Business | Opinion
Carrefour's sell-off defies potential
Bidding frenzy raises a number of questions, not least why Lars Olofsson, Carrefour's relatively new chief executive, is so keen to bale out of a region
- By Kevin Brown, Financial Times
- Published: 00:00 September 12, 2010
When a dozen customers are jostling at the till trying to buy the same packet of cornflakes it probably means the price is too low. When a dozen companies are scrambling to buy the supermarket, it probably means someone is selling an asset they ought to be holding onto.
This is the message from an extraordinary corporate bun fight going on in South East Asia, where Carrefour, the world's second-biggest retailer, has attracted a field of significantly more than 10 bidders for the sale of 61 supermarkets in Thailand, Malaysia and Singapore.
The bidding frenzy raises a number of questions, not least why Lars Olofsson, Carrefour's relatively new chief executive, is so keen to bale out of a region in which the company invested $150 million (Dh550 million) only three years ago.
Olofsson has said little, hinting only that he wants to concentrate on markets where Carrefour is either the market leader or a strong contender.
Yet Carrefour is woefully under-represented in the world's most rapidly growing region, with only 7.8 per cent of consolidated net sales in Asia compared with 79 per cent in Europe.
This seems an odd way to improve growth prospects — a point that Olofsson recognised when he coupled the announcement of disappointing first-half results with enthusiastic talk of opening stores in Russia and India.
To that extent, the strategy might work. But critics might be less impressed if they considered the scale of the opportunity that Carrefour is handing to someone else.
Like most of Asia excluding Japan, South East Asia has returned to growth after a short downturn. Asia's renewed growth is being driven by fundamental changes that point to above average prospects for retailers.
Outlook
The recovery reflects a big rise in domestic consumption, marking a significant departure from the export driven model.
The long-term outlook is even more enticing. The United Nations forecasts that 140,000 people a day will flock to Asia's cities over the next 40 years, creating retail demand.
Significantly, many of the bidders for Carrefour's assets are Asian companies which are experiencing the consumption boom at first hand.
In the very short term, the bidding scramble is good for Carrefour. Its hopes for a price tag of $800 million to $1 billion, initially regarded as optimistic by European analysts, now look achievable.
But the sale might come to be seen as a big strategic mistake. Carrefour will release a relatively small sum for investment elsewhere.
Another company will lay the foundations for decades of profitable growth. Tesco says it is keen not to overpay. Carrefour can hardly ask enough.
More from Business Opinion
More from Business
Business Editor's choice
-
China breaks West's solar monopoly
Some countries in the world, especially Germany and the United States, have made considerable efforts to invest in developing solar energy cells
-
Burberry store spree will cut profit
Trenchcoat maker forges ahead with investment strategy targeting emerging markets
-
Laws needed to spur region bond markets
UAE Central Bank calls for creation of a centralised Sharia board to facilitate the sale of sukuk
