Carrefour Calls Time On Indonesia


Under new CEO George Plassat, France-based retailer Carrefour has looked to sell international businesses where it is not a market leader. This focus on its core domestic business as well as higher-growth markets where it has a strong presence has been further demonstrated by its decision to sell a controlling 60% stake in its Indonesian business to domestic company CT Corp for US$673mn - valuing the unit at about US$1.12bn.

Carrefour has been making tangible progress in France, where it is focusing heavily on price. G iven that most of the retailer ' s business is centred around hypermarkets, a core focus on price is critical , in our view. This is especially true as Carrefour is fighting against the tide somewhat given the ongoing evolution of French food retailing away from big-box hypermarkets. Plassat has also been aggressively selling businesses in countries where the firm is not a market leader and would have to invest heavily to establish a strong presence.

Indonesia Growing Quickly; France Mature
Selected Countries - Total Mass Grocery Retail Sales (US$bn)

In different circumstances , we believe that Carrefour would have been very reluctant to leave Indonesia. Organised food retailing in the country still accounts for less than half of overall sales, with wet markets and kiosks still very prominent. To 2017, we see mass grocery retail sales growing at a comp ound annual rate of 13.9% in US dollar terms, indicating that CT Corp has a real opportunity here.

Although the deal with CT Corp will see the Carrefour franchise remain in Indonesia , it will be present on a much smaller scale. What is not in doubt is that Plassat ' s decisive action is being welcomed by the market . The company ' s share price has gain ed about 14% over the past three or so months in what has been a truly testing economic environment .

Carrefour ' s exit from promising markets is lowering its exposure to potentially fantastic growth; however, companies will need to invest heavily to benefit in these markets. The interesting thing about Carrefour's recent exit s from Indonesia and Colombia , where it sold its business to Chile's Cencosud in October 2012 for US$2.3bn, is that Carrefour still had a strong position in the market. It was the second largest organised retailer in Colombia and ha d a top two position in Colombia. However, pursuing heavy expansion in both countries would have been incr e asingly expensive given the issues the retailer is having in France, which is its core focus right now.

This article is tagged to:
Sector: Food & Drink
Geography: Indonesia, France