Abusive clauses in franchisee contracts, support from the French Treasury for the Association des Franchisés Carrefour (AFC) and the possibility of a €200 million fine: in France, the Carrefour group is currently in turmoil. Its business model is being questioned and franchising, the cornerstone of its strategy, is under scrutiny. The experts at AURIS Finance, a consultancy specialising in mergers and acquisitions, take a closer look.
The number one supermarket chain is in trouble. In France, 400 franchisees have taken the group to the commercial court in Rennes. They claim that the managers of local shops (Carrefour City, Express and Contact) are being treated unfairly compared to Carrefour hypermarkets. Anthony Thébaud, secretary of the Carrefour franchisees’ association and manager of a Carrefour City store in Rennes, complained to France Bleu radio: “We sometimes buy our goods from our supplier at a price 20% higher than the Carrefour hypermarket, which buys the same goods from the same logistics warehouse.”
The French Treasury on the side of franchisees
The authorities have supported the action taken by the Association des Franchisés Carrefour (AFC). The Ministry of the Economy has also sent a summons to Carrefour denouncing its contractual relationship with its network of franchisees. The practices deemed abusive include excessive recommended retail prices and the obligation for franchisees to purchase the majority of their supplies from Carrefour. Bercy also criticised the retailer for holding a 26% stake in the capital of its franchisees’ operating companies, giving it the power to block strategic decisions. According to the French government, these are all abuses that seriously undermine the profitability of the franchisees. Bercy has asked for a fine of €200 million.
A tarnished image
This is not Carrefour’s first battle with its franchisees. However, the fact that Bercy has been summoned to appear alongside the AFC puts the plaintiffs in a strong position. The announcement in the press immediately caused the share price to plummet. Carrefour shares fell by 9% over the summer before recovering slightly.
Declining profitability
Other chains that operate on a cooperative or membership model, such as Système U and Intermarché, are doing well. This model gives store managers greater decision-making power, while preserving margins. An analysis by the magazine ‘Linéaires’ reveals major disparities between the chains: Intermarché and UExpress have an average operating profit per shop of almost 3%, while Carrefour City and Contact have a ceiling of -0.50% and -0.05% respectively. At the same time, Carrefour has the highest selling prices on the market and is suffering the full force of competition from discounters.
Our experts at your service
Carrefour’s practices reflect a wider crisis in the retail sector, where tensions between profitability and commercial fairness continue to grow.
These tensions could accelerate the pace of mergers and acquisitions. The actions of the retail giants have implications for the entire value chain. AURIS Finance has experts specialising in different industries. Our team dedicated to the food and retail sector, led by former company directors, is at your side. Whatever your problem: refinancing, finding new financial partners or an exit strategy, we can advise you.
