The FINANCIAL — Providing low prices, good service and high quality products is the strategy which the newly entered Carrefour, the world’s second-largest retailer and the largest in Europe, is following to attract Georgian customers to its doors.
The FINANCIAL — Providing low prices, good service and high quality products is the strategy which the newly entered Carrefour, the world’s second-largest retailer and the largest in Europe, is following to attract Georgian customers to its doors.
The appearance of a new competitor on the market will cause a price reduction at other retailers across the board and financially weaken the largest supermarkets on the market, experts predict. Meanwhile, Carrefour says that the company aims to replace the average street market, which is dominated by the Populi and Ioli chain. News about Carrefour’s entrance has shaken Goodwill, another giant supermarket. The company has since introduced 10% discounts on all products.
“Carrefour is based on an innovative idea – that everything consumers need can be found under one roof,” said Jean Louis Clary, Country General Manager. The store is located in the country’s largest trade centre Tbilisi Mall, which is owned by Rakeen, the UAE’s government property arm of the Ras al Khaimah Investment.
Carrefour’s entrance will by all accounts have a negative effect on Populi, which recently changed two CEOs. Due to the financial and organizational troubles at Populi, East Capital Explorer, Stockholm-based investment company was forced to sell its shares in July 2012. Its 30.7% stake was sold to Ioli Supermarkets for EUR 1.7m vs initial investment of EUR 3.7m.
East Capital Explorer reported that the negative developments in Populi were revealed toward the end of 2010, and exacerbated during 2011.
“In December 2010, the board discovered that the company’s founder and CEO had misled the board and acted dishonestly. He was immediately dismissed and replaced by an interim CEO while the search for a permanent candidate was started. Meanwhile, the main shareholders took the lead in starting to investigate what had actually happened under the old CEO. Findings were disappointing. The financial situation of the company was much worse than the management had previously reported. In particular, the results of 2010 had been strongly overstated. Lawyers were hired to analyse whether the findings could be used in court, and by the end of 2011 both sides had filed law-suits. In June, a new CEO, Teodora Ticeric, was appointed.
After a few months in office, she concluded that the company’s organization and operations needed to be fundamentally re-structured. She has since recruited an entirely new management team and started to build up proper systems for ordering, logistics, and category management. This work has not yet started to deliver any visible financial results – the company’s losses are still large. By the end of 2011, the cash situation was becoming critical, and lenders and shareholders were discussing how to finance operations. East Capital has taken an active role in seeking a financing solution for Populi, and is leading discussions with other shareholders, investors and lenders in regards to this.
As a result of the problems in the company and the question mark over its survival, the holding has been re-valued to almost zero. By the end of 2011, the value of East Capital Explorer’s holding in Populi was worth a mere EUR 0.1m.”
Despite the fact that Goodwill does not recognize Carrefour as a competitor, Irakli Galdava, research fellow at ISET predicts that it is exactly Goodwill that will be hit hardest by Carrefour.
“Carrefour will be the main competitor for Goodwill. It will probably lead to decreased prices at Goodwill. There is no doubt that Goodwill will be damaged more than other supermarkets in Georgia. In this case Goodwill’s advantage is its wider chain network. Carrefour’s entrance will not have the same negative impact on other supermarkets in Georgia as it is located far from the centre of Tbilisi. Most people tend to buy daily products at the supermarkets which are located nearest to their homes. The extra inconvenience and cost of getting to Carrefour are the main challenges that it faces so far in winning over customers,” he added.
Mikheil Charkviani, General Director of Goodwill, says that neither Carrefour nor other hypermarkets or supermarkets in Georgia will hinder Goodwill’s increasing portfolio and number of customers. “Goodwill’s turnover has increased by nearly 20 percent. Decreased prices and newly opened branches have led to the increased number of our customers which reaches more than 20,000 customers per day,” said Charkviani.
“I cannot say that Carrefour is our competitor. Carrefour and Goodwill are working in different segments. Accordingly our products, their quality and prices are different. They bring low cost products to Georgia so of course their prices are lower. We have high quality products and our prices therefore seem higher than Carrefour’s. But if we compare quality to price, we can see that our prices are comparatively not high at all. That is why we cannot offer the same low prices to our customers as Carrefour does, but what we do is offer guaranteed high quality products. We found such brands for sale at Carrefour hypermarket that would be absolutely unacceptable at Goodwill,” he added.
“The recent sales action at Goodwill was not caused by Carrefour’s entrance to Georgia and increased competition. The reason for them is that we want to cover a new segment and increase the number of our customers. And as a result, the number of our customers has increased by 25 percent so far,” Charkviani said.
“Of course we are far from the centre of Tbilisi but our low prices coupled with good service and high quality products will bring customers here,” responds Jean Louis Clary. “That said however, in the next three years we are going to open another three hypermarkets in Tbilisi. We are opening hypermarkets in Batumi, Rustavi, probably in Kutaisi, perhaps in Telavi. And we are thinking about opening supermarkets as well,” he added.
“We are not only interested in Georgia. Next year we will be opening in Armenia and in Kazakhstan. Why Georgia first? Because out of these countries Georgia was strategy-based to start with. First of all the GDP in Georgia is improving. This is the first reason. Another reason is that a lot of things have been done in Georgia for the eradication of corruption. It was easy for us to start in such a country where the rules are clear,” Clary said.
As Carrefour is in cooperation with some Georgian companies, experts believe it will support the popularity of Georgian products as well. “Some of the stock that Carrefour will offer to Georgian consumers will be of Georgian origin,” said Zakaria Babutsidze, Assistant Professor at the Department of Economics, SKEMA Business School. “However, the aim should be getting Georgian produce on Carrefour shelves in other countries. Georgian produce has a fresh opportunity to return, or even better – emerge, on store shelves in quite a few countries,” he added.
