Carrefour experiencing margin erosion in dry groceries

Despite international growth, Carrefour has been suffering from a very competitive trading environment in France and margin erosion, in dry groceries especially. Carrefour has addressed this by focusing on non-food, but only one in five of Carrefour's customers uses the retailer for non-food purchases.

The retailer recently announced plans to spin off its property division, which will be floated on the stock exchange in 2008, subject to market conditions. However, Carrefour will retain the long term control of its real estate subsidiary.

Hypermarkets remain the company's weak point, causing Carrefour to speed up its portfolio optimization strategy. In contrast to declining fortunes in Italy, where the hypermarkets are underperforming, the business continued a strong performance in Spain, benefiting from recent format diversifications in the country. The company is now exporting its multi-format single brand strategy to all its other global markets.

Carrefour recently withdrew from Portugal and Switzerland, and operations in Thailand could be next in line for disposal. The money generated from these disposals will be used to grow the core areas of the business and Carrefour looks to increase its rate of tactical acquisitions in markets where it is operating in a position of strength, such as the recent Plus acquisition in Spain or the integration of Atacadao in Brazil.