Carrefour, S.A.
Background:
Carrefour started in 1960 with a single supermarket discount store which provided a one stop self service shopping to the customers. It opened its first hypermarket, selling both food and non food products in 1963.As this store proved popular with consumers Carrefour expanded rapidly with 50 % sales and asset growth rate. Non food items contributed 40 % of the sales. By mid 1972 it had opened 16 stores and was now facing major decisions regarding its future growth.

Carrefour Strategy
For consumers Carrefour offered lower price by maintaining average gross margin of
15% in comparison to competition’s 20 to 25 % margin.
It provided consumers with the convenience of one stop shop with both food and non food items. At many stores it also opened discount petrol pumps as well.
Carrefour constructed its stores inexpensively outside the city, near highways where the land cost is low and consumers can have easy access to the store. Thus the cost of the Carrefour store was 1/3rd of the traditional supermarkets.
Decentralized management was implemented in which the store manager had full operating freedom. It allowed each store to quickly respond to the issues as a well as opportunities. Carrefour had opened 16 own stores, invested in 5 joint ventures and had 7 franchise stores by 1971.
The above five factors contributed to the huge success of the Carrefour. Its sales grew by 50 % per year from 1965 to 1971.

Financing Strategy and risks
Carrefour was financing this expansion mostly by using non interest bearing trade notes and it has a very short cash conversion cycle. Its financial strategy is risky as it is maintaining a negative working capital and has a higher debt-to-equity ratio in comparison to its competitors
Please see Exhibit 1 to see Carrefour’s cash conversion cycle for last seven years.

1

Projected