“A credit crunch is a recessionary period in a debt based monetary system where growth in credit has slowed and subsequently caused a drying up of liquidity in an economy.”
(, online, 2008)
Market Environment Analysis:
The food retail market in Greece can be considered as mature and highly competitive. According to (online, 2008) Greek consumers spend more than 40% of their income on food, drinks and tobacco-related products. The marketplace is dominated by Carrefour with the firm’s total market share exceeding 20%. The company’s main competitors in this market segment are:
- Sklavenitis (leading competitor at the time)
- Alfa-Beta Vassilopoulos
- Lidl
- Veropoulos
- Atlantic
- Metro
- Metro Cash and Carry
- Masoutis
- Galaxias
The firm’s 9 competitors control 60% of the market when combined and the rest of the market is led by small off-license stores, butchers and small grocery stores.
However, due to the credit crunch, distrust has arisen between large organisations, including multinational food processing companies. Therefore it is unlikely for the small competitors to achieve higher market penetration. This has also resulted in poor performance and growth in the food and drink market, with Greek consumers showing few signs of varying their traditional dietary preferences, which include home cooking. Consequently, ready-made meals and frozen foods have failed to achieve the prominence they now have in Western Europe.
At this point it would be wise to perform a P.E.S.T.L.E. analysis in order to fully understand Greece’s business environment.
Political Environment:
As a member of the European Union, Greece has no restrictions towards foreign investment. The government encourages as many foreign trade activities within its borders as possible. Labour laws on the other hand are quite inflexible, leading to significant difficulties in successfully managing the Greek workforce, as well as increasing operations costs.
Economic Environment:
According to the Economist (13th-19th December 2008, p.43) Greece’s economic growth is currently at 4% and its shipping industry has been booming. The reason that the shipping industry has been so successful is due to China’s exports major success as well as the vast properties bought In the Aegean islands by Russian oligarchs. Greece has experienced strong economic growth in the recent years with its real GDP growth being 4.3%. On the other hand, according to (online, 2008) this economic progress has meant that employers have been forced to increase wages. These factors have led to inflationary pressures. In January 2007, the labour cost index of Greece rose by 15.7% month by month against the 0.5% of Eurozone. In the same month, the total industrial production (volume of output) grew by only 1.3% month on month. This suggests that wages are increasing faster than output.
Sociocultural Environment:
According to Wall et al (2004) Greece is highly influenced by the Mediterranean culture. Also it is argued that, in Hofsted’s terms, the country is characterised by a large ‘Power Distance’ and strong ‘Uncertainty Avoidance’. This means that Greek culture is strongly based on the authority of ones position within a hierarchy and a well structured and consistent routine. In other words, the native workforce is expected to be less individualistic and comfortable working within a highly bureaucratic organisation.
Technological Environment:
According to (online, 2008) Greece’s Technological development has been spearheaded by the Telecommunications industry in recent years. Until 2000 there was only one landline telephone provider in Greece, the Hellenic Telecommunications Organisation (OTE). Since then, a number of companies offering landline telephone services have emerged, resulting in a reduction of cost and amplification of services. As a result, the state-run company started to invest in modernising its nationwide network in order to retain its market share. A major development was the introduction of mobile telephony, starting with two companies, Vodafone and TIM (previously known as Panafon and Telestet respectively). The mobile phone market evolved and thrived over the last decade and now virtually every adult owns a mobile phone.
Legislation:
Greece’s competition law is similar to that of other EU members, and free competition is encouraged in the retail industry. Employment and labour legislation, on the other hand as mentioned above is quite inflexible. As a result Human Resource Management in both the private and public sector is really difficult to handle. Pressure groups and Workers Unions are quite powerful in Greece so any kind of changes in relevant legislation is not easy to change.
Environmental:
At the moment Greece is in a very fragile environmental state, since it has been exposed to severe catastrophes over the last 3 years. One of the worst was situations according to The Economist Intelligence Unit (2007) was during the summer of 2007. Starting for the middle of June fires were set on forests in the centre and south of the country, in most of the Peloponnese and the island of Evoia. In the article it is also stated that in a single day almost 130 different species of birds, 45 different types of mammals and 30 different types of amphibians and reptiles became extinct due to fires that covered Mount Parnitha.
In order to fully understand the company’s strategic capabilities it is essential that we analyse the company through Porter’s 5 Forces framework.
Porter’s 5 Forces:
Table 1:
Threat of entry:
According to Johnson et al (2006), the threat of entry from a new competitor depends highly upon trade barriers, high tariffs, capital requirement of entry and access to supply and distribution channels. Due to the competitiveness of the market and the resent catastrophes of the environment, capital requirements are really high and expensive. Also since the market is dominated by large firms with imported as well as domestic products and a similar range of services, product or service differentiation could prove really difficult and costly.
Threat of substitutes:
Due to the economic fluctuations described in Task A, it is reasonable to assume that consumers will base their purchasing needs on price rather than quality. This means that some customers might prefer to buy own branded products from one of the firm’s competitors (such as Alfa-Beta Vassilopoulos branded products) since they are cheaper and usually local as well. Another disadvantage that the company faces against its main competitor, Sklavenitis, is that it does not offer delivery services. On the other hand, what separates Carrefour from the other supermarket/hypermarket retailers is the vast variety and range of products. The company supplies its customers with everyday groceries, school and office-related products, fitness accessories, clothing lines, kitchen supplies, furniture as well as home entertainment and music equipment.
Buyer Power and Supplier Power:
According to Johnson et al (2006) these two forces could be considered as one since they are almost solely responsible for limiting a company’s strategic freedom and value network. There can be no certain amount of reasons to explain how customers choose between the 10 main retailers without going through analytical consumer behaviour research on the Greek market. On the other hand, from the information gathered we could argue that mainly customers are driven by the location of the store, prices, quality and special offers available by different retailers. As shown on Table 1, Supplier Power is low. This could be explained by the low risk in switching costs, especially in such an industry. This seems reasonable, supermarket retailers purchase in large amounts and have explicit contracts that provide exclusivity. Finally risk of forward interrogation is also low since most suppliers use the firm’s distribution channels and do not have the appropriate capital to achieve forward interrogation themselves.
Competitive Rivalry:
In the supermarket industry differentiation might as well be the most important factor of success. This assumption is based on the fact that retailers work in a highly competitive market where products are fairly undifferentiated. As mentioned earlier in the essay, Carrefour competes in the supply of everyday groceries, school-related and office-related products. In this sector the company is in direct competition with Alfa-Beta Vassilopoulos, Sklavenitis, Lidl and Metro. The firm has competitive advantage when it comes to Lidl and Metro due to its variety of quality branded products in addition to its hard discount and own brand competitors. On the other hand, Alfa-Beta Vassilopoulos and Sklavenitis offer a wider range and better quality of own brand and local (Greek) products. It is also really important for a company to grow alongside the industry in which it operates; otherwise there is a risk of a company being insolvent. This could be avoided by buying a rival company’s market share. As mentioned in the beginning of the assignment, Carrefour seized that opportunity in 2000 by taking over the Greek supermarket chain Marinopoulos.
S.W.O.T. Analysis:
By combining the information presented so far we can now perform a S.W.O.T. analysis on the company’s business environment.
Table 2:
Strengths:
The good international relationship between Greece and France, as well as France’s reputation of quality products and efficiency plays a vital role to customers’ decision between a foreign and a domestic retailer. In other words, general stereotypes, culture and reputation of a company’s country can either increase or decrease the value of a company in the consumers’ eyes. According to the company’s official website (online, 2008) the firm recently started the ‘Vivre l’Europe, vivre sport’ (Live Europe, Live Sports) campaign for two seasons. Carrefour is known for its support towards sports and sporting events, and since Greece is one of the Balkans’ biggest soccer fans the company has taken advantage of that fact and has been sponsoring the national team in order to gain competitive advantage. The company also seems to be growing still in the Greek market with the opening of the 21st hypermarket located in Neo Faliro, Pireos street in October 8th 2007 (online, 2008).
Weaknesses:
According to an article posted on (online, 2008), in November (2008) the Carrefour Group announced a change in management. By the end of this year José Luis Duran, chief executive of the firm will be replaced by Lars Olofsson, soon-to-be ex-CEO of Nestle. The Economist (online, 2008) states that this decision was taken by the shareholders since under the guidance of Mr. Duran Carrefour’s share price dropped to 50% since the beginning of the year.
Opportunities:
In theory, companies can also gain competitive advantage when domestic demand conditions are similar with other market segments. For example, according to the Economist (online, 2008), when French families return from their summer holidays they stock up on food, groceries and school-related products for their children. That time of year is really important for Greek retailers and customers as well, since they share the same consumer behaviour when shopping at a supermarket or hypermarket during that time of year. By taking this into account a firm can focus on other similar factors or behaviour that their domestic and other markets have in common in order to gain competitive advantage. Also, according to (online, 2008), the company has started a new strategy and is planning on increasing its in-store own brand products by 20%, as well as diversify them and increase their quality, thus adding more value to their products. Carrefour could also take advantage of Greece’s booming shipping industry in order to have cheaper distribution channels from France by using the Mediterranean and Aegean seas as highways.
Threats:
Carrefour’s major threats are the consequences of its loss in shares over the last year, as well as the effects of the credit crunch on the Greek markets’ consumer behaviour towards hard discount retailers and product-for-product substitution. According to the Economist (online, 2008) customers all over Europe, and therefore Greece as well, are starting to purchase their groceries in cheaper supermarket retailers with less market share. For groceries and food-related products customers are now turning to retailers such as Lidl and Sklavenitis and purchase other specialist goods that the company offers, such as televisions and furniture from companies such as IKEA or Fnac.
In order to evaluate whether the company has the appropriate resources and competences to gain competitive advantage in the Greek market and remain successful for the future, we could perform a value chain analysis.
Figure 2: Value Chain
Primary Activities:
Inbound and Outbound Logistics:
There are almost no other parties other than the company’s during its Inbound and Outbound logistics’ processes. As a matter of fact, the company operates its own distribution channels and over the years it has tried to acquire its own suppliers. That way the company is able to minimise warehousing by merging the two activities and speeding up the distribution and in-store shelving process. According to www.agrifoodstandards.net (online, 2008), in October 2008 the company announced that it plans to buy shrimp directly from farmers in Thailand in order to supply the company's outlets in directly. The firm’s food service operators, supermarkets and hypermarkets are trying to deal with farmers directly in order to obtain freshness, get reasonable prices, and improve their ability to control the quality their products.
Operations:
The company’s operations are based on keeping the environment and products as safe as possible. According to the company’s Sustainability Report (2007), for the last 10 years Carrefour has been trying to minimize the weight and volume of its products’ packaging. It has also been using materials that can be recycled, incinerated with energy recovery or converted into compost. However, the company is worried that by further minimizing packaging could compromise its ability to protect the products. To reduce the environmental impact of packaging even more, and to keep the goods safe, the firm is considering the possibility of using materials made from renewable or widely available resources such as bio-plastics based on GMO-free cornstarch or calcium carbonate.
Marketing and sales:
In its annual report (2007), the company states that it focuses its marketing campaigns mainly on promoting and sponsoring national sports teams, their environment friendly activities, their constant success, and how people can come together when purchasing at their stores. Through the stores, ‘Social influences’ and ‘Situational influences’ mainly refer to the stores’ friendly and quick services. One new step that the company has made this year, as mentioned earlier in the assessment, is its new line of Carrefour own-brand products. In Greece in particular the company tends to use the age-old method of television commercials involving celebrities usually presenting offers, bundles and any new services that the company might offer. The company also sends catalogues to club card members with all the seasonal products.
Services:
Carrefour’s after-sales services are mainly based on warranties and insurances for home entertainment, electronic and furniture related products. On the other hand, the firm’s pre-sales services are based on employees providing information within the store to any troubled customer, as well as the Carrefour club card which provides customers with discounts during their purchases.
Secondary/Support Activities:
Firm Infrastructure:
The company’s management bodies are the Supervisory Board and Management Board. The Executive Committee remains the operational body with regards to the implementation of the strategy. This structure allows a better distribution of power between a Supervisory Board, supervisory body and a Management Board. Supervisory Board’s aim is to verify and monitor the execution of corporate strategy, whereas the Management Board, which is appointed by the Supervisory Board, is in charge of the general management of the company through a collective decision-making process.
Human Resource Management:
The company follows what is considered by Wall et al (2004) as the Polycentric approach of HRM. This means that the company has chosen the hosting company’s nationals to fill all key position within their supermarkets/hypermarkets. The company states that it bases its HRM policy on what they call ‘The Company’s 7 values’. These values are listed as:
- Freedom
- Responsibility
- Sharing
- Respect
- Integrity
- Solidarity
- Progress
These values are set in order to guide employees, creating an environment that support an ethical behaviour, avoid conflict between employees and point out the shared accountability among them.
Technology Development:
The main technology used by the company is computers and the internet. The computers are not only used for online shopping but in order to speed up Inbound and Outbound Logistics operations. The company also uses the net in order to track information for club card holders as well as to develop B2B operations with suppliers.
Procurement:
The company tries to focus as much as possible on all of its market segments. As a result procurement is based on each markets preferences and culture. The company adopts different shopping services depending on the local shopping habits and therefore during the procurement process if on of the activities does not add value to either their services or products is constantly altered.
The most appropriate tool to analyse Carrefour’s strategies to reach all of its market segments could be Bowman’s Strategic Clock as illustrated below (Figure 3).
Figure 3: Bowman’s Strategic Clock
(Johnson et al, 2007)
After gathering the appropriate information from Carrefour’s annual report, sustainability report and combining it with Bowman’s Strategic Clock we can come up with the following table.
Table 3: Carrefour’s competitive strategy
As we can see Carrefour has been operating under a customer oriented strategy in each sector. In order to reach expectations in each segment the company tries to combine low or reasonable prices, with certain benefits such as discounts through its club card. The company also bases its services around the customer’s needs and the environment surrounding as well as the quality of its products.
Conclusion:
As we can see, Carrefour is a successful international company operating in a highly competitive and highly complex market. The multiple influences that affected the Greek and global market place due to the credit crunch, as well as Greece’s complex business environment, and the increasing competition from hard discount retailers are only some the reasons for such complexity. We also evaluated the firm’s performance as well as strategic capabilities and sources for gaining competitive advantage. The company has been successful for many years in the Greek market since it has been able to understand and respect the country’s culture, business environment as well as consumer behaviour. On the other hand, the company has been facing some difficulties since its recent change in management. Nonetheless, through an effective value chain, strategic planning through Bowman’s clock and combining it with its international experience the company is sure to reclaim its ground in the near future.
References
Griffiths A., Wall S., (2004). Applied Economics 10th Edition. Edinburgh Gate. Pearson Education Limited.
Griffiths A., Wall S., (2005).Economics for Business and Management, A Student Text. Edinburgh Gate. Pearson Education Limited.
Johnson G, Scholes K & Whittington R, 2006, Exploring Corporate Strategy – Text and Cases, Pearson Education Limited, Harlow, England
Porter E., (1985). Competitive Advantage: Creating And Sustaining Superior Performance. New York: Free Press.
Schneider S & Barsoux J-L, 2003, Managing Across Cultures, Pearson Education Limited, Harlow, England
The Economist, December 13th-19th 2008, Greece’s riots: They do protest too much.
The Economist Intelligence Unit, (2007) Country Report October 2007 – Greece, The Economist Intelligence Unit Ltd, New York, USA
Wall S., Rees B., (2004). International Business 2nd Edition. Edinburgh Gate: Pearson Education Limited.
Websites
Figure 1 available on:
[Accessed 13th October 2008]
Carrefour’s global position available on:
[Accessed 20th October 2008]
Carrefour-Marinopoulos joint venture available on:
[Accessed 3rd September 2008]
Vivre l’Europe, vivre le sport campaign available on:
[Accessed 28th October 2008]
Carrefour’s Value chain information can be found in its Financial Report available on:
[Accessed 1st December 2008]
Carrefour’s Value chain information can be found in its Financial 1st annual report available on:
[Accessed 23rd November 2008]
Carrefour’s Value chain information can be found in its Financial 2nd annual report available on:
[Accessed 23rd November 2008]
Carrefour pricing strategies and market share price available on:
[Accessed 23rd November 2008]
21st Hypermarket in Greece available on:
[Accessed 30th September 2008]
New leader for Carrefour available on:
[Accessed 28th November 2008]
Carrefour Strategies available on:
[Accessed 5th December 2008]
Carrefour’s 20% increase in own brand products available on::
[Accessed 5th December 2008]
Carrefour’s future shrimp farm information available on:
[Accessed 6th December 2008]
Carrefour’s Value chain information can be found in its Financial Sustainability report available on:
[Accessed 23rd November 2008]
Greece’s Environmental analysis available on:
[Accessed 10th November 2008]
Greece’s Pestle analysis available on:
[Accessed 10th October 2008]
America’s interest rates available on:
[Accessed 5th October 2008]
John D Wood & CO, The Global Economy and the British Housing Market available on:
[Accessed 5th October 2008]
CDOs information available on:
[Accessed 17th October 2008]
