EU gives Carrefour-Promodes green light - Brief Article

Eurofood, Feb 3, 2000

The European Commission has given the go-ahead to the proposed merger between France's largest and third largest food retailers, Carrefour and Promodes, but has asked French and Spanish competition authorities to look into the impact of the deal in potential `trouble spot' regions. Since legislation in both of these countries allows mergers and acquisitions to proceed pending regulatory approval, the Commission's ruling effectively gives the two groups the green light. The merger creates the world's second largest retailer, to be known as Groupe Carrefour, but still leaves it some considerable way behind global leader Wal-Mart of the US, which boasts turnover approximately twice as high (see table below).

Daniel Bernard, chairman of Carrefour, said that the groups had been ordered to make certain concessions, but these are not radical. Firstly it must sell its 42% stake in the Cora hypermarket group, which has substantial operations in Eastern Europe as well as in France. It is not yet known which rival retailer will buy Cora, but speculation is inevitably centring on Wal-Mart, known to be keen to snap up retail operations in France.

BERNARD OPTIMISTIC

Carrefour must then make further concessions as deemed necessary to satisfy Spanish and French authorities. There has been a great deal of concern about the merger in these countries, particularly in Spain (see Eurofood, 21 October 1999, p9), so Bernard's forecast that the group will be asked to sell up to five stores in each country could prove rather optimistic. While the new group's overall market share will be just 27% in France and 26% in Spain, in certain regions its share would be far greater than that if no divestments were agreed.

VIRTUAL MONOPOLY IN CATALUNA?

In France, Carrefour's main rivals are Leclerc (17% market share), Interrnarche (15%) and Casino and Auchan (both 13%). In Spain, where the new group will control the Pryca, Continente, Dia, Stoc, Superdescuento and Puntocash fascias, Carrefour's market share will be three times that of its nearest rivals (Hipercor, Alcampo and Eroski, each of which has around 8% of the market). The Catalan regional government in Spain has already said that it will oblige the new group to sell at least one of the hypermarkets which it owns in Cataluna on the grounds that it will have a virtual monopoly on retail sales.

One question which has been answered to the Commission's satisfaction is the relationship between the new group and its suppliers, even though the suppliers themselves still have their reservations. According to Competition Commissioner Mario Monti, Carrefour has pledged not to alter any supply contracts which are currently in force, especially those with small or medium sized companies which could be hit hard by any stringent new conditions imposed by the giant retailer. Existing contracts will not be renegotiated for at least three years, Groupe Carrefour has promised.

Top 10 retailers, ranked by forecasts for 1999 total sales (??bn)

Wal-Mart             US                     153.23
Carrefour/Promodes   France        pro forma 75.53
Metro                Germany                 58.17
Kroger               US                      41.66
Ahold                Netherlands             40.97
Intermarche          France                  40.85
Carrefour            France                  38.97
Ito Yokado           Japan                   37.28
Promodes             France                  36.57
Albertson's          US                      35.74
Edeka                Germany                 35.45

Source: Wall Street Journal