FRANCE COUNTRY RETAIL SCENE REPORT September 2012

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INFORMATION / INSIGHT / STRATEGY / EXECUTION © Kantar Retail 2012

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Index

I.

Key Themes .......................................................................................................... 2

II.

Socio – Economic Background .............................................................................. 3

III.

Key Players in the Grocery Retail Sector ............................................................ 12

IV.

Grocery Retail Channels ..................................................................................... 22

V.

Conclusion........................................................................................................... 29

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Key Themes

The Rise of Independent Retailers The French grocery retail market is dominated by large national retailers operating across most of the grocery channels and, usually, also at an international level. Half of these are groups of independent retailers (E.Leclerc, Intermarché, Système U), while the rest are public companies (Carrefour and Casino) or operate as a private company (Auchan). The independents are the fastest growing operators and are consistently gaining market share in a concentrated market. Proximity and Convenience Over the past few years, due to changes in shopping behaviour, the convenience channel (which has been largely disregarded by retailers for many years prior to 20082009) has seen a revival. All retailers have re-designed their convenience banners, usually moving towards a merger under the retailer brand (Carrefour City, Express, Intermarché Contact, U Express, etc.) New Formats Driving Growth A feature of the French grocery retail market is the growing share of the drive-in click & collect format, with a tremendous growth rate year-on-year, this format is a strategic focus for retailers. It is the format driving growth, while more traditional formats such as hypermarkets are no longer providing retailers the leverage they need to gain or maintain a leading position. Hypermarket: an obsolete format? Retailers, particularly Carrefour and Casino, are having a troublesome time with their hypermarket operations, especially with their non-food sales. The slowdown in hypermarket sales, on the back of a decreasing appeal for the hypermarket concept from shoppers, has given rise to concerns about the format’s ongoing relevance. Retailers, unwilling to give up on the hypermarket, are assessing ways to reinvent the concept to ensure its longer-term relevance. Overall, however, the format is undoubtedly losing part of its resonance with French shoppers.

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Socio – Economic Background

French Population As of 31st December 2011, France had a population of 65.35 million people, with 63.46 million living in Metropolitan France. The population increased by 349,000 mainly due to a positive natural balance. In 2011 52% of the French population were women and 48% men, with 58.7% of the population between 20 and 64 years old. The 65 and over segment is representing more of the population every year: 16.7% in 2011, compared to 16.6% in 2010. The number of households in France, as of the 2009 census, is 27.53 million. This translates to 2.3 people per household, less than the EU27 average of 2.5 people per households and down 0.1 points from 1999. France’s population density is 102.5 inhabitants per square kilometre (sq km). By comparison, the average population density for the EU27 is 116.6 inhabitants per sq km (Figure 1). Figure 1: Population Density in France

Source: National Institute of Statistics and Economic Studies (Insee).

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The most populated areas in France are the ones around the country’s borders while the centre, apart from Ile de France, has a low population density. 60% of the French population live in a large city and slightly less than 10% lives in one of the 10 largest French cities, with Paris accounting for 3.5% of the population (Figure 2). Figure 2: France 10 biggest cities as of 2009 Rank

City

1 2 3 4 5 6 7 8 9 10

Paris Marseille Lyon Toulouse Nice Nantes Strasbourg Montpellier Bordeaux Lille

Population 2,234,105 850,602 479,803 440,204 340,735 282,047 271,708 255,080 236,725 226,827

Source: Insee.

The French population is very concentrated in urban areas, where the density goes up to 820 inhabitants by per sq km. In Paris this number reaches 3,600 inhabitants per sq km. France is still a rural country, but the rural exodus continues and rings around large cities, composed of smaller rural towns slowly integrating with the city is increasing: 95% of the population now leaves under the influence of a city.

Economic Indicators i) GDP and Government debt France’s real GDP growth shows that the country has been slightly less affected by the economic crisis than the European average since 2008 (Figure 3).

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Figure 3: Annual Real GDP Growth

Source: Data – Eurostat; Chart – Kantar Retail.

Having had a lower growth rate before the crisis, France has been less affected by it, with a smaller decrease in GDP growth than the other markets. At its worse during the crisis, France’s GDP contracted by -3%, while the European average reached -4%. In 2011, the country’s GDP growth held constant, while European growth started falling again. In the coming two years, Eurostat is expecting French GDP to grow by only 0.5% in 2012, while the European average is forecast at zero and 1.3% in 2012. Despite its stronger GDP position, the country has a higher fiscal deficit than the European average (Figure 4).

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Figure 4: Government Deficit/Surplus as % of GDP

Source: Data – Eurostat; Chart – Kantar Retail.

Overall, France’s debt level has seen an improvement compared to before the crisis, but has still doubled over the last four years. Debt represented 86% of GDP in 2011, up from 82.3% in 2010. In France, 63% of GDP comes from the final consumption of either households or the state (Figure 5). The composition of the GDP has remained fairly constant over the past ten years.

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Figure 5: GDP Components (2001 - 2011)

Source: Data – Insee; Chart – Kantar Retail.

ii) Unemployment Unemployment in France has been growing since 2008. Its level is lower than the European average, showing again that the country is in a slightly better economic situation than the rest of the zone. In May 2012 the unemployment rate was 10.1%, not far from the EU (27 countries) average of 10.4%, and 0.5 points higher than in July 2011 when it was at 9.6% (Figure 6).

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Figure 6: Unemployment by month (July 2011 – May 2012)

Source: Data – Eurostat; Chart – Kantar Retail.

Women are, and always have been, more affected by unemployment than men (Figure 7). In regards to long-term unemployment, however, the majority of people unable to find a job in a period longer than a year are men. Figure 7: Unemployment by Sex (2003 – 2011)

Source: Data – Insee; Chart – Kantar Retail.

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In terms of age, all the age brackets are affected, with the young seeing a slightly higher unemployment rate, 8.4% for 15-24 years olds, compared to 7.7% for 25-49 year olds. Unemployment of people over 50 years old is lower than the average, 6.5% in 2011. iii) Consumer confidence and household expenditures The economic sentiment indicator, a mix of five confidence indicators (Industrial, Services, Consumer, Construction, and Retail Trade), in France has decreased sharply over the past few years, from 99.7 in July 2011 to 89.4 in June 2012 (Figure 8). Figure 8: Economic Sentiment Indicator

Source: Data – Eurostat; Chart – Kantar Retail.

After an increase in early 2012, the confidence of the French people has been falling constantly. As of June 2012, French nationals remained a bit more confident than other Europeans.

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In 2011, available household income grew by 2.6%, compared to 2% in 2010, but with final consumption expenditure growing by 2.1%, against 1.1% in 2010; purchasing power actually grew slower in 2011 (up by 0.5%) than in 2010 (up by 0.9%). In volume terms, household consumption grew by 0.3%, while it grew by 2.3% in value, showing the importance of price increases. This inflation especially concerns energy prices. iv) Prices The Harmonised Indices of Consumer Prices (HICP) computed by Eurostat shows that French price levels are lower than the European average. Other than a short period from November to December 2011 when prices decreased, prices have generally been growing. The index increased from 111.7 in July 2011 to 114.8 in June 2012, still 7.5 points lower than the EU27 average (Figure 9). Figure 9: Harmonised Indices of Consumer Prices

Source: Data – Eurostat; Chart – Kantar Retail.

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In terms of the prices of food, alcohol, and tobacco, French prices are still lower than the European averages, but the HICP shows higher prices in these categories and a much more substantial increase, over 3 points more between July 2011 and June 2012, compared to an increase of 1.8 points for the global HICP.

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Key Players in the Grocery Retail Sector

The French grocery retail market represented 46% of total formal retail sales in 2011, and the six top grocery retailers accounted for 38% of total retail sales. Figure 10: TOP 10 French Grocery Retailers Rank Retailer Carrefour Leclerc Intermarché Auchan Casino Système U Louis Delhaize Schwarz Group Metro Group Aldi Nord Total

Sales (EUR, million) 2006 2011 2016e 39,267 39,442 41,219 24,955 30,196 36,636 27,067 27,914 30,658 20,120 22,076 25,330 18,984 20,221 22,757 12,123 15,667 21,561 7,475 7,131 7,520 5,445 6,504 7,232 4,136 3,985 4,353 2,589 3,162 3,595 162,159 176,297 200,860

Sales CAGR 2006-11 2011-16e 0.1% 0.9% 3.9% 3.9% 0.6% 1.9% 1.9% 2.8% 1.3% 2.4% 5.3% 6.6% -0.9% 1.1% 3.6% 2.1% -0.7% 1.8% 4.1% 2.6% 1.7% 2.6%

Source: Kantar Retail Database

The French grocery landscape is very concentrated, with the six top grocery retailers accounting for 81% of total grocery sales in 2011. These large operators, all national retailers, operate in multiple channels and usually at an international level as well, but for all domestic retailers, France remains their largest market. There are two types of retailer in France: cooperatives of independent retailers (E.Leclerc, Système U, and Intermarché) and centralised groups (Carrefour, Auchan, and Casino). Due to the concentration of the market and the current economic situation, competition amongst the major retailers has strengthened in the past few years, leading to a slow shift in market shares and strong growth from the independent retailers. In 2011 Carrefour still holds about 21% of the grocery market, Leclerc has a market share of 16%, Intermarché 15%, Auchan 12%, Casino 11%, and Système U 8%. While the independent retailers rise in the national market, centralised groups are fighting to maintain their positions in their home and major market, shifting more and more of their sales to an international level at the same time.

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Carrefour Carrefour is the largest retailer in France in terms of sales, a position it has held for a long time, but its supremacy appears shakier with each passing year. As of 2011, it operated a network of 4,631 stores, generating revenue of EUR 39.5 billion, a decrease of 5.7% from 2010. The retailer operates hypermarkets; supermarkets; and convenience stores, mainly under the Carrefour brand; and cash and carries (Promocash). Until 2011, Carrefour also operated discount stores through the banners Ed and Dia. In June 2011 they were divested. For the past few years the retailer has had a tough time in its home country, especially within the hypermarket channel, where sales started shrinking in 2008. Over the last year Carrefour has also lost some partners: in 2011 Carrefour lost its franchise Coop Atlantique to Système U; in 2012 it sold its share in Altis, operating six hypermarkets and ten supermarkets in South West of France. It did however fully consolidate Guyenne & Gascogne as of May 2012. To reverse the fortunes of its hypermarkets, the retailer has developed a strategy to improve its price image and its operations. The low price guarantee on 500 branded SKUs, introduced in January 2012, reflects the retailer’s strategy of more low prices rather than more promotions. Carrefour Planet, the new hypermarket concept launched by Lars Olofsson in 2010, has not been successful, thus the Carrefour hypermarket network will revert to the Carrefour banner. The other divisions (supermarkets, convenience, cash & carry, and online) have seen relatively better performances over the past years. Since 2008, supermarkets and convenience stores have pursued a re-bannering process moving all legacy banners (Champion supermarkets, Shopi, 8 a Huit, etc) to a single brand: Carrefour. In 2008, the conversion of Champion stores to Carrefour Market started. In 2009, the convenience banners Carrefour City, designed for urban areas, and Carrefour Contact, designed for more rural areas, were launched, followed in 2010 by Carrefour Express, a smaller convenience store for city centres. The cash & carry banner, Promocash, successfully moved from being mainly company owned to a fully franchised structure between 2008 and 2011. Since 2004, Carrefour has traded in the online grocery channel with ooshop, a website which offered home delivery. Since 2008, the retailer has applied the same single

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banner strategy and moving ooshop closer to the Carrefour brand, also developing a drive-in click and collect service called Carrefour drive, as well as an online retail site, Carrefour online. Carrefour offers around 10,000 private label SKUs, and launched 2,000 new SKUs in 2011. Private labels are an important focus for the retailer, which launched Carrefour discount (low price label) in 2009. The retailer expanded the brand into fresh products and then non-food in 2010 and 2011. Recently, in early 2012, Carrefour expanded and re-branded its beauty range. Major organisational changes took place in the first half of 2012, when Carrefour’s CEO, Lars Olofsson stepped down and George Plassat was appointed. The new CEO has asked for three years to turn round the retailer, and will look at ways to cut costs and ensure the retailer’s position in its home market. Figure 11: Carrefour Sales by Channel 2006 – 2016e Channel Cash and Carry Convenience Discount Hypermarket Non Store Retail Supermarket Total

Sales (EUR, million) 2006 2011 2016e 1,099 1,161 1,240 2,732 2,287 2,617 2,613 22,016 22,192 21,741 67 663 2,045 10,740 13,139 13,575 39,267 39,442 41,219

Sales CAGR 2006-11 2011-16e 1.1% 1.3% -3.5% 2.7% -100% 0.2% -0.4% 58.0% 25.3% 4.1% 0.7% 0.1% 0.9%

Source: Kantar Retail Database. Excluding the discounter channel the CAGR 2006-2011 for Carrefour would be 1.5%

Leclerc E.Leclerc, the second largest French retailer in terms of sales, accounting for 16% of the grocery market in 2011, operates a network of 606 stores in France, generating revenues of EUR 30.2 billion. E.Leclerc is a cooperative of independent retailers, which work under the same name and central buying system, but where each member has a say in the decision process. The central buying group of E.Leclerc, le GALEC, is particularly well-known for having strong negotiating power with national brands.

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The retailer primarily operates in the hypermarket channel, but also in the supermarket and online grocery channels. The latter two channels are part of the retailer’s recent expansion strategy towards more convenient formats. Hypermarkets, however remain, the retailers main focus, as it represents 89% of sales and has proven efficient in gaining market share over the last few years, despite the difficult environment for the format. E.Leclerc hypermarkets are slightly different from the model developed by its competitor Carrefour, the pioneer of the format and its long-time champion. E.Leclerc stores are smaller in size (between 4,000 and 6,500 square meters) and in assortment than the average French hypermarket. The retailer’s strategy, to ensure the attractiveness of the format for its shoppers, is to develop adjacent formats next to its hypermarkets, usually in small commercial zones. Amongst these services developed with the hypermarkets are optical (Optique E.Leclerc), car rental (Loue Chez E.Leclerc), do-it-yourself (Brico E.Leclerc), etc. The fastest growing format for the retailer is Drive, which is reported to have grown by 153% between 2010 and 2011 representing 2.1% of sales in 2011. In 2012, the retailer is looking to open 106 Drives, to reach a store network of 250. By 2015, this number should reach 400 facilities. E.Leclerc has developed a small assortment of private labels composed of four brands: Marque Repere (basic label, 4,000 SKUs), Les produits de nos regions (regional label, 300 SKUs), Marque Repere Bio (organic label), and Eco + (low price label, 700 SKUs). These labels are clearly highlighted in E.Leclerc stores by colour label tags: blue for Eco +, red for Marque Repere, and yellow for Les produits de nos regions, giving the shopper simple store navigation. Since 2007,and despite the economic crisis, the retailer has seen strong growth rates, thanks to its price competitiveness. This competitive image is driven by the retailer through intense communication and an assortment that conveys price-conscious choices. E.Leclerc has developed blogs (quiestlemoinscher.com) to compare prices among the major retailers and prove its better price position. This leading position is relayed by E.Leclerc CEO, Michel-Edouard Leclerc, who often appears in public to defend the retailer’s actions on price, and promise shoppers a cheaper shopping basket. E.Leclerc aims to become the leading French retailer by 2015 and is planning to invest in all its formats to develop its leading position. In 2012 the retailer is looking to reach a minimum increase in sales of 6-8% and grow its market share by 0,5 points.

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Figure 12: E.Leclerc Sales by Channel 2006 – 2016e Channel Hypermarket Non Store Retail Supermarket Total

Sales (EUR, million) 2006 2011 22,689 26,729 453 2,265 3,013 24,955 30,196

2016e 30,726 2,157 3,753 36,636

Sales CAGR 2006-11 2011-16e 3.3% 2.8% 36.6% 5.9% 4.5% 3.9% 3.9%

Source: Kantar Retail Database.

Intermarché Intermarché, (Les Mousquetaires) is the third-largest French retailer, representing about 15% of the grocery market in 2011. The retailer, which is a cooperative of independent retailers, operates 2,836 stores in France, its main market, and generates around EUR 28 billion in revenues. Les Mousquetaires operates in multiples channels: small hypermarkets, supermarkets, convenience, online grocery, discount, and category specialist (Roady, automotive stores, and Bricomarché, DYI stores). The major banner, representing 1,773 stores in 2011, is Intermarché (hypermarkets, supermarkets, and convenience). In 2009, the retailer reorganised its main banner, creating four banners using the same brand name: Intermarché. To introduce a difference between its hypermarket, with an average selling area of 4,200 sq. m, and its regular supermarkets, between 2,000 and 2,500 sq. M, Intermarché created Intermarché Hyper and Intermarché Super. In France at the end of 2011 the retailer had around 80 hypermarkets and supermarkets. The old Ecomarché convenience banner in rural areas was converted to Intermarché Contact in 2009. The banner has an average selling space of 1,000 sq. m, and comprised 333 stores at the end of 2011. At the same time another convenience banner for urban areas, Intermarché Express, was launched. This new convenience banner is slightly smaller, 750 sq. m, and consisted of 27 stores at the end of 2011. Netto, the discount banner, traded through 349 stores in France at the end of 2011, and was redesigned in 2009. The store has a range of 3,000 to 4,000 SKUs, of which about 550 are national brands.

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In 2008, Intermarché started its online activity, Le Drive Intermarché. The retailer is expanding the number of collection points and drive-ins in France. At the end of 2011, the retailer had around 32 drive-in units, and 76 by the middle of 2012. With collection points, the retailer is looking to have 500 click & collect facilities by the end of 2012. The retailer is also focusing on expanding other formats, such as supermarkets, with the acquisition of 20 Carrefour stores from Altis in 2012. Regarding hypermarkets, Intermarché wishes to grow its store count to 150 stores by 2015. The retailer makes a third of its sales through private label, which represents 50% of volume. In 2011, 2,000 new SKUs were added, of which 500 were food. The assortment of the retailer also focuses on having an important regional flavour with 15% of the assortment composed of regional SKUs. Figure 13: Intermarché Sales by channel 2006 – 2016e Channel Apparel Category Specialist Convenience Discount Hypermarket Non Store Retail Supermarket

Total

Sales (EUR, million) 2006 2011 2016 235 2,016 1,590 990 7,479 14,757

23 2,049 1,294 1,242 7,987 27 15,291

5 2,148 1,690 1,463 8,361 239 16,751

27,067

27,914

30,658

Sales CAGR 2006-11 2011-16e -37.1% 0.3% -4.0% 4.6% 1.3%

-27.1% 1.0% 5.5% 3.3% 0.9% 54.2% 1.8%

0.7%

0.6%

1.9%

Source: Kantar Retail Database.

Auchan Auchan is the fourth largest retailer in France with a store network of 617 stores, generating revenues of EUR 19.9 billion in 2011. The retailer accounts for 12% of the French grocery market. Auchan is a large hypermarket market retailer, but also operates in the supermarket and online grocery channels, and very recently expanded into the convenience channel (A 2 Pas). Hypermarkets accounted for 76% of the retailer’s sales in France in 2011, down 2% compared to the previous year, illustrating the growing importance of other formats in the French landscape. Auchan, however, remains, a hypermarket retailer, well-known

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for operating very large hypermarkets of over 10,000 sq. m. Despite the economic situation and the particularly strong pressure on hypermarkets, Auchan has managed to keep its sales stable between 2010 and 2011, and reported a slight increase of 1%, on a like-for-life sales basis in the first half of 2012. In 2011, the retailer developed a smaller hypermarket of 4,000 sq. m named Auchan City, designed to be closer to shoppers and offering an equivalent fresh offer to a large hypermarket. The assortment of this store is about a third of a normal Auchan which has around 100,000 SKUs, but the food assortment represents 70% of the range, while it is only 40% in a large hypermarket. The retailer is a pioneer of the online grocery channel, in which it started to expand in 2000. Auchan now operates both in the drive-in and home-delivery format, with Chronodrive, Auchandrive and Auchandirect.fr. In 2010 Auchan restructured its divisions to create an “Other Activity” unit, which includes online activities and the category specialists (Alinea and Little Extra). This division is now the fastest growing with an increase in sales of 17.7% in 2011, and 22.2% in H1 2012, the growth is being driven by the online grocery activities and the opening of new Drives, 14 opened in H1 2012 in France. The supermarket branch, Simply Market, has been prioritised in the past few years, with Auchan increasing its investment and looking to develop the banner. In 2009 all Auchan supermarkets (previously Atac or Docks) were re-bannered to Simply Market, a concept that aimed to be a low price supermarket offering a large assortment of products at discount prices, thus moving away from a classic supermarket model. In early 2012, a new Simply Market concept was launched, slightly moving away from this low price image, to improve service. The retailer has also been testing convenience stores since 2010, with five A 2 Pas stores and two Partisans du Goût opened in 2011. Despite Auchan’s desire to expand these banners, in early 2012 the Partisans du Goût stores closed and the A 2 Pas banner store network has remained at 5. The retailer has, however, expressed its wish to develop the latter banner through franchising.

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Figure 14: Auchan Sales by Channel 2006 – 2016e Channel Category Specialist Convenience Discount Hypermarket Non Store Retail Supermarket Total

Sales (EUR, million) 2006 2011 2016e 219 566 984 0 12 125 24 27 29 15309 16400 17481 176 785 1959 4392 4287 4752 20,120 22,076 25,330

Sales CAGR 2006-11 2011-16e 21.0% 11.7% 60.4% 2.5% 1.5% 1.4% 1.3% 34.9% 20.1% -0.5% 2.1% 1.9% 2.8%

Source: Kantar Retail Database.

Casino Casino is the fifth largest retailer in France, with a store network of 9,450 stores, generating revenues of EUR 18.7 billion in 2011. The retailer accounts for 11% of the French grocery market. France is the retailer’s home and largest market, representing 55% of the sales in 2011, although this share has declined over the past few years as global markets have grown in importance. Casino operates in the hypermarket, supermarket, convenience, discount, and online channel. Although quite small in terms of sales, the convenience division is the largest in terms of stores with 5,517 stores at the end of 2011. Casino operates numerous banners of which the main ones are Petit Casino, Spar, and Vival. The retailer is, however, developing new banners: Casino Shop and Casino Shopping, and expanding the Monop’ banner. Casino is looking to build on its leading position in the market using its latest banners to enter, for example, train stations, but is also redesigning its current and historic banners. In 2012 the retailer aims to recruit 500 new franchisees through its Casino Proximity division, which excludes Monoprix banners, as Monoprix is a separate entity. The largest divisions are the hypermarket and supermarkets. The hypermarkets operate under the banner Géant and at the end of 2011 had a store network of 127 stores, a net increase of two stores. Like for like sales from hypermarkets have been consistently decreasing, leading the group to work towards a reduction of around 20% of non-food selling areas.

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The supermarkets operate under three different banners, managed by three different divisions: Casino Supermarche, Monoprix, and Franprix. As a channel the supermarket is the largest for the retailer with around EUR 9 billion sales and 1,833 stores at the end of 2011. Casino jointly managed Monoprix with Galeries Lafayette, which will change when Casino buys out Galeries Lafayette’s stake in the business. Casino also operates in the discount channel with Leader Price, part of the Franprix – Leader Price division. After years of poor performance the retailer has focused on this division over the past year to turn the activity round successfully and expand the network. The last channel in which Casino operates is online, with both online non-food retail (cdiscount) and online grocery activities (mescoursescasino). Cdiscount is a very large part of online activities with EUR 1.1 billion sales in 2011. Online grocery is a recent development, but the retailer is investing to develop its drive-in facilities and also to develop online activities for all its main banners (Monoprix, and Franprix-Leader Price). Figure 16: Casino Sales by Channel 2006 – 2016e Channel Convenience Discount Hypermarket Non Store Retail Supermarket Total

Sales (EUR, million) 2006 2011 2016e 1,672 1,642 1,828 2,413 2,646 2,952 6,326 5,658 5,207 500 1,183 2,613 8,074 9,092 10,157 18,984 20,221 22,757

Sales CAGR 2006-11 2011-16e -0.4% 2.2% 1.9% 2.2% -2.2% -1.6% 18.8% 17.2% 2.4% 2.2% 1.3% 2.4%

Source: Kantar Retail Database.

Système U Système U is the sixth largest retailer in France, with a store network of 1,423 stores, generating revenues of EUR 16.9 billion in 2011. The retailer accounts for 8% of the French grocery market. Système U is a cooperative of independent retailers, with a national headquarters and four regional divisions: West, North-West, East, and South. It operates in the hypermarket (Hyper U), supermarket (Super U), convenience (U Express, Marche U, and Utile), and online grocery (coursesU.com) channels.

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The retailer is primarily a supermarket retailer. Its supermarkets, Super U, represented 72% of its sales in 2011 and 52% of the store network. Hyper U hypermarkets, the second largest division, are small hypermarkets of around 6,500 sq. m. At the end of 2011 the retailer operated 62 hypermarkets, generating EUR 2.9 billion sales, 17% of total sales. The retailer has been growing through the acquisition of new members from other competitors such as Carrefour. In January 2012, Coop Atlantique moved from Carrefour to Système U, and Leclerc stores in Martinique changed to Système U, adding 46 and two new stores to the network, respectively. Since 2011, Système U has been focusing on growing its online grocery and convenience channels. In May 2011, the retailer bought the online grocery retailer Telemarket, which was re-named U Telemarket. This banner complements the online grocery activity, which Système U has operated since 2008 under the coursesU banner. The former only offers a home delivery service, while the latter is a click and collect service system available, at the end of 2011, in 417 Super U and Hyper U stores across France. The retailer is looking to expand this activity through the expansion of the drivein facilities, rather than collection points and is also testing stand alone drives. By 2015, Système U, which makes less than 1% of its sales through Drive in 2011, is looking to make about 10% of its sales through coursesU. Since 2009, the retailer has grown in the convenience channel, especially through the Mistral stores joining the cooperative. 240 stores were added, and Système U benefited from the local retailers’ experience in the management of convenience stores. The banner U Express was designed and launched during this year, and the banner Utile was re-launched. From 2012-2013 the convenience store network will increase by at least 139 stores, mainly coming from the acquisition of Schlecker stores. To support its expansion objectives, the retailer is investing EUR 107 million in logistics and equipment in the South of France over the next two years. Figure 15: Système U Sales by Channel 2006 – 2016e Channel Convenience Hypermarket Non Store Retail Supermarket Total

Sales (EUR, million) 2006 2011 700 1,304 1,891 2,741 188 9,533 11,435 12,123 15,667

2016e 2,315 3,711 1,486 14,049 21,561

Sales CAGR 2006-11 2011-16e 13.3% 12.2% 7.7% 6.3% 51.3% 3.7% 4.2% 5.3% 6.6%

Source: Kantar Retail Database.

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Grocery Retail Channels

The modern grocery trade in France is dominated by hypermarkets and supermarkets (Figure 17) which represent 45.9% and 31.6% of the market in 2011, respectively. Figure 17: French’s Grocery Market Share by Channel, 2006-2016e

Source: Kantar Retail Database.

The other channels account for less than 10% of the market each. The largest after supermarkets is discount, which took 8.8% of the market in 2011, realising revenue of EUR 16.8 billion, up from EUR 14.7 billion in 2006 (an increase of 2.7% each year). The convenience and online grocery channels both account for around 5% of the French grocery market in 2011 but are growing at different rates. The convenience channel has remained stable over the past five years, while the online grocery has gained market share over the same period. This section will therefore cover the two major channels in term of size (hypermarkets and supermarkets), and the three fastest growing channels (online grocery, discount, and convenience).

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Hypermarkets Hypermarkets are the largest grocery channel in France in terms of sales in 2011, but hypermarkets have been losing share over the last five years. In 2006 the channel represented 47.5% of the grocery market in France, in 2011 this number went down to 45.9%, a decrease of 1.6 points. Despite facing a troublesome environment, overall hypermarkets have grown by 1.3% year-on-year since 2006 (Figure 18). Figure 18: French Hypermarket Sales 2006 – 2016e Channel Leclerc Carrefour Auchan Intermarché Casino Louis Delhaize Système U Total

Sales (EUR, million) 2006 2011 22,689 26,729 22,016 22,192 15,309 16,400 7,479 7,987 6,326 5,658 5,627 5,144 1,891 2,741 81,336 86,851

2016e 30,726 21,741 17,481 8,361 5,207 5,021 3,711 92,248

Sales CAGR 2006-11 2011-16e 3.3% 2.8% 0.2% -0.4% 1.4% 1.3% 1.3% 0.9% -2.2% -1.6% -1.8% -0.5% 7.7% 6.3% 1.3% 1.2%

Sales: Kantar Retail Database.

The three largest players in the format are Leclerc, Carrefour, and Auchan, with 487, 232, and 134 stores in 2011, respectively. While being very close in terms of sales in 2006, Leclerc asserted its leading position by 2011, while Carrefour decreased its stature the channel, but remained the second largest hypermarket retailer. Auchan, which has grown by 1.4% year-on-year for the past five years, remains in the third position; with an expected growth year-on-year of 1.3%, the retailer should keep that position in the next five years. Other smaller players such as Intermarché, Casino, Louis Delhaize, and Système U are expected to remain in their current market position as hypermarket sales are not predicted to see an increase over the next five years. Système U is an exception as the retailer is looking to acquire more partners and thus grow at faster pace than its competitors. The hypermarket channel is under pressure due to changing shopper behaviour. The sales of non-food in hypermarkets, which can represent up to 60% of the assortment in a very large store, have been strongly hit by the crisis. The relevance of the store assortment is a question that is now a main focus for all retailers operating in the format. Unwilling to give up on the format, retailers are investing in hypermarkets to find ways to update the format to meet evolving shopper needs. An important point to highlight is that the landscape is composed of very different types of hypermarket where selling

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space goes from 2,500 sq. m to over 10,000 sq. m. The majority of Leclerc’s (the most successful hypermarket player at the moment) hypermarkets (76% of its store network) have a selling area under 6,500 sq. m.

Supermarket Supermarkets have historically been the second largest format in the French grocery retail market, holding 31.6% of the market in 2011 (Figure 19). The share of the channel within the grocery market has increased by 0.5 points in the past five years. Despite an expected stronger growth in the channel for the next five years, supermarkets are very likely to lose share. Figure 19: French Supermarket Sales 2006 – 2016e Channel Intermarché Carrefour Système U Casino Auchan Leclerc Louis Delhaize Total

Sales (EUR, million) 2006 2011 14,757 15,291 10,740 13,139 9,533 11,435 8,074 9,092 4,392 4,287 2,265 3,013 1,361 1,351 51,122 57,608

2016e 16,751 13,575 14,049 10,157 4,752 3,753 1,363 64,401

Sales CAGR 2006-11 2011-16e 0.7% 1.8% 4.1% 0.7% 3.7% 4.2% 2.4% 2.2% -0.5% 2.1% 5.9% 4.5% -0.1% 0.2% 2.4% 2.3%

Source: Kantar Retail Database.

The major player in the channel is Intermarché, which has dominated this channel and ended 2011 with1,284 supermarkets, generating revenue of about EUR 15.3 billion. The retailer has been growing slowly over the past few years, but with a revival of the format and a new banner strategy, supermarkets were re-bannered to Intermarché Super in 2009. Kantar Retail expects the retailer to grow at a faster pace in the coming years, consolidating its leading position in the channel. The other historically large player in the channel is Carrefour, with 977 stores in 2011. The retailer has however been slightly losing sales over the five past years, due to the transition of its stores from the Champion banner to the Carrefour Market banner and a reduction of its store network. As the new banners, launched in 2008, continues its expansion the retailer is expected to grow stronger in the five coming years.

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Another player, Système U has gained market share in the channel over the past five years, due to a strong growth rate, which has seen the retailer take the second position from Carrefour. With a stronger growth rate, than its main competitor, Kantar Retail expects the retailer to move closer to Intermarché over the next five years. Overall, the channel is expected to see healthy growth over the next five years.

Discount The discount channel is the third largest channel in France and represents 8.8% of the grocery market, far beyond the second largest channel, which represents 31.6%. The channel gained 0.4 points in the last five years, growing at an average of 2.7% year-on-year (Figure 20). Figure 20: French Discount Sales 2006 – 2016e Channel Schwarz Group Aldi Nord Casino Dia Intermarché Total

Sales (EUR, million) 2006 2011 5,445 6,504 2,589 3,162 2,413 2,646 2,613 2,531 990 1,242 14,049 16,085

2016e 7,232 3,595 2,952 2,640 1,463 17,883

Sales CAGR 2006-11 2011-16e 3.6% 2.1% 4.1% 2.6% 1.9% 2.2% -0.6% 0.9% 4.6% 3.3% 2.7% 2.1%

Source: Kantar Retail Database.

The French discount market is dominated by Schwarz Group, operating the Lidl banner, which represented around 35% of channel sales in 2011. France is one of the retailer’s bigger markets. Its main competitor, Aldi, has also seen strong growth over the past five years due to network expansion. In the coming years these retailers are expected to slow their expansion, but invest in refurbishment. Aldi introduced some national brand SKUs into its stores and is looking to introduce services, such as bakeries, in 2012. The fastest growing discounter is Netto, the discount banner of Intermarché. Netto grew by 4.6% year-on-year between 2006 and 2011 is expected to grow by 3.3% each year in the next five years.

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Dia, which is now an independent retailer, is re-bannering all of its Ed stores to the Dia banner. This process should be completed by 2014. The retailer, despite poor performance in the market, is expanding its store network and looking to grow over the next few years. The channel, which grew strongly between 2006 and 2011, thanks to the expansion of the German discounters (Aldi and Lidl), is expected to grow at a slower pace over the next five years.

Convenience The convenience channel is the fifth largest grocery channel in France. The channel is dominated by the Casino and Carrefour, which have the largest store networks and the highest sales. Figure 21: French Convenience Sales 2006 – 2016e Channel Carrefour Casino Système U Intermarché Total

Sales (EUR, million) 2006 2011 2,732 2,287 1,672 1,642 700 1,304 1,590 1,294 6,693 6,527

2016e 2,617 1,828 2,315 1,690 8,450

Sales CAGR 2006-11 2011-16e -3.5% 2.7% -0.4% 2.2% 13.3% 12.2% -4.0% 5.5% -0.5% 5.3%

Source: Kantar Retail Database.

Over the past few years, especially before 2009, this channel was not very popular in France and players in the channel were mostly historical banners such as 8 a Huit (Carrefour) and Vival (Casino). In recent years, due to changes in shopping behaviour and a move towards proximity, retailers have started refocusing on this channel. New banners have emerged, capitalising on retailer brands. Carrefour City, Contact, and Express were launched between 2009 and 2010. Casino recently launched Casino Shop and Shopping. Intermarché launched Intermarché Contact and Intermarché Express in 2009.

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After five years of poor year-on-year performance, due to retailer investment in the channel and more shoppers turning to proximity, Kantar Retail expects the channel to grow at a higher pace over the five coming years, at an average of 5.3% a year. Other players, such as Auchan and Leclerc, have also started operating in the channel with significant expansion plans, unwilling to be left out in a channel gaining in popularity amongst shoppers.

Online Grocery Online grocery is the fourth largest channel in terms of sales in France. It has been growing at impressive rate over the last few years, around 50% year-on-year. This growth should not decrease; on the contrary Kantar Retail expects the growth of this channel to accelerate on a year-on-year basis due to the recent enthusiasm of retailers to expand their Drive activity. Figure 22: French Online Grocery Sales 2006 – 2016e Channel Auchan Leclerc Carrefour Système U Louis Delhaize Casino Intermarché Total

Sales (EUR, million) 2006 2011 84 556 453 67 226 188 67 127 78 27 219 1,656

2016e 1,529 2,157 1,169 1,486 499 489 239 7,569

Sales CAGR 2006-11 2011-16e 45.8% 22.4% 36.6% 27.4% 38.9% 51.3% 13.6% 31.6% 44.2% 54.2% 49.9% 35.5%

Source: Kantar Retail Database.

France is a reasonably developed market when it comes to online grocery. Retailers have been testing banners in the format for a few years, but it is only in the last three to four years that it has really picked up, especially the drive-in click & collect format which has seen tremendous success lately. Shoppers have started to adopt this new way of shopping: 1.8 million French households used Drive at least once in 2011, and retailers are quickly expanding their networks. At the start of 2012, France counted less than 1,000 Drives, by September this number exceeded 1,500 Drive facilities.

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Intermarché, Carrefour, and Leclerc, are the retailers opening the most Drives in France (189, 113, and 75 respectively since January 2012). Auchan and Système U already have a developed network for click and collect. Auchan has fewer stores and is opening less, but has more independent and larger premises than its competitor. Système U is looking to develop real drive-in facilities and the pace of collection points transformed into drives should increase by the end of 2012. Home delivery services, which often use a different platform, if not banner, as Drive-in stores, are growing more popular among French shoppers. Due to some constraints (time and fees) this format has developed slower than Drive operations.

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Conclusion

The French grocery market is very concentrated, and historically dominated by national players (Carrefour, Leclerc, Auchan, Intermarché, Casino, and Système U) which compose the top six and represent 81% of grocery sales. The only channel where national retailers do not hold the leading position is discount. Lidl is the largest banner in terms of sales and benefits from the best price perception from shoppers. The grocery landscape in France is not expected to change much in the next five years in terms of retailers’ market position. Despite the independent retailers’ strong growth, and their desire to overtake the leading position, the current ranking, is more than likely to remain the same. At channel level, however, we can expect retailers such as Leclerc and Système U to gain share. Kantar Retail expects Leclerc to consolidate its leading position in hypermarkets while Système U should gain a leading position in supermarkets and convenience. As France is a concentrated market, competition amongst retailers is very intense, and the fight to protect and grow market share is an important dynamic of the market. Major international retailers such as Carrefour, Casino and Auchan, for whom the French home market remains the largest, are looking to consolidate their position, while the independents are looking to gain share. The country is far from being the worst hit by the economic crisis but household incomes are stretching with the weight of expenditures increasing. Price attractiveness is therefore an important attribute where retailers are looking to improve to attract or retain shoppers. Looking at growth areas, Kantar Retail expects the most important part of retailers’ expansion will be to move away from the historical hypermarket format towards proximity and online, which are expected to see high year-on-year expansion rates.

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ABOUT KANTAR RETAIL Kantar Retail was formed in 2009 from four Insight and Consulting businesses. It serves leading Retailers and Manufacturers globally, delivering a competitive advantage and enhanced revenue and profitability. Leading suppliers, brand manufacturers, retailers, financial services and strategic marketing firms rely on Kantar Retail’s expertise to transform their businesses. Kantar Retail is headquartered in London and is part of the Kantar Group of WPP. INFORMATION AND INSIGHTS Kantar Retail provides robust data-driven insight that looks across markets, shopper and customer trends, presenting the most accurate view of the top Global Retailers and markets. By transforming this intelligence into insights, Kantar Retail helps clients to understand the trends of today and prepare for the realities of tomorrow. Kantar Retail Insights studies over 1200 of the world’s leading retailers providing invaluable data and insights for the industry and our clients. Clients access Kantar Retails Insights through either its online platform KRIQ, attending workshops or conferences, through webinars or by having the retail subject matter experts visit client offices. KantarRetailiQ.eu FOR MORE INFORMATION Contact Tia Janse van Rensburg Tel. +44 (0)207 031 0251 [email protected] Download a complimentary copy of Kantar Retail’s Breakthrough Insights H1 2012: Tear Down the Walls – Kantar Retail’s semi-annual collection of Breakthrough Insights - www.kantarretail.com

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