Casino, where next?
The year 2002 was an eventful one for Casino. Early in the year, the group acquired a stake in Dutch retailer Laurus, giving it a number two position in the Dutch market and extending its European presence to another country. In September, its Opera buying alliance with Cora was Dismantled as a result of the dispute between the two retailers. This article by IGD provides an overview of Casino’s current position.
Elsevier Food International, Vol. 6, Number 1, February 2003
Anne Bordier
Casino was founded by Geoffroy Guichard in St Etienne, France, in 1898. Over the years, the group has been a major player in the consolidation of the French grocery retail market and currently holds a number five position in the country.
Casino is a relative newcomer to retail globalisation although it has directed 40 per cent of its total investments to international expansion over the past few years. Apart from an historic North American business, Casino started its international expansion relatively late, in 1996, when it entered the Polish market. The company has since dramatically increased its presence abroad by acquiring minority and majority stakes in local retailers with a focus on the emerging markets of Latin America and Asia.
At the end of 2001, Casino acquired a 33 per cent stake in Vindémia, a subsidiary of the Bourbon group (and a Cora franchisee) with operations in several islands of the Indian Ocean and Vietnam. In 2002, the group reinforced its European presence by acquiring a 38.6 per cent stake in troubled retailer Laurus, the number two retailer in the Netherlands. Casino is market leader in Thailand, Venezuela, Uruguay, Brazil and Colombia. Although Casino's long term goal is to gain full control over its international operations, it still holds minority stakes in a number of countries and regions including the Netherlands, Vietnam, Brazil, Colombia and the Indian Ocean. Although Casino is a publicly quoted company, it is effectively controlled by one major shareholder, the Rallye group (owned by Jean-Charles Naouri). In 2002, group turnover was €22.8 billion, putting Casino in 20th position in the league of global retailers by turnover. The French market accounts for 76 per cent of the group's turnover followed by the United States (10 per cent), Thailand (4.5 per cent) and Poland (4 per cent). At the end of 2002, Casino and its partners operated over 8,300 hypermarkets, supermarkets, discount stores, convenience stores, cash & carries, restaurants and speciality stores in 15 countries worldwide.
Two key store formats globally
Casino is a multi-format retailer. In France, the group's operations span a wide range of store formats including hypermarkets, supermarkets, discount stores, convenience stores, restaurants and speciality stores. Casino is also the joint owner of the Monoprix chain of neighbourhood stores with Galeries Lafayette. However, in its international expansion, Casino is focusing on two key formats: hypermarkets and discount stores.
Although Géant is the group's flagship hypermarket fascia, Casino's strategy is to maintain the existing hypermarket brands of its local partners and it therefore operates a very diverse hypermarket portfolio across ten countries. Over half of the hypermarket store network is located outside France. The group operates both "French-style" hypermarkets (in Argentina, Uruguay, Brazil and Poland) and "US-style" Supercenters (in Colombia and Thailand).
Unlike with its hypermarkets, Casino follows a global strategy for Leader Price's international expansion and it aims to replicate the same store model in all countries where it operates. Leader Price "soft discount" format is one of the group's success stories. The banner was acquired in 1997 and has since turned into one of the group's main growth engines.
Casino has aggressive development plans for Leader Price, both in France and internationally. In France, Casino plans to roll out the format at a rate of 20 new stores a year until its network comprises 600 outlets. Leader Price also has ambitious expansion plans outside France. Forty new stores are scheduled to open annually in Poland. Casino opened its first Leader Price store in Argentina in 2001 and in Thailand in 2002, and it will aim to rapidly gain scale in these markets. In addition, preparations are being made to introduce the format into Taiwan, Venezuela, Uruguay and Colombia. Casino has also indicated that Leader Price could be introduced into the Netherlands as a replacement for Laurus' Edah.
New alliances
One of the most significant events for Casino in 2002 was the break up of the Opera buying alliance it had set up with fellow French retailer Cora in April 1999.
Casino subsequently set up its own purchasing and marketing organisation, EMC (Europe Marchandises Casino) in September 2002 on Opera's former Croissy-Beaubourg site, east of Paris. The key priorities of EMC are to communicate Casino's increased scale to suppliers, create synergies between the various formats and start consolidating assortments on an international level, particularly with Laurus. In addition, Casino announced in November 2002 the creation of IRTS (International Retail and Trade Services) as a 50:50 joint venture with Auchan. IRTS is not a central purchasing organisation and the two groups will continue to undertake their own purchasing. The main objectives of IRTS are to negotiate and manage international agreements with approximately one hundred large multinational suppliers as well as small and medium enterprises seeking to expand internationally.
Although management has insisted that an all-out merger between Auchan and Casino is not on the cards, the deal is a major move for the two companies and the overall global retail market. Together, Casino and Auchan are present in 29 countries and achieve a turnover of €48 billion. The joint organisation significantly increases the scale of the two groups and the scope of services they can offer suppliers on an international level.
Casino is also expected to leave the European buying alliance AMS (Associated Marketing Services) of which it was a founding member with Ahold and Safeway pic. Casino's decision to pull out of AMS does not come as a surprise since the group has acquired a stake in Laurus. Consequently, Casino and Albert Heijn will now compete head to head in the Netherlands, making a cooperation between the two retailers unsustainable.
The withdrawal from AMS is likely to have little impact on Casino's operations as the retailer was only involved in a limited number of the alliance's initiatives and did not rely on AMS for its value range. However, Casino is likely to seek to build relationships with other retail groups, either to cooperate on a specific project or to share knowledge and experience. The creation of IRTS is clearly a step in this direction and there are many medium-size retailers in Europe (or elsewhere) that could be interested in cooperating with Casino in the future.
Growth potential
Casino's management has identified a number of growth engines for the group to 2005. These include expanding the French business, capitalising on the Laurus acquisition, rolling out Leader Price and developing the group's presence in international markets.
Casino has a unique positioning and business model in France which it believes is the key to its current and future success in its domestic market. The French business is strongly biased towards what the group describes as "convenience" formats (i.e. supermarkets, convenience stores, discount stores) and therefore benefits from consumers' need for greater convenience.
Casino's stated objective is to increase French turnover by five per cent to ten per cent between 2001 and 2005. According to IGD's forecasts, the Franprix/ Leader Price division will continue to be the fastest growing division within Casino's French business, achieving a 16 per cent compound annual growth rate (CAGR) between 2001 and 2005. Unsurprisingly, "convenience" formats will achieve greater growth rates than hypermarkets suggesting that Casino will become increasingly reliant on smaller store formats in the future.
Casino's international business is also expected to turn into a key growth driver for the group, although the benefits of international expansion will only become apparent in the longer term. Further growth in Casino's international business will be achieved by building market share and improving operations in existing markets while also entering new countries.
Casino has indicated it will continue to research new markets carefully before deciding on market entry.
Casino's objective is to increase international turnover by 15 per cent to 20 per cent by 2005. If this is realised, the international business would account for approximately 31 per cent of the group's total turnover by 2005.
Despite the recent difficulties facing Laurus, Casino is optimistic about the prospects of its Dutch acquisition in the medium term and believes it will turn into a key growth driver for the group. Casino's management believes that Laurus will be profitable in 2003 and is confident the Dutch retailer can generate an operating margin comprised between 3.5 per cent and four per cent by 2005.
The full consolidation of Laurus in 2005 would increase Casino's turnover by €4.S billion. This is significant and represents a 20 per cent increase on the group's turnover. The full consolidation of Laurus is, however, subject to the business becoming profitable again. This will clearly depend upon Casino's ability to generate significant savings through purchasing synergies and the integration of head offices, logistics and systems.
However, IGD believes that the single most exciting growth opportunity opened to Casino in the medium term is in the discount sector. Leader Price is currently Casino's fastest growing format. In France, it generates strong operating profit growth, driven by organic growth on a like-for-like basis and an aggressive store-opening programme. Casino believes there is potential for 600 Leader Price stores in France (from 339 at the end of 200l). Growth opportunities for Leader Price outside France are equally exciting. According to IGD's forecasts, Casino will have over 1,300 Leader Price stores worldwide by 2010 (from approximately 400 at the end of 2001), 62 per cent of which will be located overseas. There is clearly long-term potential for the format as, based on current expansion plans, Casino will not have reached market potential in the three lead countries - France (600 stores), Poland (500 stores), Argentina (200 stores) - by 2010.
Future scenarios
Casino is often quoted in various acquisition scenarios involving the leading international retailers. Casino, Auchan and Cora are the key remaining acquisition candidates for a foreign retailer seeking to enter France. Therefore, any deal affecting one or several of these retailers will have a direct impact on the other two and indeed the French market as a whole.
Scenario 1: Casino acquires Cora
A merger scenario involving Casino and Cora has long been on the cards, especially since the two companies created the Opera alliance in 1999. However, the dispute between the two groups since the beginning of 2002, the subsequent break up of Opera and the creation of IRTS with Auchan mean that a future cooperation between Casino and Cora is now more uncertain.
Casino holds an option to acquire a 42 per cent stake in Cora by 2005. Now that Opera has been dismantled, nothing prevents Casino going ahead and using its option. This would, however, only give Casino a minority share in Cora (albeit a blocking minority). If the dispute between the two groups cannot be resolved, it is difficult to see how they will be able to work towards a merger of their businesses.
However, if the current issues between the two groups were put aside, a merger between Casino and Cora would generate significant synergies. The geographical overlap of stores is minimal, both in France and on an international level. In France, Cora stores are mostly located in the North and Northeast of the country, an area where Casino has a limited presence. In addition, Cora is primarily a hypermarket retailer which would reinforce Casino's expertise in this format.
Although the deal would provide additional scale to Casino, the implications of a Casino/ Cora merger would nevertheless be relatively limited. In France, the combined group would have a market share of 12 per cent that would place it in number four position behind Carrefour, Leclerc and Intermarché, but ahead of Auchan.
Therefore, although a merger with Cora would make strong strategic sense for Casino, it would not necessarily preclude a further merger with another international retailer at a later date. The combined group would become an even more attractive acquisition candidate for an international retailer seeking to enter the French market. Although a subsequent merger with Auchan would still be possible, the overlap of operations between Cora and Auchan would require a number of stores to be sold.
Scenario 2: Casino merges with Auchan
A possible merger between Casino and Auchan has been much commented upon, and was believed likely in the wake of the Carrefour/ Promodés merger. Auchan and Casino were reportedly in merger discussions at the beginning of 2000, but the deal did not progress because of tax liabilities affecting the Auchan shareholders. More recently, the IRTS deal has revived speculations over a possible merger between the two groups.
Auchan and Casino have very complementary businesses. In France, Auchan is particularly strong in the North of the country while Casino is stronger in the South. A merger with Auchan would significantly reinforce Casino's position in the North, East and Paris regions. In addition, Auchan is primarily a hypermarket retailer and its expertise with the hypermarket format would complement Casino's expertise with supermarkets, convenience and discount stores.
Casino and Auchan operations are also complementary on an international level. Auchan has a strong European presence while Casino has a solid presence in South America. Both companies also have significant operations in Asia.
The major impact of an Auchan/Casino merger would be in France where both retailers currently hold a strong position. The combined group would have a 20 per cent market share in the French market where it would hold a dominant position behind Carrefour but ahead of Leclerc and lntermarche. The impact would also be felt by those retailers wishing to enter the French market, notably Ahold and Wal-Mart.
In the rest of Europe, the merged entity would have strong and solid positions in several important markets including Italy, Spain and the Netherlands, and would hold solid positions in other Western European countries as well as Central Europe. It would compete head on with Carrefour in several countries. As with Carrefour, major gaps would include Northern Europe, in particular the UK and Germany. With a combined €42 billion European turnover, Auchan/Casino would become the second largest retailer in Europe after Carrefour but ahead of Metro.
On an international level, the combined turnover of the two groups would be €48 billion. Although this would still represent a considerable gain in scale and would close the gap with Metro, Auchan/Casino would still lag behind Carrefour, Ahold, and especially Wal-Mart. The combined group would have a solid position in Asia and South America but would still lack a significant presence in some of the key regions, namely NAFTA and Japan. Although it seems relatively unlikely to take place in the short term (both groups are controlled by private shareholders who are currently not prepared to abandon control), the probability of this merger remains relatively high in the longer term. And the creation of IRTS has shown that, if anything, the two groups are talking and ready to pull forces to remain in the global race
