Comparison Of Retail Strategy of Carrefour and Walmart

TABLE OF CONTENTS

Introduction

The companies

Wal-Mart stores

Carrefour group

Product sector

Marketing and Service Strategies

Pricing strategy

Every-day-low prices

Discount-everyday-prices

Human resource management

Technology

Store designs

Expansion strategies

Comparison of strategies

Conclusion

Bibliography

Introduction

The discount retail industry emerged in the United States in the mid-1950s. Americans, accustomed to the supermarket concept and better informed, took the concept of self-service to heart. The basic discount concept relied on charging gross margins that were 10 to 15 percent lower than those found in department stores for general merchandise were.

The growth of the industry was nothing short of spectacular. In the United States, the growth into the 1970s cranked ahead. Such opportunity attracted many players at the local, regional and national level. Throughout the 1970s, the industry continued to grow. As the competitive landscape filled up, the industry players were under intensifying pressure to push costs down, increase store-selling areas and widen their market coverage.

The objective of this paper is to compare and contrast sales channels in the same product sector considering various strategies used in the buying assortment of these retailers. Store design and how it supports buying and merchandising strategies of the retailers will also be looked at. The companies in question are Wal-Mart and Carrefour, both retailers. To begin with, let us take a closer look at these companies’ profiles.

2.0 The Companies

2.1 Wal-Mart

Wal-Mart was founded in 1962 by Sam Walton and his brother James “Bud” Walton. They first started with a single discount store in Rogers, Arkansas. The Discount store consisted of servicing small and middle-sized towns at prices equal to or lower than prices in nearby cities. The company has registered a unique success story in the history of retail industry credited to the leadership of Sam Walton. The company internationally came off the ground by opening its first store abroad in Mexico City in

1991. Since then Wal-Mart extended its international presence to many countries. Sam Walton adopted a circumventing strategy by maintaining lowest prices everyday and promising customer satisfaction together with high quality supplier cooperation and prompt delivery to grow continuously at existing market rates.(Wal-Mart Annual reports)

2.2 Carrefour

Carrefour had a humble beginning. The first department store in Annecy, France, was opened by Marcel Fournier and Louis Defforey in 1960. This was followed quite quickly by the first Carrefour hypermarket. The store was a first of its kind and provided parking space for 450 cars. It was an initial test of the one-stop shop formula where consumers could get almost all of their shopping

needs satisfied at one location. It provided self-service grocery shopping at discount prices.

By the end of 1971, the company was operating 16 wholly owned stores, had an equity interest in five stores operated as joint ventures, and had franchise agreements with seven additional stores. The idea of the hypermarket stressed mass sales, low delivery cost and discount everyday to achieve high rotation.

With a move into Belgium in 1969, Carrefour began its internationalization and by1999, it had 681 hypermarkets, 2,259 supermarkets, 3,124 hard discount stores, and 1,921 convenience stores and other formats selling under its banner. The stores were located mostly in France but also throughout Europe, Asia, and Latin America. Carrefour internationalized much faster than Wal-Mart.

3.0 Product Sector

The Carrefour Group mostly deals with consumer goods and services. These include convenience goods such as food products, which are sold by all formats of retail stores, and shopping goods and services (household appliances, electronic devices) which are sold by hypermarkets only.

For Wal-Mart, the major merchandise lines include house wares, consumer electronics and groceries or food products. The two therefore deal with consumer goods and services hence are competitors as the products are similar.

4.0 Marketing and Service Strategies

Wal-Mart differentiated business departments to thereby serving different market segments. Wal-Mart’s success is built on the practice of a lowest price everyday strategy that significantly reduces searching cost. Wal-Mart could reduce expenses on advertisements and promotions and also increase turnovers of products as it offered high quality products hence winning the reputation of a high-valued company and loyalty of customers. The belief by Wal-Mart that customers always come first also comes in handy. All employees therefore follow three management philosophies, that is, respect everyone, serve customer and search for perfection. They fully carry out the practices of

8 teeth smile, ten-foot rule, and sundown rule. All these practices have become the benchmark of the retailing industry (Wright 96).

Carrefour on the other hand adopted a two-stage philosophy to achieve stable growth. The first stage enables branch stores to operate smoothly as fast as possible and to maintain high turnover. Carrefour decides to set up a new store after the investigations of location, store space and neighboring purchasing power. For example, it built a whole-selling or green store in industrial region and a general retailing or blue store in residential ones in Taiwan. By adopting this strategy, Carrefour could capture both big and small accounts in one shot and then grow much faster than its rivals. At the second stage, it focuses on customers, personnel training and market channels. It gradually enhances service quality, product innovation and emphasizes personnel cultivation. It further adopted a strategic alliance to develop private label products to meet the needs of one-stop shopping. At the same time, utilizing the system of commerce automation to centralize the purchasing matters of all stores, it could coordinate orderings, stock management and data processing for better control and decision-making. In a summary, Carrefour’s key success factors are: one-stop shopping, extremely low prices, full range of choices, self-service, free parking. To Carrefour, price does not equal to competitive advantage but an essential means to survival. To maintain lowest price reputation, Carrefour keeps reminding customers to refund if they buy more expensive in order to comfort their purchases.

To meet the nature of impulse purchase of customers Carrefour chooses mass-selling, low delivery cost and promotion to attract and retain their buying. On the other hand, Carrefour also follows flexible pricing to reflect the differences of local markets. Provision of wider shopping space and parking lot makes customers buying more convenient. In addition, it delegates each stores, as profit centers, to decide what to purchase, pricing and promotion strategies and constantly stresses discount everyday that is very different from that of Wal-Mart.

5.0 Pricing Strategy

In the narrowest sense, price is the amount of money charged for a product or service. More broadly, price is the sum of all the values that consumers exchange for the benefits of having or using the product or service.

5.1 Everyday-Low-Prices

High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. Wal-Mart practically defined this concept. To offer everyday low prices, a company must first have everyday low costs.

Sam Walton’s obsession with keeping prices below competitors led him to check his and the competition’s stores thoroughly, counting the number of cars in the car park and going so far as to taking a tape measure and evaluating shelf space. He looked out for good ideas and was not afraid to copy them. This attitude assured that “Everyday-low-prices” was a genuine strategy and not just a slogan. Wal-Mart offered brand name products at prices consistently lower than those found at department or specialty stores.

The everyday-low-price strategy implied that there were few promotions. Although other major competitors, including Carrefour, typically ran advertised circulars per year—spending 2.1 percent of discount store sales on advertising—Wal-Mart produced only spent 1.5 percent of sales. Because retail competition was mainly local, the everyday-low-price guarantee required that each store manager set his/her own prices. They also were responsible for product offerings and shelf-space allocation decisions, all of which were based on market specific inventory and sales data supplied by advanced information systems.

5.2 Discount-Everyday-Prices

Carrefour’s overall pricing was heavily promotional, with frequent sales and special discounts supported by weekly circulars, its private label offering a fixed price all year round. The group implemented a discount everyday strategy unlike Wal-Mart. To maintain lowest price reputation, Carrefour kept reminding customers to refund if they buy more expensive in order to comfort their purchases.

The objective of the group was to reduce prices in all formats of stores. In 2005, the clearly stated objective of each hypermarket was to be the least expensive store within its market radius. This is a competition-based pricing: their strategy is based on what other competitors are doing (including hard discounters and informal traders), and the group tries to set the price below the competitors’.

However, they also seem to have a demand-based (or target) pricing as they constantly try to reduce prices to meet or exceed customers expectations, even though they are already under their competitors’ price. The objective of this price reduction strategy is to attract more people to the stores, thus gaining market share. The objective can be explained as a virtuous circle: the more they sell, the more economies of scale they can do, the more they can lower prices thus attracting more customers.

6.0 Human resource Management

To treat customers friendlily, reduce cost, and educate employees are consistently practiced in Wal-Mart in all its branches. To treat new comers in the company fairly, make them perceive responsibility and participation and share information, the following enlightenment and inspiration measures are undertaken. First measure is education and training. Through learning by superiors in the first 16 weeks, new staff can accumulate experiences and skills. They can also take courses supplied in the Wal-Mart Institute and have job rotation opportunity to enrich their expertise. Secondly, there is regular announcement of performance. Each store has to announce its profit, purchasing, sales and percentage of discount regularly to make all employees informed. Thirdly, there is also a Profit sharing scheme whereby employees who has worked in Wal-Mart for more than one year and worked over than 1,000 hours are eligible to this profit-sharing scheme. Fourthly is the stock ownership option that allow employees to buy Wal-Mart stock at 15% off the market price and also benefit-sharing from reduced depletion. If depletion of stocks is controlled within the limit of target, each employee will be awarded maximum 200 dollars. Finally motivation and challenge of his/or her partners for better ideas everyday, Cultivate employees with ambitions to become a leader of stores within a store and assist employees to conquer operational difficulties in pursuing their goals.

Carrefour stresses more on the hand-down of corporate heritage. In the early stage of foreign market entry, Frenchmen take the positions of top-level management constantly to infuse management philosophy of reserve customers and reaction orientation into each store overseas. Walk into any stores of Carrefour and you will see many staff walk around to replenish stocks all the time. The manager in charge of a store also wanders around the store once it is open.

7.0 Technology

The development of technologies has been very important for the development of Carrefour. The main technology that has been useful is the computer, and then the Internet. The Internet, for example, allowed Carrefour to develop new kinds of activities like the online supermarket. But the most important point with the Internet was the creation of a B2B extranet. Thanks to this portal, suppliers can manage their relations with Carrefour group more easily and more efficiently.

The development of computers has been very useful for logistics reasons too. Faster computers can generate more accurate delivery schedules, for example, and thus reduce significantly the costs.

The use of servers has also allowed developing giant databases of customers. Carrefour keeps information for each customer that has a loyalty card, and whichever shop you go to you are known and can use the advantages of your loyalty card. Finally, Carrefour created a website for recruitment purposes, so that people can easily access to work offers and have information about them.

Wal-Mart spent more than half a billion dollars in information technology facilities to connect their worldwide stores with headquarters. Meanwhile, they requested suppliers to adopt electronic data interchange system. With this system in place, Wal-Mart can transfer information swiftly and has saved three fourth stock-holding costs. Further, headquarters can finish stock-taking of each item for more than 4,000 stores in the globe within an hour. At present, each store sends information to his suppliers via internet and have products replenished in on-average two days versus five days of their rivals (Huey & Walton, 1992).

Technological superiority was seen as a competitive advantage by Wal-Mart. Technology was used not only in setting price and product offerings, but also in areas such as communication, distribution and the control of supplier relations. Wal-Mart operated a satellite system that enabled communication and electronic scanning throughout the store, supplier and distributor networks. The satellite system allowed requests for merchandise at the point of sale to be transmitted to the headquarters or to a supplier’s distribution centers instantly.

To even better manage the supply chain, Wal-Mart’s relation with its suppliers was enhanced by an Electronic Data Interchange (EDI) system. By the late 1980s key suppliers were already directly managing Wal-Mart’s merchandise inventory. All Wal-Mart’s suppliers received a planning packet with information about the specific department with which the vendor was dealing as well as Wal-Mart’s expectations from the relationship. Vendor negotiations were centralized and done in undecorated standard interviewing rooms. Wal-Mart restricted its suppliers to companies who limited the workweek to sixty hours, provided safe working conditions and did not employ child labor. No single supplier was expected to account for more than three percent of the company’s purchases.

8.0 Store Designs

The Carrefour Group designed their stores so that they meet customers need. This includes having the right store format, helpful services, the appropriate product mix, and a reliable private-label brand.

Developing new store formats

The group aims at attracting the greatest possible number of people to their retail stores. As different market segments have different needs, there is need to have different formats of retail shops to fulfill these needs. For instance, elderly person often do not have a car and live alone, so they need a store near their house, that is, they need district shops. However, large families with children are

looking for hypermarkets where they can buy goods at a cheap price, just once a week.

In 1963, Carrefour opened the first ever-built hypermarket in Sainte-Genevieve-des-Bois in France. The concept was to build a retail facility which carries under one roof both groceries and general merchandise. Thus, a consumer can normally satisfy all of his or her routine weekly shopping needs in one trip to the hypermarket.

The Carrefour Group has recently tried three new store formats.

They have renamed supermarkets into “Carrefour Express” and changed the offer of products. They have used the well known Carrefour trademark (the logo and the brand name), just adding the word “Express” to show that it is not the same as the traditional Carrefour.

It enables customers to know they can find Carrefour brand products there at hypermarket prices.

Carrefour had been an innovator in store design, softening the look of its warehouse-size buildings by installing wood floors and non-fluorescent lights in some departments and putting service counters in the food department, where shoppers can get meat, cheese, and bread sliced to order. This transformation was highly successful with an increase in sales since the change of trade name.

9.0 Expansion Strategies

Throughout the late 60s and early 70s, Carrefour’s rapid growth was made possible by the fact that the firm had been able to get two new construction permits per year. As more firms entered the discount retail market, the competition for permits became fiercer as many firms and individuals fought for authorization to build in attractive locations.

In the late 60s, in order to achieve a more rapid pace of expansion than the firm could achieve if it were limited to two new stores per year. Carrefour offered to share its retailing know-how, trademark, and consumer goodwill with potential partners both in France and elsewhere in Europe; either in exchange for an ownership interest in stores under construction or franchise fees. Carrefour’s ownership interests in joint ventures ranged from 10 to 80 percent. Franchisees were required to use a control system similar to Carrefour’s and to submit their forecasts and results to Carrefour’s controller.

Wal-Mart had a unique expansion strategy. Sam Walton had served in the army, and had employed military strategy of winning post by post and strengthening it before moving to another post. He applied same strategy in the retail industry. Instead of expanding to

the main metropolitan cities to quickly gain national coverage, Wal-Mart has been expanding itself to adjoining territory (within 200 miles of the existing stores) and covering the small towns by opening up stores before penetrating the next big territory. This concept kept marketing and advertising costs significantly low compared to its competitors’.

The hallmark of Walton’s strategy, however, was to become “Best Cost Provider” selling at everyday low prices. This could be realized by the continuous implementation of the latest available information technology and distribution control systems at a time. The Retail Link computer system is one of the secrets of Wal-Mart’s success. Furthermore, due to its unique geographic expansion strategy, the company is able to operate its own distribution centers with a truck fleet to supply its stores.

10.0 Comparison of Strategies

From the comparisons of strategies of Wal-Mart and Carrefour, this study summarizes the common and different part of their strategies. They all adopt the same strategies in the following practices.

Firstly, both stress the culture of humane and provide employees with best career planning, education, training and incentives.

Secondly, supply products at lowest price but highest value-added every day to reduce the searching cost and build trust and loyalty of customers.

Thirdly, localizing sourcing to reduce transportation expense and exploit economies of scale.

Fourthly, emphasize the creation of friendly atmosphere at every store where employees wander around to replenish goods and see if any assistance required.

On the other hand, differences in strategies are reflected in the following facets.

First of all, Carrefour internationalized earlier than Wal-Mart, the former established as many stores in big cities as possible but the latter adopted a circumvent cities from countries strategy to steadily cultivate talents and accumulate experiences.

Secondly, Wal-Mart emphasizes lowest price every day to win the best corporate image but Carrefour focus on a discount every day to attract customers to buy impulsively.

Thirdly, basing on the concept of every day low costs (EDLC), Wal-Mart implement cross-docking technique simultaneously to increase operational efficiency and control cost in global logistics. Carrefour, on the other hand, can only rely on the flexibility from local procurement of individual stores to exploit the benefits of localization because they do not yet established global logistics system. Comparing with Carrefour, Wal-Mart has a complete storage management system. Their transportation and logistics system, especially cross docking, are well known. This method enables Wal-Mart to replenish goods twice a week (once bi-weekly to their rivals) and reduce storage space and delivery time. As a result, Wal-Mart can reduce stock-carrying costs and transportation and therefore increase profitability by 2.5% compared with their competitors (Stern & Stalk, 1998).

Finally, Wal-Mart has various stores that include American discount store, supermarket, Sam’s Club membership warehouse, and drugstore by the streets based on the characteristics of customers. As for Carrefour, most of their stores are discount ones but they also develop a mixed strategy nowadays.

11.0 Conclusion

Since Wal-Mart reached its objective of being the number one retailer in the U.S. in early 1991, it had been shifting its focus on becoming a global chain, starting to expand into the international market. This expansion has proven to be overwhelmingly successful, and therefore Wal-Mart in the long run can maintain this strategy and ensure the continuous growth of its businesses.

As in many other businesses, it is a crucial point for the Carrefour group to have learnt about their customers and to do everything they can to satisfy

them. Thus Carrefour has defined what builds up a positive experience for the customer apart from the marketing mix, you can see that many other factors contribute to the customer’s decision-making as seen earlier in this paper.

Bibliography

Carrefour Annual Reports viewed on 8th April 2008 at www.carrefour.com

Nickel W., McHugh & McHugh (1993), Understanding Business, Irwin, London

Seth, A. and Randall, G. (1999). The Grocers: The Rise and Rise of the Supermarket chains. Kogan Page Ltd, Europe

Stern C. and Stalk G. (1998). Perspectives on strategy from the Boston Consulting group, J. Wiley, London

Wal-Mart Annual reports viewed on 8th April 2008 at www.walmartstores.com

Wal-Mart stores, inc. company profile viewed at http://mba.tuck.dartmouth.edu/pdf/2002-2-0013.pdf

Wright P., Kroll M. and Parnell J. (1996) Strategic Management: Concepts and cases, Prentice Hall, Englewood cliffs.