Cyprus-Forum.com

[Sotos]

Here is an article I found that is related to some discussions we had lately:

Who is the retail giant talking to?


French retail giant Carrefour and its Greek subsidiary Carrefour-Marinopoulos, which is entering the Cyprus market through its takeover of Chris Cash and Carry, plans to take a major share of the Nicosia retail sector, which accounts for nearly 40% of the islandwide market.

Having completed its takeover of the six Chris Cash and Carry stores in August, Carrefour has already replaced three local directors with three of its own.

The Chris Cash and Carry name will remain on stores for four more years, while GROUPE CARREFOUR will be added to its neon signs.

It has plans for new stores in all towns and is reportedly talking to a major retail group for a tie-up either for the rental of space within existing properties or a complete takeover of operating stores.

Other reports suggest that Carrefour is talking to the Shacolas group for a premium location for a 5,000 sq.m. store within the Shacolas Park shopping mall just outside Nicosia, where IKEA has already expressed interest in opening up shop.

In Limassol, the French retail giant is planning to build a 7,500 sq.m. store in the Old Lanitis Stores area, while plans are also underway for a Paralimni store.

Carrefour’s main competition will come from the likes of cash-rich, low-cost retailer Athienitis in Nicosia’s Kaimakli area, and the island’s largest supermarket chain, publicly quoted Orphanides.

Orphanides, meanwhile, announced last week that it plans to open ten small ‘express’ stores, probably in retaliation to Carrefour’s arrival.

The local supermarkets are bracing to take on Carrefour’s worldwide policy of being 3% cheaper than the cheapest retailer in the market with a price war expected in November in time for the Christmas shopping spree. However, industry experts say that price wars have an expiry date, as the last price war three years ago cost the sector some CYP 9 mln in losses.

"Whoever survives such a price war will either expand or be targeted for a takeover, as cut price retailer Lidl already plans to start operations very soon," said market watcher, Petros Kyprianides.

White goods and electrical appliances company, Malloupas & Papacostas, recently offloaded its household goods department to wholesaler Electric Plus.

Good news?

[Sotos]

Here is a related article:

Carrefour in French means ‘crossroad’. Indeed, the arrival of this 800-pound gorilla will mark the crossroads of the Cyprus retail market.

After purchasing 50.1% of the shares of Chris Cash and Carry and eventually the balance of shares at 32c a piece, it has prepared its plans for the Cypriot retail market as follows:

Carrefour took over the Management of Chris Cash and Carry on August 18th 2005 after the resignation of the three Directors -- Mr. Christos Vakis, Mr. Andreas Constantinides and Mrs. Vasiliki Andreou -- and the appointment to the Board of Directors of a) Mr. Jerome Loubere, b) Mr. Michael Hrostoff, c) Mr. Alain Goanvec.

The name Chris Cash and Carry will remain for a period of four years (as per the takeover agreement) and the name GROUPE CARREFOUR will be added to its neon signs and letterheads.

The policy of Carrefour worldwide is to be 3% cheaper than the cheapest retailer operating in the market.

When this policy is adopted here in Cyprus, supermarkets like Athienitis and Orphanides chains, that boast the motto of "Cheaper Than Anywhere Else" (Toso Fthina Oso Pouthena) will have to take a tough decision whether they will allow Carrefour to make them lose their price supremacy.

From marketing intelligence both retailers will not allow Carrefour to gain supremacy and claim that IT is the cheapest.


PRICE WAR


So, we are on the verge of another price war in November that will pave the way for the Christmas shopping spree.

This will be the second price war in Cypriot retailing (the first was in 2002 with all parties losing more than CYP 9 mln).

Price wars, like the products supermarkets are selling, have an expiry date and the outcome of this price war will leave many killed or wounded on the battle field. It will also become easy to buy out supermarkets and perhaps more International Supermarket Chains, besides Lidl which is already here, will forcibly import the EU retail scene on this troubled island. This is not the best outcome for the local retailers that have struggled for decades to arrive where they are today.

The other big problem that will arise with the arrival of Carrefour here in Cyprus is that they will press the wholesalers for better prices and lower commissions and the danger here is that this may lead to the break up of the wholesaler retailer chain and the opening of the Aeolian bags for the direct import of products by each chain. Thus the control exercised before by the wholesalers in the retail price of products will disappear and everybody will be selling at will, also known in the market as the ‘Eleftheri Kerkira’ situation.

Since its arrival in Cyprus, Carrefour has conducted price surveys around the island and has seen that the products they are buying are cheaper in Greece and elsewhere and is preparing its plans accordingly.


OWN LABEL


The giant has already imported 20 private label products under the Carrefour brand and now they are busy unloading containers of non-durable goods such as washing machines, refrigerators, TV screens, and their arsenal will soon be completed.

But let’s take stock of the fleet of Carrefour stores in Cyprus and what it intends to add to this lineup.

Existing supermarkets:

1. Columbia,

2. Cine Volos,

3. Vasiliades,

4. Paphos

5. Larnaca

6. Nissou.

A new addition will be the former Manuel store in Nicosia, that has been leased for 15 years and will open its doors before or just after the OXI day parade.

But Carrefour is out and about trying to buy another two supermarkets in Nicosia as the capital controls 38.5% of the total retail trade of Cyprus, with the market value estimated at CYP 250.3 mln from an islandwide retail and trade total of CYP 650 mln for the food and beverages sector.

Since the remaining supermarket chains are not interested to sell, because they are on an expansion drive, Carrefour has secured a plot of 11,142 sq.m. it bought in Latsia on October 22, 2004 for the price of CYP 1,475,000 and is making plans for a new hyperstore.


NICOSIA MALL


As if all these are not enough, Carrefour is busy talking to the president of the island’s leading group of companies for a more strategic location in Nicosia for a hyperstore within a mall of 5,000 sq.m. and parking for 1600 cars. It’s offering a percentage of sales as its rent but the other side is asking for double the rate Carrefour is offering. The international rent norm in the retail sector is about 2-3% of sales.

The ‘Big Deal’ also entails renting of other retail stores belonging to this group of companies.

It is estimated that the above site has a potential turnover of CYP 22-25 mln per year.

If this ‘Big Deal’ succeeds, then we are certainly talking of a sizeable market share with Carrefour’s percentage share for Nicosia estimated at 16% of the capital’s total value.

Moving on to Limassol, where Carrefour is aiming for the town’s 28% share of the total market value for Cyprus and CYP 182 mln spent in food and drink per year, market rumours claim that Carrefour is busy with a gargantuan 7,500 sq.m. hyperstore at the Old Lanitis Stores, previously bought by Chris Cash and Carry having obtained a town planning permit already.


LIMASSOL WAR ZONE


With this new hyperstore, the Columbia flagship and the refurbishment of the Cine Volos and Vasiliades stores, Limassol will surely smell of gunpowder, so as not to deny the town of its unofficial title.

The retail scene will then move to Paralimni where Chris Cash and Carry has another plot and Carrefour has plans here as well, for supremacy for share of the consumer’s appetite that besides the area’s popular ambelopoulia delicacy, might even be introduced to French frogs legs.

We are indeed at a crossroad in Cyprus retailing.

But, the Cypriot retailers have acquired experience over the years and they may overcome this hurdle called Carrefour as they have been preparing for a while for this imminent invasion and however big a retailer, it has a lot of disadvantages as well.

Perhaps some of the recipes for success are narrow focus, lean expenses and change in the rules of engagement from a price war, which is for a limited time period, to one of appreciation for the customer.

French retailers were forced by their own national legislation where restrictive urbanisation rules make it all but impossible to build new, large stores. Mergers between rivals Carrefour and Promodes have been the avenues for growth, while French retailers were forced by these legislations to become international.

So, the legislation in our own country is obliged to protect the local retails and not grand building permits or changes in town planning zoning for very large stores, thus giving the advantage to imported retailing.


Petros G. Kyprianides is the General Manager of a chain of supermarkets and has spent the last 30 years in international and local retailing.

[devil]

Hmmm! There'a a lot to digest here.

If Carrefour aims to be just 3% cheaper than Orphan Annies, then I'll be very disappointed. As O's markup on many items is about 100% above the wholesalers' prices, that means C's markup will still be 94%, which is still too high. I would have hoped that C's pricing policies would have been a markup of, say, 50%, still giving a healthy gross profit margin of 33%. There are many supermarkets that are considerably cheaper than O for many items. Even the local village momma and poppa supermarket is cheaper than O or C for quite a wide range of stuff and if they can compete with minimal discounts from their suppliers, why are the big guys so much more expensive with their larger discounts?

I also must ask why imported C OJ is cheaper than the locally made stuff, on an island renowned for its oranges and other citrus fruit? One would have thought the transport costs would have rendered it more expensive. This is a pity because the transport is also contributing to pollution and climate change.

However, price isn't everything, so is quality. Many (not all) of the products sold here are of abysmal quality, whether imported or local. Ham, cheese and wine are three good examples:
Ham: you cannot buy a decent ham in this country. The prepacked stuff, saturated in water and chemicals, is just rubbish and the "ham" in blocks that is sliced to order is hardly better. Pigs do not have rectangular legs and they have a bone through their thighs. A good ham is cured and smoked on the bone and is carved from the bone.
Cheese: all the imported cheese is factory made, often especially for the export market. I've tried "Cheddars" at all prices and not one of them resembles a good farmhouse Cheddar. The French brie and camembert cheeses are equally tasteless. Even the strong cheeses like Stilton and Roquefort are soggy replicas of the originals at over twice the price. There is nothing like good artisanal cheese, like Etivaz (Swiss), reblochon (French), white Gorgonzola (Italian) etc. but these are impossible to find. A few places sell some better factory cheeses like Erni Gruyère or Bleu de Bresse, but at three times the price in other countries.
Wine: I won't talk about Cyprus wine, because these are unique and the price cannot be compared. The most popular imported wines here are the French vins du pays d'Oc. These are sheer rubbish and hardly merit the name of wine, grown in the hottest region of the south of France. Yet their price here is more than that of a reasonable non-AOC wine of infinitely better quality in France, such as a simple Beaujolais or Côtes de Rhône, all grown at higher latitudes and altitudes. The really good French wines, such as Crozes-Hermitage, Gevrey- Chambertin, a good Fleurie or Château-bottled Haut-Médoc. to take one example from each of 4 regions are priced out of this world, often £30 or more for one costing €15 anywhere in W. Europe. And you can't say it is transport costs or alcohol tax, when you can import OJ and water for cents/kg or buy the much stronger whisky for a fraction of that price.

I was therefore very much hoping that C would import the quality produce that they sell in France and elsewhere for the prices they sell in France and elsewhere, not at 3% less than O.

[sneezing7]

Devil:

I too share your woes on ham and cheese. Yet, I am happy to say that I have found a excellent supplier of both items. I am not to sure where you are located, but if you are in Limassol, then i would suggest you pay the Bavarian Delicatesen a visit (near Body line intersection). He has by far the best ham, cheese and sausages on the island. Towards the end of the week his selection of products is a little low, so Tuesday is the best day to visit him.

In regard to the wine I whole-heartedly agree. The French wine available here is shocking to say the least. I personally enjoy a decent South African or South Australian wine, yet these are far and few between. CCC has an "ok" selection, but they are severely overpriced. Spectrum wine store is AMAZINGLY overpriced too, but sometimes you have no choice but to pay what they ask.

I guess people shop at O and CCC due to that silly "loyalty" card program, and these ease of getting everything you need (or better put, can find) in one location.

But on a lighter note, i have finally found a place that sells Guava Juice - which I am ecstatic about!!

[Sotos]

Devil, the article says that in these price wars many companies close down. If they were making 100% profits then why would they close down while in a price war? Maybe the reason that some things are more expensive is not that they make more profits but because the costs are higher here.

[devil]

The reason that many companies close down (and it is happening ALL the time, not just during price wars) is that many shopkeepers have no experience in running businesses plus there are too many shops of the same nature too close together, far more than the market justifies. They are simply not viable. Whenever someone is out of a job or just feels like it, he opens a shop or a cafe, a restaurant, anything whatever, without any experience, and then expects everyone to come flocking to his door, whereas his only cutomers are his extended family plus his koumbari and the old woman two doors down. How often do they do a market research as to the potential business that can be drummed up and what products to stock for sale at what price? At the prices that large supermarkets have, even during a price war, a properly run business, correctly sited and researched, and honestly (which also means honest to yourself: never selling anything at cost price to the family or anyone else. The moment you have something on your shelves, it has value added of a proportion of your overheads; therefore selling it at cost means you are losing on your overheads), would never be at risk. In reality, it is good that these shops are ephemeral, with an average life of <2 years before bankruptcy or liquidation and anyone taking them over in the same line of business would need to see a psychiatrist.

I today received an e-mail from Carrefour (in French). The gist of it says:

- They now have nearly 100 Carrefour products on sale in Cyprus in groceries, liquids and cleaning departments.
- They are lowering the price of about 450 products at Limassol (presumably not elsewhere, yet)
- They agree with me that local ham and most cheeses on sale in this country are of poor quality and, in time (several months) they imply that we can expects some improvements
- (direct translation) Wine, in general, and French wines in particular, will be the object of special care
- with respect to the last sentence, they will have on offer on Thursday 17 November this year's Beaujolais Nouveau "Maîtres Goustiers" (transl: Master tasters in old French)

With respect to the last line above, for those of you who do not know what Beaujolais Nouveau means, it is really a clever marketing ploy to allow the winegrowers of the Beaujolais region to sell off surplus grape harvest. It is made exclusively from the Gamay grape, harvested and pressed in late September. It goes through a single fermentation, is filtered and bottled for sale worldwide on 17 November each year, with loads of hype and a grand fanfare. It must be drunk within a month; by New Year it will have deteriorated noticeably. It is best served slightly chilled (12°C is good). It is a light refreshing wine with plenty of aroma (the bouquet is different each year but is usually reminiscent of small fruits like blackcurrants, raspberries etc.). It is NEVER a great wine and some cynics say it is not a wine at all (they say that a true wine has to pass through a second fermentation to reduce the malic acid content).

Beaujolais nouveau must never be confused with the real Beaujolais wines, also from the Gamay grape. These are double fermented. If you see a bottle labelled just "Beaujolais", it is an assemblage from relatively poor quality grapes and is really just a vin de table. All the others express their origin clearly, such as Saint Amour, Fleurie, Beaujolais Village etc. (I think there are about 20 appelations) and are generally good quality wines of a fairly light character. They are best drunk in the range of about 2-4 years. In an excellent year for quality, this may extend to 6 years. They are not wines to keep 10, 20, 30 or more years, unlike the neighbouring Burgundies which are made from the Pinot Noir grape.


And it is not possible to make 100% profit, unless they are given their stock free of charge. I said 100% markup. There is a world of difference.

[Sotos]

- They are lowering the price of about 450 products at Limassol (presumably not elsewhere, yet)

I wonder which products and by how much! Cris Cash and Cary is more expensive than the rest in most products now. Lets see if now this will change!