Thursday, 12 November 2009

Carrefour, Brands and the Russian Market;

I can think of no greater branding challenge than seeking to establish a transnational presence in the retail chain space. Even the 800lb gorilla --Wal-Mart--has not succeeded in establishing a dominant position in each of the national markets which it has sought to enter. The reason is not difficult to fathom. When compared with the difficulties in marketing a single branded product in a new jurisdiction, the requirements for successfully establishing a large-scale retail service brand in a new country are exponentially greater.

Thousands of products of inventory, ranging from perishable food to home furnishings, have to be purchased and made available to customers, real estate sites need to be carefully selected, pricing has to walk a tightrope between being competitive and being profitable, cultural differences have to be addressed, and managerial and on-the-floor service has to be constantly maintained. It is often a wonder that large retail chains can succeed at all across diverse regional settings.

That said, I was struck (even thunderstruck) by the announcement in mid-October that the giant French-based retailer Carrefour here was pulling out the Russian market. Just to keep the size of the company in perspective, it is the second largest retailer in the world (behind Wal-Mart) and racked up sales of nearly $36 billion dollars for Q3 2009. Nor do they shy away from adventurous markets. Nearly half a decade ago, my daughter found herself temporarily working at a Carrefour store in far Western China.

Against that backdrop, the compressed rise and apparent fall of Carrefour in Russia is noteworthy. As reported on the website on October 17, in an article entitled "French Retailer to Close its Russian Stores" under the by-line of Matthew Saltmarsh and Andrew Kramer, Carrefour opened its first hypermarket in Moscow in June 2009. A second store was opened on September 10, 2009, in a city called Krasnodar. The announcement of that opening, as reported on, was careful to add that it was being done "in line with the agreement concluded with the Administration of the Krasnodar region."

And yet, slightly more than one month later, the company announced (albeit apparently "buried ... in a trading update") that the closure was taking place because of an "absence of sufficient organic growth prospects and acquisition opportunities in the short and medium term that would have allowed Carrefour to attain a position of leadership." This is quite remarkable. We are not talking about closing a 180 square meter corner grocery, but rather two facilities, each of which was over 86,000 square feet. Moreover, we are not talking about a gradual phase-out of the facilities, but rather what appears an exodus of Biblical proportions. If there is any recent precedent for a retail pull-back of this size and alacrity from a entire national jurisdiction, I am not aware of it.

Coming and Going in Russia

Oversaturation of the Moscow market, limited growth possibilities elsewhere in the country, a difficult consumer ethos, a deteriorating economic environment, endemic red-tape and even corruption (recall the role of the Administration of the Krasnodar region in the opening of the second Carrefour megastore) all seem to have played a part. Still, these factors did not suddenly come together like a perfect storm only between June and October of this year. If these were factors contributing to the debacle, surely they must have been present, in whole or in part, before the summer 2009. If so, it sure sounds like someone was asleep at the wheel at company headquarters.

And now for the branding question: will the apparently ignominious withdrawal from Russia affect the transnational value of the Carrefour brand? I suspect that the answer is no. Mega-retailing is far more local than international. Still, this is a double-edged sword.

On the one hand, there is likely little added value to the Carrefour name per se when the company seeks to enter a new market. True, the size and recognition of the chain may ease the initial entry into a jurisdiction, but ultimate commercial success, and the resulting goodwill in the brand, must be earned. This seems quite different from the introduction of, for example, a MacDonald's chain into a new country, where the transnational goodwill preceding entry will likely be of assistance.

On the other hand, a local failure will not materially affect the overall value and goodwill of the brand. What happened in Russia will not likely cause an impairment of the Carrefour brand in France--the markets are separate and distinct . Despite globalization, digitization, and the growth of famous marks, for most brands the territoriality notion of trade marks is not merely of legal significance, but of commercial import as well.

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