/ 12 August 2013

Carrefour SA teams up with CFAO to expand into Africa

Carrefour Sa Teams Up With Cfao To Expand Into Africa

To get her weekly staples, Joana Bimpong spends four hours slogging among stalls in Accra’s Makola Market. The Ghanaian dreams of doing it all in one place. “I would love to buy from formal grocery shops,” said Bimpong (40) dropping two large bags at her feet to adjust her toddler on her back.

Pent-up demand from African shoppers like Bimpong has lured Carrefour SA, the South African arm of the French multinational retailer, to enter the region. The area, home to a billion people, is set to grow at three times the pace of the US next year.

 

The retailer, which spent much of the past two years exiting markets it failed to dominate, has partnered with distributor CFAO SA to open shops in eight African countries by 2015.

 

After the boom and eventual bust of the past three decades of retail growth – Carrefour had to pay 220-million euros to get out of Greece alone last year – chief executive officer Georges Plassat chose a safer route for Africa by partnering with CFAO, a distributor and the continent’s biggest supplier of cars, trucks and pharmaceuticals. With the venture, he’s hoping to avoid the roadblocks competitors including Wal-Mart Stores have faced expanding beyond South Africa: a lack of distribution and available real estate.

’Early Advantage’
“Carrefour is taking early advantage of what will be an increasing move in Africa of people looking to do a weekly grocery shop of items kept fresh through modern advancements like refrigeration,” said Michael Dennis, an analyst at financial services firm Cantor Fitzgerald. “Setting up good distribution channels in Africa can be extremely difficult and CFAO’s local connections with companies and relationships with government are an advantage.”

Wal-Mart’s South African unit, Massmart Holdings, said today it has met “several important players” in Kenya’s retail industry as it seeks expansion abroad.

 

CFAO, which will own 55% of the venture with Carrefour, aims to generate about 1-billion euros in revenue a year in 10 years from the link-up and from revenue generated by shopping malls that it plans to build.

 

Building a successful network in Africa would help Plassat cement his turnaround of a company that trades at less than a third of its price at the end of the century, when grocers were promising heady growth and Carrefour was racing into countries ranging from Poland to Singapore. The shares have gained 71% since Plassat took over last year, buoyed by the exits of markets including Colombia and Greece and a promised revival in France, where it still gets close to half its sales.

’Low-Risk Footprint’
While Carrefour’s expansion in Africa appears to contradict Plassat’s strategy of focusing on key markets, relying on CFAO helps limit the risk, said retail intelligence company Planet Retail analyst Gildas Aitamer.

“Carrefour cannot afford at the moment to sustain strong expansion in Africa,” said Aitamer. “Carrefour can gain by having a low-risk footprint on the continent.”

 

CFAO, controlled for almost 20 years by Gucci-owner Kering SA, distributes goods ranging from Mercedes trucks to Viagra across miles of road mainly in west and central Africa. The 126- year-old company, spun off from Kering in 2009 and sold to Toyota Tsusho Corporation last year, started as a dealer of consumer goods including leather and soap as a continuation of the trading posts established in Africa in the 19th century.

 

CFAO’s first project with Carrefour will begin this year in Abidjan, Ivory Coast, and should be operational by 2015, according to CFAO. In addition to Nigeria and Côte d’Ivoire, the agreement with CFAO covers Ghana, Cameroon, Congo, the Democratic Republic of the Congo, Gabon and Senegal.

Spending Power
The potential upside for Carrefour is significant: Ghana’s gross domestic product is about 25% below that of Brazil in 1976, when Carrefour entered that market, according to Bloomberg Industries data. Carrefour last year generated 11.3-billion euros worth of sales in Brazil.

And Africa’s top 18 cities will have a combined spending power of $1.3-trillion by 2030, compared with estimated consumption of $539-billion in France, McKinsey estimates. Carrefour has 4 635 outlets in France alone, meaning there’s room to open hundreds in Africa, said Wayne McCurrie, a portfolio manager at Momentum Asset Management in Johannesburg.      

 

“Africa is massively underserviced in terms of formal retail options,” said McCurrie. “There is a sizeable part of the population that has the means to buy from formal shops, but don’t have the options available. There is plenty of interest in Africa, so those companies that don’t make a move now will be left behind.” – Bloomberg