |
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In the first three months of 2001 Carrefour increased its sales by 9.6 per cent. Like for like however, the increase was much lower, at 4.7 per cent - not very satisfying given the new, less ambitious targets. Integrating Carrefour and Prornodes turned out to be more difficult than expected. Financial analysts and other retail experts were increasingly dubious about the success of the integration. Investors responded and Carrefour's share price declined by almost 30 per cent in 2000. In an interview in April 2001 with French newspaper Le Figaro, Bernard repeatedly expressed confidence in the process. "The Carrefour Promodès merger is the largest consolidation operation ever in retailing," he said. "Merging the stores under one banner is a job of epic proportions, which has been done in record time. Sure, we had some troubles. Changing and repositioning the assortments disturbs clients. Until October last year we had no problems, but then the mad cow crisis occurred, followed by hiccups in our supply chain due to the changed assortments." Regarding the declining share price, Bernard referred to the 23 per cent decline of Wal-Mart's share price in 2000 and said: "Our quotation declined 27 per cent last year, but the year before it increased by 71 per cent. In two years, shareholders gained over 40 per cent. This is in accordance with developments in our sector." Another tricky question is his recall of the ambitious targets of September 1999. "We said that net profits would be doubled within three years, all things being equal. But in between the entourage has changed drastically. Interest rates have practically doubled and we decided to speed up the acquisition of Promodès' minority retail assets, an action that was not foreseen in our initial plans. If you exclude the lower profits due to these acquisitions, the 2000 results would have increased by 24 per cent, which is according to our announcement of doubled profits."
Vale of tears
Presenting the figures for the first half of 2001 on August 30, 2001, Bernard re-confirmed Carrefour's target of eight per cent sales increase and a 15 per cent growth of net profits by the end of this year, " ... despite the economic deterioration of many markets in which we operate". Latin America in particular causes anxiety at Carrefour, as the company foresees no sign of improvement this year. The Financial Times referred to Carrefour's profits before exceptional items, which had increased slower than expected by 5.9 per cent to €320 million (US$293 million). "The slower increase than expected in net profits leaves Carrefour needing to notch up 18 per cent growth in the second half, during which it tends to make more than two-thirds of its annual profits. Analysts said such a pick-up in profitability appeared a demanding goal," commented the newspaper, which then wen on to quote Bernard as stating that Carrefour's stock market quotation had been battling through "a vale of tears" since the Prornodes-acquisition back in August 1999.
The difficult integration of Prornodes touches on an area of general concern for Carrefour: the risk of outstretching its span of control. It currently operates in over 30 countries and has plans to enter still more (Vietnam and Romania, for example) and all this increasingly puts a massive pressure on its management capabilities. In November 1999, less than three months after the Promodès-deal was announced, Bernard said in the French magazine Strategies: "We are vigilant. We have to evade three stumbling blocks: the myth of the Minotaur, the syndrome of the tower of Babel and the fall of the Roman Empire due to centralisation."
To expand and maintain the Carrefour empire, Bernard relies on Thales, the company's global management software system, named after the ancient Greek mathematician. In June 1996 -more than three years before the acquisition of Promodès - Carrefour started its implementation of this system. The merger with Prornodes was an interruption, but now - after five years and an investment of € 210 million (US$ 193.5 million) - Thales is ready.
The software will need to payoff at a quicker rate than it took to implement. Since the 1999 merger the founding families behind Carrefour and Promodès retain 33.5 per cent of the capital and a minority share of 35.8 per cent of the voting rights. This makes not only Carrefour but its PDG vulnerable. Daniel Bernard has undoubtedly made himself a name in retailing, but the question arises as to how well protected a non-family member can be. "He is not an owning founder, but an employed founder," said Michel Edouard Leclerc of the French retailer Leclerc last year in the French magazine L'Expansion. "He is a rare species: a man who knows he's vulnerable sitting in an ejector seat controlled by capricious shareholders."
Sources: L’Expansion, Le Figaro, Financial Times, Le Nouvel Econorniste, Les Echos, LSA, Strategies. Courtesy LSA
| Exchange rate: 1 FRF = 0.16262 US$ (1999) I EUR = 1.06677 US$ (1999) 1 EUR = 0.9215 US$ (October 2001) |
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