Neil Stern, Partner, McMillan/Doolittle
By Neil Stern, Partner, McMillan/Doolittle
Large format stores are under attack, in the U.S. and abroad. Retailers including Walmart are under pressure to build smaller formats as sales at supercenters and hypermarkets are in decline globally, particularly in mature markets.
Nowhere is this more true than in the birthplace of these formats—continental Europe and France. As in the U.S., the incumbent format is being besieged by multiple competitors all vying for market share. Hard discounters, such as Aldi and Lidl, proximity convenience stores and dedicated category killer stores (H&M, Zara) have all taken a bite of what was once the dominant format in Europe. Add to that a still depressed European economy and retail struggles are understandable.
It seems that no one is immune and Carrefour, the world's second largest retailer, is emblematic of this struggle. They are on their third re-organization plan in seven years and continue to see declines in their core hypermarket business in France and throughout the rest of Europe.
Who is winning?
One chain in particular stands out. E. LeClerc has posted compound annual growth of nearly 5 percent over the past five years and has sales approaching nearly $50 billion. During this time, it has emerged as the largest hypermarket in France, growing at a time when others are contracting. We visited a new LeClerc prototype in the SoEst Shopping Center outside Paris to better understand its winning formula.
There are four key ingredients to LeClerc's success, all in evidence in the new store:
• Price leadership. LeClerc is the self-proclaimed "price champion" in the French market. It has relentlessly focused on driving lower prices and this is the central theme of its communications. Most importantly, it has maintained consistency over the decades, never straying from this central component. It has built a strong private brand program as well with two of its four key brands (Marque Repère and Eco +) focused on price. Both in perception and reality, LeClerc is the low price leader.
• Quality perishables offer. Most notable about the new store is its outstanding perishables offer. There are incredible areas for cheese, bakery, charcuterie, etc. that surround a fresh produce department. It is a highlight of the store—fantastic serviced fresh departments with low prices. The focus is on fresh perishables—there is far less foodservice than in U.S. stores. Critically, LeClerc has been able to focus on quality while at the same time keeping its price reputation intact.
Go inside one of LeClerc's amazing stores in this slideshow
• Focused offer. LeClerc qualifies as a "compact" hypermarket that is generally under 60,000 sq. ft. In the new unit, the non-foods assortment is extremely limited. There is a decent media section, some housewares and a very limited apparel department focused just on baby. As opposed to the massive offer of a Carrefour or Walmart, LeClerc stays focused on the core food offering. Given the intensity of fast fashion retailing and discount driven non-foods in France, it is not surprising that it has taken a more streamlined approach.
• Local ownership. Each LeClerc is individually owned as part of a strong centralized cooperative. It operates a buying group and gains the owners' commitment to maintaining low prices. Owners are allowed to have their own individuality. In this case, a spectacular wine cave filled with the very best French wines. Perhaps not surprisingly (we are in Paris after all), wine was being sold in no less than three locations in the store.
LeClerc is winning with great pricing, great food and individualized ownership. In combination, it's an unbeatable formula.
What can U.S. chains learn from LeClerc?
Focus on what you can do really well. It is difficult to be a generalist, even with a low-priced focus. LeClerc has chosen the battles it wants to win. Local ownership is difficult to pull off in scale—LeClerc is an exception, as are chains like Shoprite, part of the Wakefern cooperative. When you can make it work, there's real power.
In the absence of individual ownership, how do you motivate store management to keep the same passion? We see it in evidence at fast growing chains in the U.S. like Winco where employee ownership rules the day.
Inevitably, the question arises about Walmart, which finds itself in a similar position as Carrefour, a market leader under pressure to continue to grow. Like Carrefour, Walmart has seen its core proposition come under fire. And like Carrrefour, there is no easy answer.
The only real solution for Walmart is to build substantially more flexibility into its model, which is precisely what it is trying to do today: smaller formats, expanded e-commerce and omnichannel focus, and improving operations and perishables. The strategy is right—it's all about execution. LeClerc is one example of a chain that gets it right.
Take a look inside LeClerc's impressive market in our slideshow here.
Neil Stern specializes in strategic planning and the development of new retail concepts at McMillan/Doolittle. Neil has developed strategies and new concepts for a diverse variety of clients across the retail industry. Key clients include Sears, Target, Wawa, Harris Teeter, McDonald's, Safeway and WinnDixie.