Executive Summary
Carrefour has been a major player in the UAE, where it exists as a partnership between Carrefour parent company and Majid Al Futtaim group. The report shows that there is a major opportunity in online shopping, and with its large inventory of products and a well-coordinated supply chain, the company is in a good position to take advantage of the online trend.
It can do so by setting up an elaborate e-commerce platform that allows shoppers in the UAE to order goods to their respective addresses within the country. The report also identifies threat of rivalry as the main competitive issue to consider. Meanwhile the biggest limitations for the company as its surging labor costs while one of the most viable solution is to work on supply chain efficiencies to increase profit margins and also win customers based on price discounts.
Brief description of the organization
This report covers Carrefour. This is an international retailer and it has several hypermarket chains that originated in France in 1957. The company has been actively moving towards dominating the global retail market with several new stores in most promising markets for the retail business around the world.
Carrefour entered the United Arab Emirates (UAE) market in 1995 and it has been actively performing in the retail segment of the country. The company first entered into the country with a mission on expansion to the rest of the Middle East. In Dubai, it relies on a joint venture with Majid Al Futtaim group that allows it to grow rapidly and cover the entire country and its neighbors (Carrefour UAE para. 1-4).
External analysis
Current and potential opportunities
Customers can shop on the company’s e-commerce website and then pick their mode of delivery. An option could be a hybrid of e-commerce and traditional shopping. In this case, customers will shop online but after making payment, they will go to the store to collect their goods after they are packaged.
The advantage of the strategy is that it reduces the time needs to process payments as the customer does not have to queue. The company recently established a web store for its UAE market that allows customers to shop and pay for goods with various electronic payment solutions such as credit cards and PayPal.
The store offers customers with a wide selection of goods that are also in its physical outlets. Customers are able to use the website to move virtually through the store to know what to expect when they are physically in the store. The company’s online website is not very competitive compared to other global retail brands such as Amazon.
There is a big opportunity of using the reputation of Carrefour as a global retailer to promote the presence of its UAE online store. This should lead to increased sales and more customer intelligence that can help the company come up with new strategies on being ahead of the competition in meeting customer needs.
Carrefour can work with local suppliers to recognize local products and allow its customers to contribute to the development of community sensitive projects. For example, it can use its product origin and traceability systems to include a made-locally label that allows customers to make purchase decisions based on their need to support local businesses in the UAE.
This strategy will help the firm increase its reputation as a caring and development partner for the economy of the UAE. It will also enable the firm to reduce the power that local suppliers have against it in market dynamics. With the strategy, Carrefour will obtain an upper negotiating position for goods pricing, and this will go towards increasing its ability to offer discounts to price-sensitive shoppers.
Current and potential threats
The current threat facing Carrefour comes from its competition. Business rivalry threatens the market share of the company and its profit margin. Should the company continue operating with its present strategy and scale of the business, it risks losing a significant portion of its market to new entrants that already have a global presence, as well as local retail companies.
The major cities in the UAE, including Dubai and Abu Dhabi are home to many expatriate workers. This significant population is also a key attraction for retail chains that seek to achieve a Middle East success with the UAE as their main center of operation. They see the market is ripe for investments because of its high labor supply for the industry and its high disposable income that can support businesses growth (Scott para. 6-8).
Despite the attractiveness of the region, economic growth slowdown has led to increased costs of living for many people in the UAE as companies adjust their business forecasts and limit their expenditures. A slowdown in economic growth affects the disposable income of individuals and makes it more expensive to existing business to operate as costs of labor does not fall in accordance with economic performance.
The Carrefour UAE operations have to consider the high cost of labor and raw materials such as packing bags given that cheap plastic bags are not usable in UAE (Salma para. 1-2). While hiring talents employees is important, the business must also consider additional options for outsourcing to ensure that it does not remain exposed to the recurrent cost expenditure in a significant way.
Impact of national culture and conditions on the organization
National culture affects the employment relations and normal business operations. The company has to follow Islamic timings for its store opening and closing. It also observes local religious holidays and moral practices when dealing with human resource issues.
Internal analysis
Strengths and how they will be used
The company has a global reputable brand and it will use the brand to increase its sales in the UAE. It is also the most internationalized retailer in the emirates and this helps it offer a rich global experience to its shoppers. It is able to attract local shoppers seeking to experience a global shopping outing and get items from many countries around the world.
The internationalized concept also helps the firm attract new and talented staffs from around the world. It is able to sustain its position as preferred employer. The company dominates the top three positions of retail chains in the UAE and the global market. Its hypermarket strategy allows the company to offer a wide range of goods from all over the world.
Being a big company, the company has made numerous supply chain partnerships that allow it to offer its own-label portfolio. The range of products is in some of the fastest selling consumables in retail business and the products have created a market perception of price and quality by its customers.
Its early mover advantage into the UAE market has also been helping the company grow fast as it is yet to face significant competition among the global retail brands. Therefore, many consumers in the UAE seeking to shop at a global recognized outlet (Carrefour UAE Para. 6-8).
The company has been exploring strategic acquisitions as a growth strategy and it runs a multi-format strategy. It is able to sustain the sale of fresh food in all its outlets by working with reliable suppliers and ensuring that its staffs are well versed with all demands of a particular market.
Maintaining close relationships with suppliers in all its services range enables the company to be able to respond to price changes and demand changes effectively. Its retail business succeeds because the company is able to consider many inputs in the cost of products such as the value of foreign currencies in the UAE and the cost of transportation and storage of various goods imported from around the world.
With a target on the middle and low-income groups, the company sustains its operations by having its private label products that utilize economies of scale to sell at discounted prices. Another strength of the company arises from the high quality trained staffs that is able to offer high quality maintenance services and customer care services throughout its business including its supermarket and hypermarkets.
The company has a governance structure that allows both the local and global management departments to respond to emerging issues fast, and this should help it to tame any threats that it faces in the growing UAE retail market.
Weaknesses and how they will be minimized
The company lacks a comprehensive retail chain presence, this jeopardizes its strategy of benefiting from economies of scale, and offering discounts to its low-income shoppers suffers due to its limited retail presence. However, there are possibilities of limiting the business vulnerability. The company has an option of entering into more deals with local real estate companies to ensure that it gains a retail presence in upcoming developments like malls within the UAE.
Modern designated shopping areas are key attractions to shoppers of different kinds. They provide a company like Carrefour with the best option for growing its customer traffic in the medium-term. The company relies on its staffs to provide customers with a high quality experience. Any misunderstandings between staffs and customers, or negligence and bad behavior by staffs have the potential to ruin customer relations.
The company continues to minimize this weakness by constantly training staffs. It also has elaborate supervision frameworks. The in-store supervisors and production monitoring systems also help to highlight staff shortcomings in customer care. Based on the results that Carrefour gets from its appraisal system, it is able to minimize the weakness of poor quality of service delivery by staffs.
However, it still has to continue with on-the-job training programs to ensure that new staffs quickly adapt to the company tradition. Training should also concentrate on equipping staffs with cultural skills that let them deal with the UAE customers according to their cultural background expectations.
The global retail industry is moving to an online platform and the UAE as a market has become a prime location for embracing online shopping. Presence of high internet speeds and a significant number of customers who are conversant with internet technologies makes the country ideal for investment in online shopping.
A major weakness for Carrefour is that is has been lagging in its approach to online shopping and could be missing its competitive advantages. The firm needs to develop an online presence so that it rapidly scales its presence in the short-term. Customers also expect the company to have a serviceable online strategy.
Five-forces analysis
Bargaining power of suppliers
Carrefour has a major advantage over its suppliers because it has the potential to change its suppliers for various inputs. The brands sold in the retail outlets belonging to the company come from different suppliers. All suppliers have an intention to reach customers and the Carrefour business is a platform allowing them to do so.
Therefore, there is high competition among the suppliers and this competition causes Carrefour to get the upper hand in bargaining. In addition to that, the company enjoys low switching costs for its supplies including the labor and other service providers. Any changes in pricing by suppliers will not lead to a significant strain by the company due to the possibility of changing service providers or supply chain partners.
A high volume capacity that Carrefour offers to suppliers is makes it a preferred partner and this option motivates suppliers to enter into long-term discount agreements that allow Carrefour to operate profitable. In conclusion, suppliers lack bargaining power.
Bargaining power of customers
Customers to the retail outlets in UAE have nothing that ties them to a particular brand other than loyalty. They are free to shop anywhere and still get identical products. Many customers consider shopping convenience or the price of goods as the main influences of their purchase decisions.
They also consider the distance to the store and the type of shopping that they are going to do. The availability of parking space is also an issue that can influence a buyer’s decision. In the e-commerce segment, customer consider the speed of loading a website, the ease of browsing the site and checkout, as well as the shipping options availed by the company.
Based on the above understanding of the customer in UAE, Carrefour faces significant bargaining power from customers. It cannot increase the prices of items unless its rivals also do so. At the same time, it has to consider carefully areas for setting up its stores because of the foot and vehicle traffic potential. The store layout and the presence of amenities are other considerations that the company has to make, and in some instances, it may have to meet the cost of setting them up.
Threat of existing rivalry
The exit barriers for the business are low and weak firms can leave the UAE market without losing too much capital. At the same time, the strong firms have to keep investing in their potential growth to sustain their market share. Currently the UAE market has a high competition in the middle class retail market segment.
The demand for retail store space is increasing as the population increases. Rivals are diversifying their targets with different stores for different market segments. Depending on the location of a store, a firm can target high net worth individuals or low-income spenders.
On the other hand, the vacancy rates for retail space are low and this in an indication of high competition in the industry. Forecasts that show the retail business being immune to the declining oil prices form part of the reasons why many businesses in the industry are increasing their investments.
Carrefour UAE operations have to expand at every possible opportunity just to keep up with the growth trend; otherwise, the business will lose its market share (Oxford Business Group Para. 11).
Threat of substitutes
Many consumer product companies are opting to set up independent stores in popular malls around the city. At the same time, specialty stores in electronics, grocery, and furniture are also located in most malls that also have hypermarkets. Therefore, customers have a choice of where they can purchase their products.
Nevertheless, the hypermarket option still allows customers to enjoy the convenience of all products being under one room. They can compare prices and enjoy a traditional shopping experience. In addition to that, in long-end market segments, hypermarkets win for their ability to offer store-branded product at a reduced price. Carrefour uses the same strategy and therefore only faces moderate threat from substitutes.
Threat of new competitors
The entry of new players in the UAE retail industry is eminent. However, new companies will likely target a city before expanding to the entire country. This gradual entry and expansion strategy gives established players like Carrefour time to respond with counter competitive strategies. In this regard, the threat of new competitors is moderate.
The shortage of retail spaces in the major cities of the UAE is also a factor that weakens the threat by new competitors. However, competitors that have a strong global brand and an online presence can easily penetrate the market as customers adjust quickly to meet their preferences and need for identifies with people in other developed countries in North America and Europe.
Efficiency
A radio frequency identification solution for monitoring inventory within stores and along supply chains allows the company to meet its logistical demands. Its warehouses connect with its central logistics hub in Dubai and the company can manage purchase orders from the hub thus reducing communication lags.
Quality
Carrefour maintains a log of product movement throughout the processing and stocking in its outlets. It can pin point the position of a product in its supply chain and is able to determine the quality of the product at every stage of the retail process. Relying on reputable suppliers and training staffs on quality handling of products and customers ensures that they company builds on its competitive advantages.
Innovation
Carrefour UAE loyalty card is one of the innovative products by the company seeking to collect customer intelligence and increase repeat customer transactions. The shopping website targeting UAE customers is also an innovative approach at meeting customer expectation and bypassing limitations of a physical store presence in every part of the country.
Customer responsiveness
Presence on popular social media networks like Facebook allows Carrefour to respond to customer queries in a fast and informal ways that also works as a public relations activity. The company also maintains hotlines and customer desks at its physical stores to collect feedback and handle customer issues.
Customers also have a self-service website platform to handle their queries and management of their cards. They can also manage their online shopping accounts without the need for a direct contact with a customer care representative.
Discussion on distinctive competencies of the firm
From the discussion presented in the preceding sections, Carrefour’s distinctive competencies are its own-label brands and its central hub logistics processing system. They offer the firm the ability to be different from the competition and to cut costs significantly.
Rivalry is a major factor to consider in the firm’s business environment and an efficient logistics system allows Carrefour to be responsive enough to meet its competitive demands. However, rivals can copy logistics competencies even though they are costly. On the other hand, for rivals to develop successful own-label brands, they have to find capable manufacturing or processing and packaging partners.
Above all, they will require a brand that has already developed. Carrefour already enjoys a global reputation that does well in the UAE and this makes its own-label products serve as a distinctive competitive advantage that cannot be copied easily.
Does the organization have a differentiation strategy?
Carrefour does not have a differentiation strategy overall. Nevertheless, the company targets different customer segments with different product ranges and uses in-store displays to effect the strategy.
Strategic alliances that can benefit the organization
The beneficial strategic alliances that can benefit the company are with service providers and supply chain partners. Providers of various technologies for retail business management such as monitoring solutions for stock and employees can help maintain high quality services and keep costs low. Such solutions would be expensive for the retailer to develop on its own.
A partner providing the services is the best option. Another beneficial alliance would be made between the retailer and real estate companies. This can ensure that Carrefour gets the first option to set up stores in upcoming mall developments in all the UAE cities and avoid the space shortage threat.
Should the organization go global, why or why not and how will this be achieved
Already Carrefour is a global company, and its UAE subsidiary is one of the outlets in the Middle East. Expansion into more countries can come through partnerships, where local businesses provide resources while the retailer offers the brand and operation capabilities.
Major problems or potential problems the organization should address
Currently, Carrefour needs to address the lack of adequate marketing of its online shopping option. It must also come up with a long-term strategy of dealing with high cost of labor as it threatens to cut the profit margin and affect the business’ strategy for winning the low-end income market segment (Hubbard para. 3).
The company also lacks a counter strategy for dealing with the onslaught of company branded stores that are setting up in malls throughout the UAE to target high-end customers with their branded consumer products mainly in the electronics and computers sectors. Many of the products in the category allow Carrefour to earn a high profit margin and losing the business segment would be catastrophic to its store’s performance.
Recommendations for Carrefour
Carrefour has to expand its investments in technology as a way to cut its reliance on staffs. With a shrink in current staff numbers or a freeze on hiring of new staff, the business will be able to manage its labor costs in the medium term.
In addition, the company has to identify a real estate partner that has significant investment in retail business spaces in attractive locations in the UAE. Such a partner will enable Carrefour to expand rapidly. As a joint venture in the UAE, the business currently is in a position to use its local business networks to find more partners for achieving its objectives.
Given that the business already enjoys considerable power over its suppliers, it can continue bargaining for discounts and other favorable trade terms that let it extend price bargains to its customers to stop them from moving to the branded stores that are threatening the dominance of Carrefour.
Works Cited
Carrefour UAE. About US. 2015. Web.
Hubbard, Alison. Employment Issues in the UAE. 2012. Web.
Oxford Business Group. Demand Strong for Abu Dhabi Retail Space. 2015. Web.
Salma, Samir. “UAE Bans Non-biodegradable Plastic Products.” Gulfnews.com, 2013. Web.
Scott, Andrew. “Dubai Builders Turn to Community Malls Anchored on Food Retailers Geant and Carrefour.” The National Business, 2014. Web.