Carrefour Miss’s latest deal shows grocery store consolidation difficult

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(Bloomberg) – It has been a difficult year for Alexandre Bompard. The attempts of the boss of Carrefour SA to create a champion of mass distribution in France are proving elusive.

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Talks over a deal to link the publicly traded grocer with private rival Auchan have collapsed, Bloomberg reported over the weekend. The two sides were discussing a € 16.6 billion ($ 19 billion) tie-up that would have seen the Mulliez family, owners of Auchan, hold a controlling stake in a combined entity. Disagreements over the structure of the deal have proven too difficult to overcome, people familiar with the situation said.

Talks collapsed less than a year after Carrefour explored a sale to Canadian company Alimentation Couche-Tard Inc. The deal collapsed after the government intervened to prevent a foreign buyer from taking over the largest private employer. of France, the year before the crucial presidential elections scheduled for April 2022.

Bompard, a deal maker who designed electronics retailer Darty’s combination with books and electronics chain Fnac, tried to consolidate the lagging Carrefour share price with buyouts, improved operational performance on its crucial domestic market, greater generation of free cash flow and targeted mergers and acquisitions. Yet during his tenure since July 2017, the grocer’s shares have lost more than a quarter of their value.

Part of the difficulty is timing.

“The French grocery market seems theoretically ripe for consolidation. But, in practice, don’t expect a major deal in 12-18 months, ”Bryan Garnier analyst Clément Genelot said by email, adding that“ mergers of equals ”are“ too complex ”then. that political barriers remain high in the face of next year’s polls.

Crowded market

France is a crowded market, with at least six major national players, alongside German discounters Lidl and Aldi and new internet-focused companies. This has made it very competitive in terms of price and the profit margins are very slim.

Leader, Leclerc holds a 22.7% market share, followed by Carrefour with 19.7%. Auchan ranks fifth, with 9.2%, according to data from Kantar.

Another stumbling block is the ownership of these supermarkets. “The fact that France is a market with a high share of independent grocers” like Leclerc, Systeme U and Intermarché “does not help trigger a consolidation,” added Genelot.

France is not the only European market where the internal consolidation of grocers has proved difficult. British regulators blocked in 2019 a plan to merge No.2 player J Sainsbury Plc with third-placed Asda. Since then, the latter chain and operator No.4, Wm Morrison Supermarkets Plc, have both been taken over by private equity.

Genelot expects transactions in France to be more acceptable after the election.

“Consolidation will need to come to fruition at some point to end unending deflation in France” and to enable investments in online capabilities amid the threat of digital grocery platforms, he said.

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