Carrefour in front line as French retail price war heats up

Tue May 13, 2014 11:08am EDT
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By Dominique Vidalon and Pascale Denis

PARIS (Reuters) - Carrefour (CARR.PA: Quote) is in the front line of a French retail price war that is showing signs of becoming bloodier than expected as supermarkets scrap for market share in a sluggish economic recovery.

After Carrefour lowered prices last year to regain some lost custom, rivals such as Auchan, Leclerc and Casino (CASP.PA: Quote) are fighting back - just as the spectre of deflation is piling the pressure on retailers to offer the best value for shoppers.

As retail market leader in France with a 20.5 percent share, Carrefour depends on the country for a little under half of its sales - more than its only major listed domestic rival Casino, which makes two-thirds of earnings in emerging markets.

What's more, Carrefour makes about a quarter of its sales in French hypermarkets - the main battleground for the price-conscious French shopper given hard-discounters such as Aldi and Lidl, which dominate markets in Germany and Austria, have a comparatively low market share of 12 percent in France.

That leaves Carrefour both heavily exposed to a French price war, and also short of an obvious investment benchmark - a particular headache for analysts given the refusal of Chief Executive Georges Plassat to offer forecasts since he took over in 2012 after a series of disappointments and target misses.

Existing 2014 earnings forecasts put Carrefour shares at a price/earnings premium of 20 percent to European peers following its recent signs of recovery. Some analysts argue the market has yet to factor in growing signs of tougher competition to come.

"The price battle will be tough in the second half of 2014 due to a still tense consumption climate. As Carrefour regains market share, Leclerc and Auchan have become more restless," said Yves Marin, senior manager at the Kurt Salmon consultancy.

French consumer confidence fell unexpectedly in April as debt-burdened households grew more wary about their deteriorating finances and high unemployment, official data showed last month.   Continued...

The logo of Carrefour is seen at the entrance of the Carrefour's Bercy hypermarket in Charenton Le Pont, near Paris, August 29, 2013. REUTERS/Charles Platiau