Carrefour Faces Tough Times in China

By webadmin on 09:02 am Feb 13, 2011
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Peh Shing Huei – Straits Times Indonesia

Beijing. Carrefour just cannot seem to shake off the bad press it has been getting lately, prompting some to ask if its days in China are numbered.

Even as the French retail giant continues to struggle with price fraud accusations across the country, it is hit with more negative publicity after its security guards beat up a customer on Sunday.

Shopper Wang Yongmin was assaulted by at least two guards after a dispute over pricing differences, reported local media.

This episode comes after the hypermarket was fined 500,000 yuan ($76,000)  by the Chinese government for each of its 11 outlets that were found to have fraudulent pricing last month. The stores were said to have misled shoppers by claiming that the original prices on discounted items were higher than they were, making the discounts seem more attractive, or charged them more than the prices indicated in dubious advertisements.

“Carrefour has been the naughty boy for so many years,” said Richard Ding, former national development director of Carrefour China.

The scandal erupts at a horrid time for Carrefour, a brand almost synonymous with supermarket in China.

Since July, when the company announced plans to pull out from some countries in South-east Asia, it has shut down three stores in China – its first closures since entering the Chinese mainland in 1995.

Its expansion in China has also slowed from a record high of 112 stores in 2007 to about 30 last year, amid rumors of a China exit in the aftermath of the global financial crisis.

“After 16 years in China, Carrefour could be facing its sternest test this year,” wrote the China Youth Daily last month.

The retailer’s woes, caused by mismanagement, global overreach and poor performance at home in France, are a far cry from its glory period in China, when it occupied an exalted place in the country’s retail scene.

When its first outlet in the mainland opened in Beijing, it revolutionized the way Chinese bought groceries.

While state-owned local shops have their supplies locked behind counters and salesmen behaving like watchdogs, the hypermarket gave shoppers free rein.

“I perfectly remember the amazement of ordinary people coming into the Beijing store, looking at goods, failing to understand that they could pick an item, and then daring to select one, hesitating, putting it back on the shelf, and finally purchasing one cheap item and bringing it home,” wrote Jean Christophe Goarin, the retail giant’s former country manager here, in the preface to the book Crossroads: Carrefour In China.

The hypermarket also shaped China’s urbanisation. Its entry into the country coincided with China’s economic boom and rapid development of the cities in the mid-1990s. And by drawing huge crowds, its stores often became the heart of new modern city centres which were popping up across the mainland.

From coastal Qingdao to inland Urumqi, Jia Le Fu – the Chinese name of Carrefour, which means “happy and lucky family” – was the byword for downtown in many second- and third-tier Chinese cities and remains so today.

Condominiums near the stores branded themselves as part of the “Carrefour lifestyle circle,” as properties near the hypermarkets commanded higher premiums.

“This also explains why the local governments in second-, third- and even fourth-tier cities like Carrefour so much, as it not only brings convenience to people, but also generates more taxes from its sales and the increasing land prices,” Ding, the author of Crossroads, said.

The brand has been seared into the Chinese consciousness, with an exalted status which has both helped and hurt the retailer.

So even though Wal-Mart was also guilty of misleading pricing recently, the Chinese media heaped most of the attention on Carrefour. This was despite Wal-Mart, which entered China in 1996, being the biggest player now.

The United States chain took pole position during Carrefour’s recent slump, with more than 200 stores now compared with the French giant’s 180.

Wal-Mart’s China rise gave Chinese consumers an alternative to Carrefour and it also coincided with a period of controversies for the French player – through sheer bad luck or otherwise.

In 2008, for example, Chinese called for a boycott of Carrefour after rumors spread that it backed the Dalai Lama, in the aftermath of pro-Tibet protests during the Olympic torch relay in Paris.

And in recent months, Carrefour has been mired in high-profile pricing spats with China’s largest food group Cofco and instant noodle-maker Master Kang, due to its robust negotiations for low prices and payment methods.

Local media also points to Carrefour’s decentralized management system, in which store managers enjoy almost complete freedom to operate outlets according to local needs, as a key reason for its woes.

It allows managers to set up mini-kingdoms, leading to corruption, and makes it difficult for Carrefour to maintain quality control.
Yet this system was once hailed as its winning card. It allowed the French group to tailor products and store layouts to suit myriad cultural tastes across China.

Ding argues that mismanagement and a lack of understanding of the evolving Chinese market account for Carrefour’s missteps. And if they are not solved, he said, “the golden era of Carrefour would be over soon.”

Reprinted courtesy of Straits Times Indonesia. To subscribe to Straits Times Indonesia and/or the Jakarta Globe call 2553 5055.