The Macro Environment And The Pestel Framework Marketing Essay

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5/12/16 Marketing Reference this

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Carrefour is the largest multinational retailer in France and the second largest in the world by sales, behind retail giant, Walmart. Being the leading retailer in France, Carrefour was also able to establish a strong presence throughout Western Europe. In addition, Carrefour has more than 15,500 stores scattered all across Europe, South America, and Asia, in 35 countries. The following report analyses Carrefour’s capabilities and performance, with a focus in its French market.

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The macro-environment: the PESTEL framework

Political: Being under the control of different authorities, multinational corporations, including Carrefour, have to pay close attention to local governmental policies. The performance of these companies will be affected by government stability in different nations in which they operate. These companies have to obey rules and policies related to its business activities including sanitary standards, foreign trade regulations, and taxation policies. This is no different in its French market.

Economic: Like all other multinational corporations, Carrefour had to deal with the economical crisis in 2008 and 2009. Fortunately, the industry was not greatly affected. Moreover, the companies even took advantage of the crisis to develop their brands. Moreover, consumers’ disposable income level is currently recovering. In France, the annual disposable income was 1.86 million in 2008, down to 1.78 million in 2009, and back up to 1.81 million in 2010. (euromonitor)

Social: Carrefour is the world’s 7th largest employer from the private sector (1st in France). However, the satisfaction of its employees is a permanent issue, since a lot of them complain about the long working hours and hard working conditions. Strike in france, Attitude to hypermarket

Technological: Carrefour has a continuous quality policy. New discoveries/developments, Speed of technology transfer

Environmental: In recent years, the society increasingly became aware of environmental problems, such as, pollution and waste disposal. “Going green” is becoming a permanent issue for many industries and being environmental friendly might also be a factor in determining an industry’s success. Since more than a decade ago, various supermarkets have already started to encourage the use of reusable bags instead of the disposable plastic bags. Carrefour is involved with environmental and fair trade issues. The corporation has stopped handing out free plastic bags, and has also developed its own fair trade and organic brand (Carrefour Bio).

Legal: Like all other multinational companies, Carrefour has to obey legal requirements in its activities. These laws and regulations differ from one country to another and from one continent the next. These laws include, but are not limited to, competition law, employment law, health and safety regulation, and product safety.

II Industries and sectors

Threat of entry

This industry has market saturation. The 5 main brands (Carrefour, Leclerc, Intermarché, Auchan and Casino) are locking up the market: this is retaliation preventing from new entries. In addition, the top 5 players in this industry accounts for 90% of market share in the hypermarket sector. Their market share evolves very slowly. France already counts 19.5 hypermarkets per million of inhabitants and consumption is decreasing.

Carrefour represents a barrier of entry in itself because the brand benefits from economies of scale and an experience curve effect. Moreover, Carrefour also owns other brand names (Carrefour market, Ed, Dia%, Promocash, etc.) .

Due to high investment requirements, entry to the market is too costly for new brands.

However Hard discount hypermarkets are increasing and they are catching new market share. They do not offer services, publicity, marketing and a wide range of products but they cut price. Thus they find new opportunities in the current market.

The power of buyer

High, because switching costs are low: customers can go to any other hypermarket brand.

The power of suppliers

Low, because Carrefour bargaining power is strong. Due to its important size, the brand can choose which product brand it wants for its hypermarkets and it can negotiate price. However some supplier brands are big enough to have a bargaining power such as Danone which bought Evian.

The threat of substitutes

Even if Carrefour has its own brand products, it is not a producer, just a distributor. Therefore we cannot speak about substitutes. However e-commerce may become a threat in the long run.

III- Competitors and markets

Competitive rivalries

4 main competitors: Leclerc, Intermarché, Auchan and Casino in situation of oligopoly. Therefore there isn’t a price war between them in order to not reduce margin and profitability. They compete on marketing, branding and strategy.

Market segments

Characteristics of Carrefour’s customers: in France, Carrefour’s strategic customer is mostly women between 25-50 years old, with a middle-class income and a family with children. The targeted customer is mostly located in town or suburbs (Carrefour super and hyper-markets are indeed mostly located in the suburbs of towns).

Purchase situation: since most Carrefour super and hyper-markets are located in the suburbs of towns, customers need a car to purchase their products. This results in a rather high volume of purchase (to avoid having to go to the supermarket several times a week). Moreover, Carrefour’s customer loyalty card program helps to build the brand loyalty of its customers, therefore encouraging them to purchase their goods exclusively in Carrefour supermarkets by increasing the switching cost of purchasing in another supermarket.

IV- Opportunities and threats

Opportunities

Develop the brand in other continents: Asia, South America.

Widen the range of retailing stores: hypermarkets, supermarkets, maxi discounts, etc.

Broaden the range of services: traveling, insurance, phone, banking

Increase the customers’ loyalty

Threats

Saturation of the French national market: Carrefour’s competitors (Auchan, Leclerc, Intermarché…) are well settled in France, which makes it difficult for Carrefour to gain market shares on the national market.

Consumption decrease

Increasing popularity of hard-discount retailing stores

Strategic capabilities and competitive advantage

The external market environment can create both opportunities and threats for organizations. However, even though numerous companies compete in the same environment, they can still achieve different levels of performances. Internal strategic capabilities are the resources and competences that distinguish one organization from another. Having different and difficult to duplicate capabilities than their competitors will help an organization achieve competitive advantage. Resource is an importance element of the strategic capabilities in an organization. These include the tangible and the intangible, and they are typically grouped into four categories of physical, financial, human, and intellectual capital. Moreover, competences of an organization is what drives the effective utilization of its resources.

Threshold and Unique Capabilities

Threshold capabilities are the resources and competences simultaneously required to satisfy the requirements in the market. Carrefour has many of such resources and competences to satisfy this basic market needs. For example, it has 5.5 thousand stores in France in 5 store formats situated in convenient locations and 140 thousand employees operated in this region alone. Reliable suppliers and a broad range of product offerings are also tangible threshold resources for Carrefour. In addition, Carrefour with a client-oriented culture has also established their online presence, allowing customers more convenient access to their brand. With competent management skills and employee talents, Carrefour has honed its threshold capabilities to meet the needed requirements of the market.

However, as critical as threshold capabilities are, they are not enough to help a company achieve competitive advantage. Unique capabilities are the resources and competences that are distinctive from competitors . These capabilities are difficult for others to obtain and will facilitate an upper hand for the given organization. For Carrefour, these include its own branded products, its huge operating margin, its unique customer database, and most importantly, its well established reputation. With their superior negotiation skills, Carrefour is able to achieve price competitiveness, in order to attract and retain customers. The corporation’s operating margin will also able them to continuously innovate and develop, allowing them an even more competitive position in the market.

Below is a chart that summaries the strategic capabilities of Carrefour.

Carrefour – Strategic capabilities

Resources

Threshold Capabilities

Threshold resources

Tangible

5,500 stores in France alone

Five store formats (hypermarket, supermarket, convenience, hard discount and cash and carry)

495000 Employees worldwide, 140000 in France

Broad range of products

Reliable suppliers

Intangible

Carrefour City located in city centers

Online presence

Client-oriented culture

Capabilities for competitive advantage

Unique resources

Tangible

It’s own branded products

Huge operating margin

Intangible

Well established reputation

Unique customer database (12 million loyalty card holders in France)

No. 7 private employer worldwide and No.1 in France

Knowledge and best practices

Cost efficiency

Costs are a key strategic capability. Costs are one of the basis of competitive advantage for two main reasons. First, customers do not value product features at any price thus the company has to keep its costs as low as possible in order to prevent customers from seeking alternatives. Secondly, competitive rivalries force companies to reduce cost.

For Carrefour, the attention is drawn to different cost drivers such as :

Economies of scale :

The firm is currently running a highly decentralized policy which targets to develop an expertise in identifying regional synergies. Moreover, Carrefour owns its stock plants and has been running its business for a long period of time. They reorganized their supply platforms so that economies of scale would be significant. This is something that would be impossible for new entrants. As a result, the company benefits from economies of scale because of significant costs reduction and a better operating efficiency.

Supply costs:

Carrefour has chosen to implant its supply platform (38 in France) at strategic places.

These places could be called “barycentres”. Each supply platform is at a one hour and a half driving distance from the further store in the area which optimizes supply costs. Moreover, as a big brand largely spread in France, Carrefour is able to negotiate product and delivery prices.

Product/process design :

Carrefour has chosen to work in “tense flow” in order to reduce stock and to save money. Furthermore, the company is now using a b-to-b software, GlobalNetXchange, allowing the firm to reduce its purchasing costs/expenses and enhance a supply chain efficiency.

Experience :

Carrefour is an experienced brand, launched in 1960, and it is now the leading distributor in France. This experience allows the company to be more efficient over the time. This is the experience curve. Carrefour can negotiate contracts with its suppliers and delivery companies and can extend its range of activities, as previously mentioned.

Growth is not optional :

Carrefour has been quite slow to adapt to changes in shopping patterns. The brand still generates 50% of its revenue from the hypermarket format. Thus, Carrefour being mildly slower than its competitors, had lost some opportunities which the firm is currently trying to catch up to.

Unit costs should decline year on year :

Carrefour is doing a continual reduction in costs by opening hard discount stores where reduced costs are possible by using drastic savings (fewer employees, no facing etc). In addition, Carrefour is trying to offer the customers its own brand products which are very competitive in terms of price. They are generally produced by big brands such as Danone but with Carrefour packaging. As a result, Carrefour has been able to negotiate its costs with those brands reducing costs of each unit.

First mover advantage :

In 1963, Carrefour became the creator of the first hypermarket in France. Presently, the brand is still looking for first mover advantages and will invest heavily on a rebrand program of its outlets “Carrefour Planet”. The main goal of the outlets is to create a “destination store” where customers would have the opportunity to experience extra services such as makeup advices. Consequently, it would lead Carrefour to reduce its cost base due to the accumulated experience.

The value chain and value network

The value chain

The value chain describes the different categories of activities within and around Carrefour which together create Carrefour’s products and services.

Carrefour recently encountered some issues regarding the management of inventory, and found out that those problems were, in fact, from their suppliers. Indeed, some of them were not meeting the contract’s requirement regarding their delivery service, therefore increasing Carrefour’s logistic costs.

In 2016, Carrefour wants to achieve the following value chain scheme:

The aim of the new value chain scheme is:

To synchronize the production of each supplier to avoid delays in delivery which would result in an increase of logistic costs.

To concentrate finished-goods production in a restrictive number of distribution centers rather than moving production from one warehouse to another. This will help cut logistic costs and move production closer to customers.

The value network

The value network is the set of inter-organizational links and relationships that are necessary to create products and services. Carrefour’s value network deals with manufacturers, suppliers, as well as customers.

To understand Carrefour’s value network, we will concentrate on its profit pools, that is to say the different levels of profit available at different parts of this network. Since the purpose of this report is to analyze Carrefour’s cash management, we will concentrate on this profit pool.

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Cash management refers to the way Carrefour deals with deadlines between the payment of its suppliers, and the payment from its customers. If Carrefour’s bargaining power is strong enough, it can negotiate to pay its suppliers with delay. During this time, some customers will pay without delay (in this case, Working Capital Requirement>0). Some others will pay with delay (in that case, WCR<0). The challenge is therefore to manage cash investment and delays in order to constantly have a WCR>0.

Carrefour’s two keys of success:

A well-managed governance linked to a family control which reduces agency problems between stockholders (particularly for bondholders-managers relationships),

A high profitability partly founded on financial services. Their cash flow is linked to the lag between the “cash payment” of customers and a three months period to pay suppliers. This cash is used for consumption loans to customers who have a Carrefour account. That is a better use than financial placements since it is more secure. Therefore, Carrefour has a very low dependence on financial market health.

Here is a summary of how it works in general compared to Carrefour case. As we can see, because customers buy products (food, etc.) before Carrefour has to pay its supplier, Carrefour always has a positive cash flow (excluding previous investments that the brand has to reimbourse). The efficience in cash management is highly linked to its effience in managing operations. That’s why Carrefour recently changed its supply chain strategy.

Carrefour’s supply chain strategy

The LME (in french: Loi de Modernisation de l’Economie) was the starting point of Carrefour’s supply-chain redesign. The law indeed lowered the delays of payment from Carrefour to their suppliers. Therefore, holding high stock levels would become very costly, and Carrefour’s management board thought that they could cut such costs simply by redesigning the supply-chain strategy.

Carrefour’s supply chain new design: Collaboration and Consolidation Centers (CCC)

In 2009, Carrefour decided to implement a cross-docking strategy through Collaboration and Consolidation Centers (CCC). To give a clear idea of what a CCC looks like, it is a huge central distribution center. The aim was to reduce stocks on dry groceries and to mutualize the suppliers’ output.

Before implementing the cross-docking strategy, the supply-chain looked like this:

Graph AL.png

With this supply-chain scheme, each supplier’s output was stocked in one specific distribution warehouse before supplying several Carrefour stores.

In most cases, this resulted in:

More than one truck were leaving each distribution center everyday, but each of them was not filled at full capacity. This inevitably resulted in high logistic costs. Furthermore, it was not eco-friendly.

Suppliers’ products had to be stocked before being delivered to Carrefour stores;

More security stocks than needed were stuck in the supplier’s warehouse. This stuck capacity was an expense for Carrefour.

Now that Carrefour has implemented the cross-docking strategy through Collaboration and Consolidation centers, the supply chain network is following this scheme:

Supplier

Supplier

Supplier

Supplier

CCC

Carrefour

Carrefour

Carrefour

How does Carrefour create value from this strategy?

Now that the cross-docking strategy has been made operational, Carrefour has solved many cash-wasting issues.

Each supplier is now delivering its output to only ONE central warehouse (CCC). There are about 30 to 60 suppliers delivering to one CCC. This single CCC then supplies several Carrefour stores. This enables Carrefour to solve many issues:

Now, only one truck can leave each day at FULL CAPACITY towards one Carrefour store.

Lower logistic costs

More eco-friendly.

The suppliers’ output spend less time in the CCC

Lower stock levels

There are currently two CCC’s operational in France: the first one in located in the Northern France (Lomme) and the second one in Southern France (Cavaillon).

Supply Chain Summary

By mutualizing the suppliers’ output in a restricted number of distribution centers (CCC), Carrefour has managed to cut both logistic costs and stock levels.

The new design of their supply-chain enabled them to thwart the drawbacks of the LME (Loi de Modernisation de l’Economie). By holding less stocks, less cash is “stuck” and therefore wasted. This amount of cash which is saved can therefore be held by Carrefour as Working Capital, which is to be reinvested through their credit activities as mentionned before.

The aim of implementing this transformation plan is to improve the efficiency in order to generate higer margins.

In a recent press release, Carrefour also mentioned other strategic changes. For example the company plans to create three Carrefour Competence Centres which will gather all the best practices already in use within the Group, reorganize its purchasing processes by a Business Development Program related to its suppliers (centralization of Carrefour-branded products and global sourcing for non-food purchases).

Proposals for changes

However, Carrefour is still suffering from a misleading price image compared to its effective positioning. For example, Leclerc is better in its postioning and price image. The effort has now to be put in customer culture and innovation. Carrefour has not become yet the “preferred retailer” even if the brand has a quite efficient loyalty program (Pass card, etc.). The Carrefour brand has to be revitalized and particularly, the firm has to implement a consistent brand management. In order to improve price image, Carrefour should use a better balance of promotional offers, loyalty benefits and low prices everyday of the week. Then, a effort should be put in redesigning and reinventing supermarket as a “new experience” for customers.

Conclusion

Carrefour is currently the leading retailer in France and the second largest in the world, however, its success and reputation was not obtained easily and the company is faced with many challenges. In order to sustain its successful position in the industry, and especially in the French market, the company will need to align its objectives, develop a better strategic plan, and carefully exploit its core resource.

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