First-tier cities may no longer be suitable for hypermarkets. French retail giant Carrefour, inventor of the global hypermarket model, has long been one of the two representative retail brands in China (the other being Walmart) and was once a proud national brand of France. Now, it has truly declined. Less than two years after Carrefour China exited the market, news of Carrefour's sale surfaced again. This time, it was not about a country or regional business; the acquirer targeted Carrefour Group at its headquarters in France. Although the acquisition was blocked by French government intervention, it still evokes sighs. This retailer, once the largest in Europe and second-largest globally, has now fallen to the point of being acquired by a little-known Canadian retail company. A month earlier, there was another sign: Carrefour China's second store in Shanghai, opened in 1997 on Wuning Road, permanently closed. This store was once called China's "most beautiful hypermarket" due to its exterior murals full of French romance. It also earned the reputation as the "Whampoa Military Academy" of retail for establishing Carrefour China's training center there in 2000 (the first in Asia at the time). Glory is fading, and retreat continues. Even stepping into Carrefour China stores, many appear shabby and unrepaired, with messy product displays and dated product selections; some are even in clearance sales. Only the self-checkout systems at the entrance and the ubiquitous logos remind people that these are "new" hypermarkets after renovation. But from the sparse foot traffic and empty shelves, we can still feel the atmosphere of retreat. This trend has not reversed or stopped due to the change of ownership; it continues inexorably in its predetermined direction. -01- Misjudging Trends, Slow to Act Of course, this retreat is industry-wide. Over the years, as e-commerce has expanded, hypermarkets have lost ground. Not only are they competing with e-commerce, but also facing fierce competition in an oversaturated hypermarket market, as well as diversion from various specialized single-category formats. For example, in fresh produce, there are fresh food supermarkets and e-commerce everywhere; in daily necessities, there are various "curated selections" and "premium goods"... Under such diversion, the remaining small customer base can hardly support a store's profitability. With already declining gross margins and sales amid intense competition, and having to support stores of tens of thousands of square meters while rents and labor costs keep rising, opening a hypermarket is indeed too difficult now. Some have pessimistically believed that first-tier cities are no longer suitable for such heavy models. Despite the difficulties, most retailers are still striving to counter the decline. But among foreign retail enterprises, Carrefour has been the slowest to respond, largely due to misjudging trends. Take e-commerce adoption: Carrefour's old rival Walmart invested in 1号店 (Yihaodian) in China as early as 2011, and in 2016 acquired Jet.com for $3.3 billion. Jet.com then became Walmart's e-commerce arm, and although it still couldn't compete with Amazon, it did somewhat resist the e-commerce impact, especially in North America. In contrast, Carrefour was very slow. It wasn't until the end of 2015 that Carrefour China belatedly started e-commerce, four years later than Walmart. And its e-commerce attempts during that period were somewhat half-hearted. On one hand, Carrefour believed that e-commerce's profit-ignoring price wars and market grabs would be short-lived. On the other hand, there were few successful cases of traditional retailers transitioning to e-commerce. So Walmart's approach of entering e-commerce through acquisitions and equity participation was relatively more rational. In fact, it wasn't until 2017 that French Carrefour officially prioritized digitalization. That year, Carrefour poached Alexandre Bompard, the current global CEO, from a European e-commerce company, hoping he would lead breakthroughs in e-commerce. But to this day, Carrefour has still not found a breakthrough. At that time, Carrefour brought in a large number of external talents for its digital transformation. A technical lead who joined Carrefour during this wave once lamented in an interview with 36Kr-未来消费 (Future Consumption) about how low Carrefour's digitalization level was. "Its overall e-commerce model at that time was probably half a step behind Hema and Yonghui," the lead said. In his view, Carrefour's lag in digitalization was not only due to starting late, but more fundamentally because of the strong inertia formed in its traditional retail model, leading to an inadequate understanding of digitalization. Starting in 2017, Carrefour gradually used online-offline integration to renovate some offline stores and ran a new model. But cruelly, Carrefour didn't have time to replicate this model on a large scale across its entire terminal network. "Because there are many things to prepare, including supply chain and organizational setup, which take time to build and align, and competitors are running faster. In such a situation, exiting in time might be a good strategy." But in fact, failing to master digitalization is not the biggest reason for the decline of hypermarkets like Carrefour; the root cause lies in their business model. Many have criticized Carrefour for insufficient supply chain capabilities and for charging various fees like promotion fees and stacking fees, which led to losing consumers downstream and suppliers upstream. These issues are actually determined by Carrefour's profit model. Generally, hypermarkets have three sources of profit: First, the price difference from product sales; Second, fees charged to suppliers, such as entry fees and promotion fees; Third, monetizing store traffic, such as income from subleasing. The first is commonly referred to as the "downstream profit model" in the industry, while the latter two are called the "upstream profit model." Representatives of the former include ALDI abroad and Xiaomi in China; the latter is Carrefour, the creator of the hypermarket model. In the past, many traditional supermarkets operated retail in a landlord-like manner, and they were all apprentices of Carrefour. Terms like "entry fees" and "shelf fees" were first introduced to China by Carrefour. For over two decades, the supermarket market was dominated by a few leading companies. Facing these channel powerholders, brands were relatively weak; those who paid entry fees could enter, while those who couldn't were squeezed out. This past zero-supply model often excluded suppliers who focused on innovative products, while always attracting first- and second-tier big brands because they had money. This easily explains why many products and brands in hypermarkets were so "mediocre" and outdated. At the same time, the fees collected by channels were ultimately passed on to consumers. Since suppliers bore all sales results, stores only needed to consider how to introduce more categories to gain greater returns. Cost reduction, efficiency improvement, selecting products consumers need, and controlling product quality were not top priorities because they weren't directly linked to profitability. But this model couldn't last forever. As sales channels became more diversified, brands gained more initiative, and consumers had more choices. Hypermarkets were no longer their first choice, and more retailers began moving toward the downstream profit model. For example, at Hema's 2018 supplier conference, it openly addressed the various "exorbitant fees" like entry and promotion fees, stating it would not charge suppliers any channel fees and would change the traditional cooperation between retailers and suppliers. By now, you should understand why Carrefour continues to head toward decline. Because as long as the profit model remains unchanged, digitalization and new retail are futile. Moreover, a company like 家电 (home appliance) that engages in commercial real estate leasing is not good at the procurement-sales model of hypermarkets. The former sells durable consumer goods, while the latter sells fast-moving consumer goods; the business logic is completely different. This is why many industry insiders were pessimistic about this deal from the start. -02- 2003: A Turning Point However, the above issues are common to many hypermarkets. In fact, Carrefour's situation is more special. "Today's French Carrefour is a company controlled by capital and oriented by finance, unlike Walmart, which still has the influence of the Sam family behind it. It has lost its true retail dream and can be said to be a victim of capital operations," Wan Mingzhi, a senior retail expert, told 36Kr-未来消费. He joined Carrefour China in 1998 and, over sixteen years, witnessed Carrefour's most glorious moments and its gradual decline. In 2003, Carrefour was enjoying its moment of glory. That year, it held its annual global store manager conference in the Louvre in Paris and invited former Soviet leader Mikhail Gorbachev as a guest speaker. Also in that year, an event changed Carrefour's fate. The Halley couple, Carrefour's largest shareholders, known as the "retail kids," died in a private plane crash, marking the beginning of Carrefour's decline. In 2007, Arnault of LVMH, the world's largest luxury goods company, together with U.S. private equity firm Colony Capital, formed Blue Capital and acquired 9.1% of Carrefour's shares, becoming its second-largest shareholder. Previously, the Halley family group was the largest shareholder, holding 13.52% of shares with double voting rights. Unfortunately, the following year, the Halley family chose to exit, handing over control. From then on, Blue Capital became the largest shareholder, and the era represented by the Halley family, with retail dreams, came to an end. In 2005, the newly chosen global CEO was Jose Luis Duran, who had a pure accounting background, ushering in an era oriented by finance and capital. In fact, Blue Capital was not interested in Carrefour's retail business itself; after all, in terms of retail profitability, Carrefour couldn't compare with LVMH's luxury business. In Wan Mingzhi's view, Blue Capital's entry was mainly attracted by Carrefour's owned properties and massive cash flow. Retail, a tough business of bending down to pick up coins, remains an industry everyone rushes into, partly because it best withstands economic fluctuations, and partly because the huge cash flow on the books can support a retail company to leverage greater resources. This is why many retail companies later also ventured into real estate and finance. -03- Why Carrefour Became a Pawn At that time, Carrefour had two valuable assets: its French stores and its Spanish stores, which were heavily influenced by French commerce. Most of the stores in these two regions were owned properties from early on. Blue Capital's plan was to sell these appreciated properties, cash out, and then lease them back to Carrefour, similar to an asset securitization move, thereby generating substantial current profits and cash flow, and boosting the stock price. Additionally, as a retailer, Carrefour itself had good cash flow. Unfortunately, in 2008, the global financial crisis hit. Everyone's cash flow was tight, and stock markets were falling. The plan failed, and LVMH became deeply entangled. At the same time, after the change of ownership, French Carrefour, now oriented by financial indicators, performed increasingly poorly. In fiscal 2008, Carrefour's global net profit fell to €1.27 billion, down 45% year-on-year. In fiscal 2009, global net profit continued to decline to €327 million, a drop of 74%. To cope with the difficulties, Carrefour had to shrink its global front and changed global CEOs frequently. We saw Carrefour spin off Dia in Spain in 2011 and exit several Asian markets, including Thailand, Malaysia, and eventually China, in subsequent years. Now, apart from France and Latin America, Carrefour's businesses in almost all other regions are in trouble. From this, you can see that Carrefour's past sluggishness and lack of ambition stem from the fact that it is no longer a company oriented toward doing good retail business, but a company controlled by capital and focused on short-term gains. Once a business fails to meet cash flow and profit expectations, capital will choose to sell it rather than make every effort to rescue it. And who it sells to depends on who offers the higher price. Speaking of the acquirer, Couche-Tard is actually a relatively small retail company in Canada. Its headquarters is in Quebec, Canada's only French-speaking province. Even Loblaw, Canada's largest retail company, cannot compare in size with Carrefour. So how could such a small company acquire Carrefour? In Wan Mingzhi's view, this "snake swallowing elephant" is likely a capital operation, meaning there is capital behind it using Couche-Tard as a shell to acquire Carrefour. Previously, the globally renowned consumer retail fund 3G Capital controlled Burger King to acquire Tim Hortons, Canada's largest coffee chain. In terms of size and profitability, Burger King was not much better than Tim Hortons. The former world's second-largest retailer, once a darling of capital, has gone from gradually retreating from the front line to becoming a pawn waiting to be sold. A banner of the retail industry is coming down. But fortunately, there are still stores that have remained unchanged for years, and the professional managers trained by Carrefour who are active in various retail companies. They continue to shine with Carrefour's former glory in every corner of the industry. Source: 未来消费APP (ID: lslb168) Tips will be paid 400-2000 yuan once adopted.