auchan and carrefour's marketing success and failures in india

8/18/2019 Auchan and Carrefour's Marketing Success and Failures in India

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A STUDY OF FACTORS THAT INFLUENCED

AUCHAN AND CARREFOUR'S

ENTRY AND WITHDRAWAL FROM

THE INDIAN MARKET

PROJECT REPORT

Submitted by

Mridula Chaturvedi

Nupoor Jain

Sindhu Priyadharsini Sankar

Under Guidance of

Prof. Rupa Raoulx

Submitted to École de Management de Normandie

In partial fulfillment of the requirements

For the award of the degree

of

Post Graduate Diploma in Management in

International Business



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Table of Contents

S.no Title of Content

Page

no.

1 Introduction 3

2 Carrefour in India 4

3 Auchan in India 5

4 Analysis 7

A SWOT Analysis of Carrefour in India 8

A SWOT Analysis of Auchan in India 9

PESTLE Analysis of Auchan and

Carrefour in India 10

5 Results 11

6 Findings and Conclusion 11

7 Bibliography 14



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Introduction

In the year 2009, deep set amidst the global economic crisis, Europe was one of the first regions

to be worst hit by the impact. As a multi-brand retailer of French origin with presence in Brazil,

China and primarily Europe, Carrefour had to face a loss of 70% in sales in its native continent.

In what it held as a smart and strategic move, Carrefour decided to make its foray into India, the

emerging economy that doubled as a promising field for players in retail. However, owing to

restrictions in India including that of foreign retailers allowed to set foot only in the context of

franchise tie-ups with existing Indian players, Carrefour chose to step in as a wholesaler,

operating in the ‘cash-and-carry’ format, where non-Indian retailers could own up to 100% of the

venture, as opposed to the 51-49 percentage deal in multi-brand retail. (Reuters, 2010)

The French retail giant, in the meantime was eyeing opportunities for talks with several potential

Indian contenders for a win-win franchise deal.

Two years after Carrefour ’s entry in India, Auchan, finalized its deal with Max Hypermarket

India Private Limited, thereby gaining its foothold in the retail market of India. As part of the

deal, Max Hypermarket’s stores across 13 different locations across the country were rebranded

in the name of Auchan. Previously, the Max group (part of the Landmark group of Dubai), had

been part of a franchise deal with the Dutch retail group, Spar. (RFI, 2012)

The two French companies had entered India around the same time, via different strategies,

looking forward to a successful, long-term sustenance in the Indian market. However, the land of

the barely predictable, argumentative Indian consumers held more than a few surprises in store.



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Carrefour in India

Carrefour, founded in the year 1959, was the first to invent the concept of hypermarkets. The

first ever hypermarket was unraveled in Sainte-Geneviève-des- bois, France, in the late 1960’s.

With the company gradually expanding into other parts of Europe, Carrefour became the first

European hypermarket to open its own stores in Brazil (1975). Carrefour was the champion of

‘ produit libres’ – affordable good quality products that bore no brands. The retailer brand

introduced its very own ‘Pass Card’ enabling the customer to pay via card, than in hard cash. The

year 1985 saw the official launch of products bearing the Carrefour brand name. Following the

launch of Carrefour stores in Argentina (1982), Greece (1991), Italy and Turkey (1993) and

Mexico (1994), its access to Asia was cemented with stores in Malaysia and China (1994).

Further expansion was seen in Thailand, Korea and Hong Kong (1996), followed by Singapore

and Poland (1997) and Chile, Colombia and Indonesia (1998). Toeing the logical pattern of

expansion, Carrefour made its entry into India as a cash-and-carry store in Delhi, India (2010)

(Carrefour.com, 2011).

Cash-and-carry stores in India operate as bulk-purchase forums that tend to the needs of core

customer groups inclusive of traders, restaurateurs and other business groups (The Times of

India, 2009). In other words, the Indian Carrefour stores were rendering B2B services as opposed

to the B2C retail services of which they were experts.

Suppositions of Carrefour’s intentions to tie up with the Future group, an Indian venture with its

own successful retail ventures (Pantaloons and Big Bazaar) were dismissed, as nothing

materialized (Reuters, 2010). In the meantime, Carrefour had expanded to the cities of Jaipur,

Meerut, Agra and Bangalore (Harjani, 2014).



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In 2012, the Indian Government assented access to Foreign Direct Investment (FDI) in the multi-

brand retail sector. However, CRISIL research reports expounded that no significant investment

was to be made by foreign investors until the close of 2015, owing to global market instabilities.

That the Government of India demanded for green-field investments worth a minimum of 100

million USD would also cause delay in any form of substantial FDI activity, it reasoned (The

Economic Times, 2013).

By 2014, speculations that Carrefour was to quit India were afloat. Despite initial denials,

Carrefour eventually exited India in July 2014. The quitting was attributed to management

decisions made in the company, and not the political or economic state of the nation (Harjani,

2014). Following its walk-outs from Greece, Colombia, Singapore and Malaysia, during the

previous years, Carrefour effectively closed down its India operations in September, 2014

(Business Insider, 2014).

Auchan in India

Auchan was founded in 1961 in the Hauts Champs district of France. Incidentally, the company

derives its name from the founding district. Six years later, it unveiled its first hypermarket in

Roncq. In 1969, it instituted a coming together of 30 shops, metamorphosing into Europe’s first

shopping center. The slogan of the company was La Vie, La Vraie, which translates into English

as "Life, the real one". The slogan was changed in 2007 to ‘ La vie Auchan, elle change la vie’,

meaning Auchan's lifestyle changes life (itself). Auchan remains an unlisted company till date,

comprising of family and employee shareholders only. Auchan’s ‘Employee Share Ownership

Scheme’ dates back to 1977 (Groupe-auchan.com, 2015).



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Auchan works on the decentralized business model, indicating independent operation in every

country. The French retail chain boasts of Hypermarkets, Supermarkets, Shopping centers,

Banque Accords and E-commerce operations (Wabel.com, 2012).

With a strong international presence, it had branches across Europe, China and Taiwan, Auchan

entered the Indian Market Scenario in 2012, as a joint-venture in partnership with the Max

group. Majority of Auchan's stores in India were in those states that did not permit FDI in

supermarkets (Bailay and Chakravarty, 2012).

Auchan stores in India catered under the product categories of Savory, Grocery, Fresh and

Frozen food, Dairy products, Drinks, Personal care and Household articles (Wabel.com, 2012).

Auchan was expected to alter its partnership with Max, on modification of India’s conservative

FDI policy to a comparatively liberal one (Retail-week.com, 2012). For this Auchan had to have

a strong loyal consumer group, to be good enough to go under its own banner.

Meanwhile, in all places of launch, Auchan sought to ensure increase of purchase power through

setting up a wider choice of product range, combined with appropriate discounts (Max

hypermarkets with Groupe Auchan, 2012).

In early April, 2013, Auchan announced its plans to open 60 other stores in India, at a time when

there were speculations if India’s conservative FDI policies were affecting entry of foreign

brands into the country. Financial experts observed that Auchan seemed enthusiastic with its

projects in India (Profit.ndtv.com, 2013).

Therefore, it was out of the blue when it was officially announced that Auchan was to quit the

India retail scene, in 2014. The Manmohan Singh Government that was in power when Auchan



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had first entered held promises of an upcoming liberal FDI policy in the future. However, with

Narendra Modi rising to power, FDI seemed to have become more rigid than ever. Sensing the

uncertainties, Auchan officially called off its partnership with Max and exited India

(Fruitnet.com, 2014). The thirteen retail outlets that were held by Auchan were rebranded under

the Max banner by January 2015. It was gathered that Max was in talks regarding tie-ups with

Spar group, its partner before Auchan arrived at the scene.

Auchan, however, was believed to have plans to re-enter India, at a later stage(Fruitnet.com,

2014).

Analysis

Having provided a backdrop of Carrefour and Auchan’s entry, strategies, operations and the

consequent exit from India, this paper seeks to analyze the brand perception and operational

efficiency of the two retail giants via SWOT and PESTLE analysis.

SWOT analysis - SWOT analysis stands for analysis of a business entity’s Strength,

Weaknesses, Opportunities and Threats. It is a standard tool used in the planning and evaluation

of business strategies.

While strengths and weakness are attributed to the business entity itself, opportunities and threats

are external factors that are expected to have a firm impact on the entity.

PESTLE analysis - This analytical tool helps in critical appraisal of the external factors that will

have a profound impact on the business entity. These are Political, Economic, Social,

Technological, Legal and Environmental factors.



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A SWOT analysis of Carrefour in India

Strengths Weaknesses

International brand reputation

(2nd

largest retailer in the world)

Indian entry marred by poor market

research

Experience in multi-brand retail across the

world

Decision to set up Cash-and-carry

stores in India

Pioneers in hypermarkets

Unsuccessful in Negotiation with

Indian players

Pioneers in launching affordable, own

label products.

Lack of foresight for survival in

India

Internal conflicts

Opportunities Threats

The 500 Billion Worth India retail

opportunity

The Indian FDI policy and

homegrown competitors

India to serve as toehold in Asia, apart

from China. Poor infrastructure in India

Growing modernism and increasing

disposable income of India

Multiple cultures and varying

psyches of the Indian Consumer

group



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A SWOT analysis of Auchan in India

Strengths Weaknesses

International brand reputation

Lack of experience for stand-alone

operations in the Indian market

Experience in multi-brand retail

Earliest to venture into hypermarkets

Decentralized, country specific

operation policy

Unlisted company, all shares held

within the family and employees of

company

Strong Presence in the Indian Social

Media

Multiple product segments with good

discount schemes

Opportunities Threats

The 500 Billion Worth India retail

opportunity The Indian FDI policy

Growing modernism and increasing

disposable income of India

India to serve as toehold apart from

China, in Asia

Poor infrastructure in India



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PESTLE Analysis for Auchan and Carrefour in India:

Political Economic Social

A drastic shift from the

accommodative, pro-FDI Manmohan

Singh led Government to the bold,

pro-local economy Narendra Modiled Government

Comparatively stable (less

affected by the Global

recession) and consistentlygrowing economy

Growing educated,

'modern' class - upper and

middle class segments

Strong alliance between

consumers and local

vendors, especially in

small towns and ruralregions

State Governments given the power

to decide if FDI is to be allowed in

the state or not

Perception of foreign

brands as threat to local

economy and livelihood

A combination of

compliance and resistance

to change

Technological Legal Environmental

Excellent IT infrastructure and

services

No-no to FDI in multi-

brand retail

Green Cover

Compensation issues

Quality control measures that require

upgrade and rigid standardization

Communication, Transport and

Power Infrastructure with scope to

improve

Green Cover

Compensation Policies

Concerns over Water

scarcity and pollution (air,

water)



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Results

1. Carrefour, despite being a world leader and a pioneer, had to lose in the Indian retail

sector, owing to –

Internal conflicts

Poor Market Research

Lack of long-term planning

Inability to negotiate and secure partnership with an Indian player

Lack of a back-up plan to deal with the change in FDI regimen from difficult to

rigid

Investments for launching large scale operations in Agra, Meerut and Jaipur,

which are yet to open up to modern ways of shopping, even in the case of

wholesalers

2. Auchan had a dream run in India, thanks to its tie-up to the well-established Max group.

Also Auchan had the foresight to tap into the growing Social Media platform in India.

Despite the many strengths, Auchan had to quit the India retail scene, owing to –

Uncertainty in the Indian FDI policy that denied entry for foreign players in

multi-brand retail sector.

Findings and Conclusions

Investing in the Indian Market is a lucrative proposition as change comes too quickly and too

often, which is bound to take the high uncertainty-avoidance bound European investors. To call

the Indian Retail sector as unorganized would be shallow; one has to understand that India is a

complex web of divergent cultures, languages and customs. Still deeply steeped in the 2000 year



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old traditions, a majority of Indians abstain from buying and eating meat on New moon and other

auspicious days. Inventory planning requires not just a prediction and estimation of demand; it

changes with climate, festivals, political mood and even movies that had been just released.

European Market Research norms would barely suit the whims of the Indian Market. It takes

years of understanding and imbibing the culture, so as to predict the wants of the Great Indian

Mind.

FDI in India

In the context of the FDI policy in India, which seems to be very unpopular in the eyes of

foreigners, one should understand that India is a people-oriented, socialist republic with deep ties

to its traditional structure. The ancient India Varna system or the ‘social stratification system

based on profession’ is more or less still operative in India. Most of those in business/trade hail

from a traditional ‘business class’ family that had been catering across generations; these

explains the deep, emotional bond of loyalty and familiarity that the Indian Consumer feels

towards the local Indian vendor. Though the modern, educated upper and middle classes are fast

evolving in acceptance of the process-oriented and efficient Supermarket and Hypermarket

culture, small towns and other rural regions still prefer to deal with the coarse and friendly local

shopkeeper to the polite but inaccessible Hypermarket CEO.

In resonance with these sentiments, there sprang forth vehement protests against the advent of

world class, foreign retailers into India; they were perceived as threat to the local tradesmen

community, brands and products. The Indian Government policy allows State Governments to

make the decision in the case of offering or barring entry to FDI, in that given state. Uttar

Pradesh, Gujarat, West Bengal and Tamil Nadu, which are four of the most populous states in



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India, considered a high catch for retail investment, had single-mindedly blocked out entry of

foreign retailers (Bailay and Chakravarty, 2012).

This was one of the reasons why Carrefour had to enter Uttar Pradesh (Agra, Meerut) as a whole-

sale cash-and-carry store, but the question as in why it chose Uttar Pradesh still remains a

mystery. Auchan had the good grace of joining hands with the Max Retail Chain, thereby buying

the opportunity to learn from the wisdom of its partner. With this partnership, Auchan was able

to operate nine out its thirteen stores in states that did not validate FDI (Bailay and Chakravarty,

2012).

While internal conflict is cited to be the primary reason behind Carrefour’s exit from India, it’s a

clear case of ambiguity in the FDI policy, which had led Auchan out.

More recently, news sources confirm that the Narendra Modi led government had completely

blocked entry of FDI in the multi-brand retail sector in India. There are still openings for 100%

in cash-and-carry wholesale trading and B2B e-commerce. FDI in Single brand retailer will need

the approval of Government for investment percentages exceeding 49.

This means scope for Carrefour and Auchan, to re-enter the Indian market as single-brand

retailers – perhaps they can market products with their very own labels.

With the Chinese stock market melt-down, India seems to be the only hope for foreign retailers

who seek a vast market for profitable business in Asia. It remains to be seen if India will relax its

FDI policy, just in time to allow some more Dollars and Euros.

Keywords – Carrefour, Auchan, Retail, FDI in India, Economy, Cash-and-Carry,

Wholesale, Market Research



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