This instance was written by P. Indu. under the way of Vivek Gupta. IBS Center for Management Research. It was compiled from published beginnings. and is intended to be used as a footing for category treatment instead than to exemplify either effectual or uneffective handling of a direction state of affairs.

Carrefour’s Misadventure in Russia
“In the infinite of merely four months. Russia has gone from a “strategic priority” to an reconsideration at Carrefour. the elephantine Gallic retail merchant. ”1
– New York Times. in October 2009.
“Carrefour’s pending issue underlines the fact that Russia remains a extremely disputing market despite its cardinal draw. Although MGR ( Mass Grocery Retail ) gross revenues are forecast to beef up by a dynamic 66. 4 % to RUB 1. 423bn ( US $ 48. 53bn ) through to 2014. the country’s concern environment is among the least forthcoming in emerging Europe. Despite exceeding our Q110 nutrient and imbibe regional concern environment evaluations. Russia’s market hazards score ( embracing regulative environment and barriers to entry ) is the region’s 2nd lowest behind Ukraine. ”


Business Monitor International3. in October 2009.

CARREFOUR EXITS RUSSIA
On October 15. 2009. merely four months after opening its first shop in Russia. France-based Carrefour SA ( Carrefour ) . the 2nd largest retail merchant in the universe. announced that it planned to go out the Russian market. The company announced. “Carrefour has decided to sell its activities in Russia and draw out of the market. given the absence of sufficient organic-growth chances and acquisition chances in the short- and medium-term that would hold allowed Carrefour to achieve a place of leading. This determination is consistent with the Group?s scheme which aims at constructing leading places that will guarantee strong and permanent profitable growing. ”4 Carrefour started the basis to come in the Russian market in 2007. looking out for suited locations for opening its shops.

It opened its first shop in the state. a hypermarket. in June 2009. Its 2nd shop was opened shortly after. It besides procured a location for its 3rd shop. which was to open by the terminal of the twelvemonth. However. in a move that took industry analysts and perceivers likewise by surprise. Carrefour announced its issue from the state in October 2009. Analysts opined that Carrefour?s failure to get Russia-based food market concatenation Sedmoi Kontinent5 ( Seventh Continent ) and shareholders? force per unit area on the company to concentrate on its nucleus concern were the chief grounds for the issue determination.

They were of the position that the bureaucratism. complicated legislative model. corruptness. and ruddy tape that existed in the state were factors that could hold influenced Carrefour?s determination to discontinue Russia. Some of them opined that Carrefour had non given adequate clip for its operations to stabilise in the market. Viktoria Sokolova. Senior Analyst at Troika Dialog6. said the company?s scheme was flawed and had come excessively late. She said. “Carrefour merely failed with its scheme to come in Russia. There is plentifulness of growing chances out at that place. Its nearest rival. Auchan. has opened its 34th hypermarket in Russia. and continued its opening plan. even during the crisis times. Carrefour came to Russia a small spot excessively late. and was speaking. possibly. non to the best operator in the market. without the distribution range. to get them. as a agency of an entry point. ”7

Industry analysts. who had observed the Russian market closely. said that Carrefour?s issue could impact the entry of other international retail merchants like Wal-Mart and Tesco. which had programs to come in the state. Harmonizing to New York Times. “It besides indicates that a good trade of the radiance has come off the Russian retail market. in recent old ages one of the fastest growth in the universe because of trickle-down oil wealth that helped take a consumer roar built on decennaries of repressed demand from the black Soviet epoch. ”

BACKGROUND NOTE
Carrefour was founded in 1960 by two enterprisers – Marcel Fournier. a fabric retail merchant. and Louis Defforey. a vino and nutrient jobber from Annecy in Eastern France. The first two shops that they opened were extremely successful. In 1963. a 2. 500 square metre shop was opened in SainteGenevieve des Bois. a Paris suburb. It occupied an country of 2. 500 square metres and had adequate infinite to park more than 400 autos. The shop provided a broad scope of points. including self-service food market at price reduction monetary values. and vesture. featuring equipment. electronic goods. and car accoutrements. The shop was inaugurated in June 1963 and its immense size earned it the name „hypermarket? in the media. Carrefour offered merchandises at the lowest monetary values every bit compared to its rivals by negociating with jobbers and providers. The construct of a hypermarket found instant credence among the younger people. suburban inhabitants. and monetary value witting consumers.

In 1966. a 10. 000 sq. metre hypermarket was opened in Lyon and a 20. 000 sq. metre hypermarket was opened in Vitrolles. In 1967. Carrefour opened an office in Paris to organize the activities of its assorted shops in the state. The company began to come in international markets after a jurisprudence was passed in France in 1963 to curtail the development of big shops. Its first international venture was in Belgium. where it opened an mercantile establishment in association with Delhaize Freres-Le-Lion9. in 1969. In 1970. Carrefour?s portions were listed on the Paris stock exchange. By 1971. Carrefour was straight runing 16-wholly owned shops. with an equity involvement in five more shops. It besides operated through franchises. In its first venture outside Europe. Carrefour opened a hypermarket in Brazil in 1975.

Troika Dialog is one of the largest private investing Bankss in CIS. Its chief lines of concerns include capital markets. investing banking. plus direction. personal investings. and finance. About 33 % of the equity interest in the company is owned by the Standard Bank Group and the remainder is owned by 109 employee spouses.

In 1978. Carrefour developed a difficult price reduction store10 format under the streamer Ed. in France. The shops offered a limited scope of merchandises at really low monetary values. By 1985. Carrefour was runing in 10 states and had introduced private label merchandises that were priced 10-20 % lower than branded merchandises and were said to be of superior quality. In 1988. Carrefour entered the US market by opening a 330. 000 sq foot hypermarket in Philadelphia. Another hypermarket was set up in 199111. In 1991. Carrefour acquired Gallic hypermarket ironss – Euromarche and Montiaur. In 1992. Carrefour reported gross revenues of ˆ 17. 86 billion and a net income of ˆ 271 million. In the early 1990s. Carrefour concentrated on set uping larger shops in France ( with an country of more than 2. 500 square metres ) and sold off its smaller shops.

By the mid-1990s. Carrefour?s European operations were spread across Italy. Spain. Turkey. Greece. and Portugal. In 1996. Carrefour opened 30 hypermarkets across the universe. of which 15 were in South America. By 1997. the figure of shops in South America had increased to 60 ( Refer to Exhibit I for the timeline of Carrefour?s entry into international markets ) . Intersection operated through franchises in the UAE. Saudi Arabia. Oman. Qatar. Egypt. Tunisia. Algeria. and the Dominican Republic. In 1998. it acquired Comptoirs Modernes SA. which brought 790 supermarkets into its crease. In 1999. it acquired Promodes SA12. which owned several hypermarkets. supermarkets. convenience shops. and price reduction shops. The acquisitions helped Carrefour go the top retail merchant in Europe by the late ninetiess.

As of 2008. Carrefour was the 2nd largest retail merchant in the universe and the largest retail merchant in Europe ( Refer to Exhibit II for the list of planetary powers of retailing ) . By the terminal of 2008. it was runing 15. 430 shops globally. It operated through different shop formats like hypermarkets. supermarkets. convenience shops. difficult price reduction shops. and hard currency & A ; carry mercantile establishments ( Refer to Exhibit III for Carrefour?s shop formats ) . Carrefour?s grosss were at ˆ 108. 629 billion for the twelvemonth stoping December 2008 ( Refer to Exhibit IV for Carrefour?s state wise gross revenues ) .

CARREFOUR’S PLANS FOR RUSSIA
In every international market in which Carrefour operated. it basically focused on going one of the top three participants in footings of market portion. Commenting on the standards for come ining new markets. the Chairman of the Management Board of Carrefour. Jose Luis Duran. said. “We?ll expression toward new markets. That means local acquisitions in states where we presently operate. but it besides includes the possibility of set uping a presence in new states. such as Russia and India. However. any such shop gaps will hold to fulfill three standards: we must be able to capture a taking market place within the average term. set up our trade name rapidly. and procure a return on investing. It is merely under these conditions that we will spread out our range of operations. ”13 Carrefour ab initio showed an involvement in operating in Russia during the mid-1990s and opened a representative office in Moscow. It besides finalized two premier locations. one in the centre of the metropolis and the other on the outskirts. However. during the 1998 fiscal crisis14. it exited from the state.

Hard price reduction shops sell merchandises at monetary values that are even lower than those in traditional price reduction shops like Wal-Mart. They are little in country and sell a limited mixture of merchandises. Subsequently. Carrefour suspended the US operations in 1993. as the shops were non profitable. Promodes SA was established in 1950. and played a major function in advancing supermarkets in France. During the sixtiess and 1970s. the group expanded quickly in other states in Europe and South America. In 1999. Carrefour purchased Promodes SA to go the 2nd largest retail merchant in the universe. “Interview with the Chairman of the Management Board. ” Annual Report 2006. The Russian fiscal crisis of 1998 was triggered by the Asiatic fiscal crisis of 1997 and resulted in high rising prices. The nutrient monetary values went up by 100 % and with people carrying up indispensable points. deficits were witnessed. By 1999. the state recovered from the crisis.

In June 2006. Carrefour once more started contemplating an entry into the Russian retail market. A deputation from Carrefour toured across Russia looking for locations. met local functionaries. and interacted with other retail merchants. After passing considerable clip analyzing the markets. Carrefour announced its purpose of come ining the Russian market in June 2007. The retail merchant planned to open merely hypermarkets ab initio. It would so follow this up with other shop formats. At that clip. it intended to open its concatenation in 20 metropoliss. A group of directors from France were stationed in Russia to fix for the launch of a new shop by early 2008.

Analysts were of the position that Carrefour had delayed its entry into Russia ( Refer to Exhibit V for a note on retail industry in Russia ) . Harmonizing to Maria Sulima. a retail analyst with Metropol15. “They are instead late in coming. At this point. it would be more effectual to buy a concatenation with already developed logistics and distribution webs. ”16 By the clip Carrefour entered the market. Auchan SA17 ( Auchan ) and Metro AG18 ( Metro ) had established a important presence in the state. Auchan had a presence in eight Russian metropoliss while in Moscow entirely. it had 20 shops. Metro had 74 shops across the state. Other rivals included local participants like X5 Retail Group NV19 ( X5 ) and Mosmart CJSC20 ( Mosmart ) . On Carrefour?s delayed entry into the state. Thierry Garnier ( Garnier ) . Group Executive Director. Carrefour. said. “We were waiting for the best minute to come in the market. We are in Russia for the long term. ”21 In order to step up its presence. Carrefour wanted to hold an association with a local spouse. and intended to get local food market concatenation Seventh Continent. which operated through 140 shops.

In February 2009. Carrefour made a non-binding offer to Seventh Continent valuing it at US $ 1. 25 billion. On Carrefour?s involvement in Seventh Continent. Marie Lhome. analyst with Aurel BGC22 in Paris. said. “It is more expensive and hard to put up operations in Russia. Some retail merchants. like Ikea. hold run into legal issues at that place. The involvement in Seventh Continent comes from the company?s shops premier locations in the centre of Moscow. ”23 Analysts besides expressed uncertainties about the tantrum of Seventh Continent with Carrefour?s overall scheme. as Seventh Continent was a luxury shop. However. the offer was rejected by the stockholders of Seventh Continent. Carrefour persisted with its acquisition attempt and in May 2009. the company signed a preliminary missive of purpose to get a 75 % equity interest in Seventh Continent. Reports suggested that both the companies were under the exclusivity period24 due to which Seventh Continent could non come in into understandings or negotiations with any other possible purchasers. Analysts were of the position that after the acquisition. the Russian retail market would account for 1 % of Carrefour?s entire gross revenues.

IFC Metropol is a Russia-based investing and fiscal company. Its activities include corporate finance. debt instruments. equities. research. depositary services. and legal services. “Carrefour Opens First Russian Store. ” World Wide Web. russianamericanchamber. com. June 19. 2009. Auchan is a France-based transnational retail group. The group is controlled by the Mulliez household of France. In 2008. its gross was ˆ 39. 284 billion and net income was ˆ 744 million. Metro is a Germany-based retail group. It was the 5th largest retail merchant in the universe as of 2009. In 2008. its gross was ˆ 67. 96 billion and net income was ˆ 403 million. X5 was the largest retail group in Russia as of 2009. It operates through three formats – hypermarkets. supermarkets. and soft price reduction shops. In 2008. its gross revenues were US $ 8892 million and EBITDA was US $ 803 million.

Mosmart is a Russia-based multi-format retail concatenation.
“Carrefour Opens First Russian Store. ” World Wide Web. russianamericanchamber. com. June 19. 2009. Aurel BGC is the consequence of a amalgamation between ETC Pollak. Aurel. and BGC. The services provided by Aurel BGC include fixed income and equity derived functions. It besides conducts economic and fiscal research and provides prognosiss.

Javier Espinoza. “Carrefour Coquettes with Seventh Continent. ” World Wide Web. forbes. com. April 20. 2009. During the exclusivity period. both Carrefour and Seventh Continent was banned from negociating with any other possible purchasers. This. harmonizing to analysts. showed that the trade was at hand.

Carrefour’s Misadventure in Russia

But before Carrefour could reason the trade. the proprietor of Seventh Continent ran into fiscal jobs. The company defaulted on bond payments in June 2009 and went in for debt restructuring. Ultimately. Valdimir Gruzdev who controlled a10 % equity in Seventh Continent. decided non to sell the company. mentioning that the clip was non right to sell well-performing assets.

Opening STORES
In June 2009. Carrefour opened its first shop in Moscow. Commenting on this juncture. Jacobo Caller. General Director of Carrefour in Russia. said. “We are really happy to get down our concern operations in Russia where we will follow our client-oriented rules: offering quality merchandises at low monetary value. great value. and high degree of services to Muscovites. We believe that the gap of the first Carrefour shop in Moscow is an of import measure for Carrefour?s development in Russia and will hold a positive impact on the economic development of the metropolis. ”25 At that clip. Carrefour announced that it believed in the long-run potency of the state and considered the Russian market to be strategically of import for the development of Carrefour. Harmonizing to Garnier. “As the 2nd universe and most internationalized retail merchant. the Carrefour Group is now developing its activities in a new state.

Get downing our operations in Russia is an of import milepost for our company. The Carrefour Group believes that the Russian retail market has outstanding long-run potency and considers it to be one of the strategic precedences for the company?s international development. ”26 However. analysts cautioned that it would be hard for Carrefour to spread out in the state without geting an established participant. Harmonizing to Mikhail Terentiev. analyst with Nomura International27 in Moscow. “It is non really easy to set up a footmark in Russia. If you want to spread out in Russia quickly it would be a good thought to purchase person else with a really developed market. ”

Carrefour?s foremost shop was located in Filion Shopping Mall. and occupied two floors with a gross revenues country of 8. 000 square metres. 58 check-out procedure counters. and 450 staff. It sold 15. 000 nutrient points and 30. 000 non-food points. Of the entire 45. 000 SKUs on offer. over 5. 000 were private label merchandises. Fillion Shopping promenade occupied an country of 87. 000 sq. metres and included a 10-screen multiplex film and a subject park. The shopping promenade had installations to park 3. 000 autos. Carrefour had reportedly invested ˆ 8. 8 million on its first shop and its gap was a expansive event with the invitees being entertained by mummer creative persons. instrumentalists. dancing companies. etc. However. industry experts were non impressed with the location of Fillion Shopping Mall. indicating out that though it was located near to the metropolis centre. it was non easy accessible. non conspicuously seeable. and was located among low-income group households.

Carrefour immediately attracted clients who largely shopped there for nutrient merchandises. One point that proved to be extremely attractive was the different assortments of staff of life that Carrefour sold. As most of the clients were used to the Gallic retail merchant Auchan. they found shopping at Carrefour convenient due to the high service criterions. handiness. and broad pick of merchandises. Merely after the first shop was opened. newspapers reported that dialogues between Carrefour and Seventh Continent had been stopped. Therefore. Carrefour was non able to get Seventh Continent on which it was banking for its enlargement in Russia.

The 2nd shop was opened on September 10. 2009. at Krasnodar in South Russia. For this shop. Carrefour entered into an MoU with the local authorities to implement an investing undertaking. As per the MoU. the company planned to put up to US $ 100 million in the part. over five old ages. Intersection was to be provided with support in footings of concern development. happening suited secret plans. substructure. etc. by the regional governments.

On this shop. Carrefour invested ˆ 8 million. The shop had a gross revenues country of 8. 500 metres. and employed 350 people. The company invested ˆ 7. 8 million on developing the shop. At that clip. it announced that though Russia was under a recession. for the first clip in a decennary. the crisis would non alter Carrefour?s programs for the market and it would open its 3rd shop as planned. Harmonizing to Jacobo Caller. Carrefour Russia?s Director. “For Carrefour. ( the ) Russian retail market has outstanding long-run potency. Despite the crisis. we are non traveling to alter our long-run vision of this state. With Brazil. India. and China. Russia is one of the precedences in the longterm enlargement of Carrefour. ”29 At that clip. he besides announced that in a few months? clip. Carrefour would come out with its luxuriant enlargement scheme for Russia. By the clip the 2nd shop was opened. Carrefour had already announced its programs to open a 3rd shop in Lipetsk and had besides entered into a lease understanding to open its 4th shop at River Mall in Moscow. Harmonizing to the analysts. Carrefour chose these locations as the major locations like Moscow and St. Petersburg were stagnating and Krasnodar and Lipetsk were some of the parts that were sing rapid growing.

. … AND PULLS OUT
In September 2009. a study in Le Monde30 mentioned that Carrefour was under force per unit area from top stockholders to draw out of emerging markets. Carrefour. on its portion. denied the study. Harmonizing to a Reuters study. “French retail merchant Carrefour is earnestly sing go outing Latin America. one of its most moneymaking markets. under force per unit area from top stockholders. Le Monde newspaper reported… . But the board of the world?s second-biggest retail merchant has rejected the thought of abandoning all emerging markets including Asia as this would give the feeling the company was being broken up. the newspaper said. ”

However. on October 15. 2009. Carrefour announced that it had decided to shut down its Russian operations. The company cited unequal growing and acquisition chances as the grounds for its issue. It did non uncover inside informations of entire investings in Russia and said that the losingss due to the issue were non important. Carrefour besides said that there were no chances of its being among the top three retail merchants in the state. as it had planned.

Carrefour besides announced that the shops in Russia would go on to stay unfastened till the company found a purchaser for them. and that it would besides open the 3rd one as planned. This was done in order to cut the costs of issue and besides to cut down the punishments that it could pull for break uping the contracts with providers and landlords. Carrefour besides looked around for a franchising spouse to run the shops and to develop the trade name in the state.

Industry experts opined that it took retail merchants several old ages to set up themselves in new markets. particularly emerging markets like Russia which had high growing potency. They were surprised that Carrefour did non remain long plenty to prove the market. Harmonizing to them. four months was excessively short a clip to estimate the potency of the market. They said that Carrefour?s justification about deficiency of acquisition and hapless gross revenues marks appeared more like alibis. The issue besides made analysts inquiry Carrefour?s committedness to states with high potency. but short-run troubles and jobs. Harmonizing to Jaime Vazquez. an analyst at JPMorgan Chase & amp ; Co. in London. “Turning around the hypermarkets in a deflationary environment and with a weak monetary value image is non traveling to be easy.

Shops in emerging markets are the lone 1s making good and offering good growing chances. ” so selling them makes no sense other than doing short-run fiscal addition. 32 Analysts besides said that Carrefour had spent more than three old ages analyzing and understanding the market and this clip was sufficient to understand the troubles associated with the retailing industry in Russia and besides about the possible acquisition marks. As it knew the market good. it was non right for Carrefour to anticipate positive consequences within such a short span of clip. that excessively when Russia was in the thick of recession. they said. The analysts said Carrefour could hold halted enlargement and waited in the market for a few more old ages before taking a concluding determination on its operations in the state.

Harmonizing to industry perceivers. Carrefour?s failure to get Seventh Continent was the chief ground for its issue. They said that without Seventh Continent. Carrefour did non happen adequate range to turn in the state. though the market was extremely moneymaking. The retail industry in Russia was concentrated chiefly around Moscow and St Petersburg. and in these locations. retail merchants like X5 and Auchan were steadfastly established and the markets were besides oversaturated. With the retail infinite in limited supply. it was non possible to set up a important presence in these markets without acquisitions ( Refer to Exhibit VI for major retail merchants in Moscow and St Petersburg ) . In malice of its high growing potency. there were several obstructions which international retail companies had to confront in the Russian retailing industry. A complicated legislative model. bureaucratism. along with corruptness hampered the operations of several companies in Russia. Analysts said ruddy tape. hapless economic conditions. etc. could hold influenced Carrefour?s determination to go out the market.

Intersection was besides caught up in bureaucratic fusss as its first shop in Moscow could non acquire a licence to sell intoxicant. which cost it about 15 % of the stores? grosss. Legislation in Russia that aimed at increasing the competition in the country33 was besides cited as one of the chief grounds for Carrefour?s program to go out.

Due to volatile economic conditions in the Russian market. geting a Russian retailing company besides proved to be a tough undertaking for Carrefour. Though due to the planetary fiscal crisis34. the portion monetary values of Russian retail merchants were down doing them an ideal mark for acquisition. the deficiency of recognition to the retail merchants for transporting out the acquisitions and the high debt load of the local retail merchants. proved to be unattractive for Carrefour. The acquisitions were besides priced high. For illustration. X5 with a portion of 4 % in the nutrient retail market in Russia was valued at US $ 7 billion. Harmonizing to Datamonitor. “Facing these challenges. Carrefour has likely made the right call in doing an early backdown from the market. A desperate macroeconomic environment and the strength of domestic discount houses in the current clime brand interrupting into Russia organically a important challenge. Furthermore. the troubles in geting a local participant and other market hinderances.

Ladka Bauerova. “Carrefour Replaces Head of Gallic Superstores. Exits Russia. ” World Wide Web. bloomberg. com. October 15. 2009.
The new retail trade jurisprudence in Russia was passed in December 2009. Harmonizing to the jurisprudence. the authorities can enforce monetary value ceilings on specific merchandises ( whose monetary values have grown by 30 % in a span of 30 yearss ) for a specific timeframe ( non more than 90 yearss ) . Restrictions were set on fillips providers could pay to the retail merchants to stock their merchandises. payment timeframes within which retail merchant had to pay providers. etc. The Russian authorities aimed to increase the competition in the retail sector by go throughing the jurisprudence. The planetary fiscal crisis refers to the recognition. banking. trade. and currency crisis that emerged in 2007-08. This was the consequence of the failure of several US-based investing companies. mortgage companies. and insurance companies due to the sub-prime crisis in the state. The sub-prime crisis was the consequence of mortgage delinquencies and foreclosures. which had an impact on Bankss and markets around the universe would hold made Carrefour?s quest to derive graduated table and leading in the state a dearly-won acclivitous battle. ”

There were besides studies that the company was under force per unit area from cardinal stockholders like Colony Capital LLC36 and Bernard Arnault37. a Gallic investor and Chairman of LVMH. who insisted that Carrefour dressed ore on its Gallic operations and issue from the emerging markets including China and Latin America after its planetary gross revenues dropped by 2. 9 % in the 3rd one-fourth stoping September 2009 to ˆ 24 billion. Reports in Le Monde suggested that the top investors were take a firm standing on Carrefour go outing China and Brazil excessively. in order to recover their investing. after Carrefour lost 30 % of its market value between March 2007 and September 2009. However. at the same clip. other retail merchants in Russia were executing good. The X5 Retail Group reported that its net incomes had grown by 38 % between January and September 2009. as compared to the corresponding period the old twelvemonth.

The shop count in 2009 was expected to increase by 25 % . The net grosss of another taking retail merchant Magnit increased by 31 % in the first nine months of 2009. As of September 2009. it had 2981 shops in operation. Many analysts opined that the backdown from Russia meant that Carrefour remained committed to its end of achieving a leading place in the markets in which it operated and go outing the states where it did non happen the chance to be among the top retail merchants in a span of few old ages. Earlier. in 2005. Carrefour had exited from four states viz. . Japan. Mexico. the Czech Republic. and Slovakia. where it failed to do a grade. and decided to concentrate on Eastern Europe and Latin America. Analysts pointed out that every bit far as the Russian market was concerned. it had realized shortly that there were non adequate chances for it to go the top participant in the state. Harmonizing to Pierre Bouchut. Chief Fiscal Officer. Carrefour Group. “It is exactly because we are following a long-run stance that we are go outing from Russia. ”38 Carrefour. nevertheless. maintained that it would stay committed to its enlargement programs in other emerging markets where it already had a important presence.

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