August 2008 Big Grower

Carrefour to Cut Prices to Win Back Customers By Visions Group

Carrefour, the world’s second- largest retailer after Wal-Mart, is cutting prices in an attempt to win back customers. Along with the price reductions, Carrefour is also reducing internal costs to further counter rising gasoline prices and weak consumer spending worldwide.

In June, Carrefour was surprised by a sudden drop in traffic and spending at its French “hypermarkets,” sprawling supercenters selling food and non-grocery items. Pinched by higher prices at the pump and overall concerns about the economy, French consumers cut back 8.4 percent on non-food items at Carrefour and also bought cheaper food. The slowdown was so dramatic that they issued a profit warning in late June. Instead of expanding operating margins faster than sales this year, they now hope that both will expand at about the same rate, 7 percent.

In the fight to win back lost customers, Carrefour will introduce aggressive price promotions in France during the second half of 2008. To compensate for the cost of the promotions, Carrefour is also mandating cost controls across the whole organization. A freeze is in place on expenditures that don’t immediately impact sales development, such as corporate recruitment, consultants and travel. The company is reallocating all available resources to enhance the customer experience with the goal of increasing consumer spending.