France Grocery Retail Market Profile

November 2016

Innovation and Sustainability Report

By: Ray Gaul and Tudor Popa

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Table of Contents

Executive Summary ...... 3 Overview ...... 3 Five Key Facts to Consider When Thinking About Retail in France ...... 3 France: The Economy and Its Impact on Retailers and Shoppers ...... 5 Global Recession of 2007: An Inflection Point ...... 5 The Retail Market Outlook: Key Growth Metrics ...... 6 Retail Conditions in 2015/2016 ...... 7 Economic Conclusions ...... 7 France: The Modern Retail Landscape, Channel Developments, and Implications for Sustainability Programs ...... 8 Market Consolidation ...... 8 Price Wars ...... 9 Format Innovation ...... 9 Anti-Competitive Regulations ...... 9 Decline of the Mighty Hypermarket ...... 9 The Rise of Proximity Grocery Formats ...... 10 The Myth About Discounters ...... 11 eCommerce and eGrocery ...... 12 Retailers on the Move: Who Is Innovating in France? ...... 14 Carrefour ...... 14 E. Leclerc ...... 14 Intermarché ...... 15 Auchan ...... 15 Système U ...... 16 Casino ...... 16 Lidl ...... 17 Amazon ...... 17 Conclusion ...... 18

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Executive Summary

Overview

As the world’s sixth-largest economy, France has historically been a net exporter of retail innovation. These innovations have included pioneering sustainability programs. French retailers have been extremely proactive in building best practices in efficient store design, investing in sustainable agriculture, and developing virtuous energy cycles. In most instances, leading French retailers have taken these ideas with them when they have invested in other parts of Europe and overseas.

This pioneering spirit came under threat beginning in 2007 when the French economy underwent major structural changes. French retailers today face a set of very difficult trading conditions. The result is that many French retailers have scaled back their ambitions outside France and have begun to fight bitter market share wars within France.

These market share wars have slowed innovation in sustainable retail innovation. However, French shoppers continue to demand the very best from retailers. This demand has produced an environment in which French retailers are now innovating in sustainable retailing but doing so within tight budgetary restrictions. These constraints have actually produced a sustainable retail model that is easier to export to countries with lower levels of innovation and smaller budgets.

In this report, we answer the following questions:

‒ The French market outlook: How will retail develop in the next five years? When will French retailers begin to export innovation in sustainability en masse again?

‒ Channels to watch: Which channels will grow in France and how quickly? Will hypermarkets be the channel to watch or will new channels emerge?

‒ Retailers on the move: Which retailers are winning or changing shape, and what does this mean for innovation in sustainability coming from France?

Five Key Facts to Consider When Thinking About Retail in France

‒ In 2016, France’s retail market will exceed EUR500 billion in turnover (sales) for the first time in its history. . Implication: France will continue to have capacity to be home to many large-scale retailers that export their business models to other countries.

‒ Hypermarkets — pioneered in France — will continue to be the largest retail channel at over EUR75 billion in annual turnover. . Implication: France’s innovations in large-format retailing will be important to watch.

‒ The combination of neighbourhood supermarkets and small-format express and convenience stores in France will generate over EUR50 billion in annual turnover in 2016.

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. Implication: France is quickly becoming the world’s most innovative market for proximity retailing and ultra-urban supply-chain innovation — and it is investing in sustainable supply chains in these growth formats.

‒ France’s Drive landscape has changed shopping expectations considerably, mainly in how shoppers think about the amount of time to invest in shopping. . Implication: When looking at France, it is important to realise that Drive is not the same as a classic click-and-collect service and that the Drive supply chain and sustainability formula do not operate in the same fashion.

‒ International retailers — primarily Lidl and Amazon — are likely to be the fastest-growing retail chains in France over the next five years. . Implication: While it would be right to say that the French retail market is evolving along similar patterns as other countries in Europe and around the world, how France’s leading chains respond to this challenge will likely be very innovative and unique to France.

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France: The Economy and Its Impact on Retailers and Shoppers

Global Recession of 2007: An Inflection Point

The most important, and perhaps most confusing, aspect of the French economy relates to housing. Until 2007, households in France invested much of their savings in home ownership and home improvement. In 2015, INSEE, France’s national statistical agency, said, ‘Since the financial crisis of 2008-2009, household investment in construction has fallen continuously. Between 2008 and 2014, this investment fell by 23.9%, while over the same period the number of households grew by 6.2% and household purchasing power shrank by 2.5%’. This trend is in stark contrast to other countries, such as Germany, where investments in homes and home ownership have boosted overall GDP growth and retail consumption.

France’s central bank, Banque de France, says that while the roots of the problem connect back to the economic crisis, the overall problem primarily relates to a major change in France’s demographics. France’s 2016-2021 demographic realities are fundamentally different from its 2001- 2006 demographic realities. These differences are:

‒ Rate of population growth: From 2001-2006, the population of France expanded by nearly 500,000 people per year at peak, with many of these new heads related to births. In contrast, 2016-2021 population growth will average just over half the 2001-2006 rate at 283,000 people per year. Much of this population growth will be due to migration rather than births.

‒ Average household size and formation: As opposed to 2001-2006 when the majority of homes being built were designed for families with adults between 30 and 59 owning the property, housing growth from 2016-2021 will largely be for those 60 and older. By some measures, this construction will account for the majority of all housing starts. The fact that the 30-59 age group has not been purchasing homes has been the trend in France since the 2007 recession. The last year France experienced growth in home ownership among the 30-59 age group was 2006.

‒ Relationships and family arrangements: Two trends jump out when looking at the definitions of family. The first trend is happening everywhere — the aging population. In 2016, France’s over-65 population numbered more than 12 million people, 19% of the total. By 2021, France will have an over-65 population of nearly 14 million, close to 21% of the total. The second trend is happening primarily in low-income areas of France — shared housing among families and youth. Increasingly, home-sharing agreements among both related and unrelated people are becoming the norm.

The implications of this macro environment on retail are profound and numerous. The number of single-person households and small-basket shopping occasions has risen sharply since 2007. This trend is likely to continue, which will force France’s retailers to adjust. The number of financially distressed, small-basket, frequent-visit shoppers in France is climbing and will continue to climb.

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The Retail Market Outlook: Key Growth Metrics

Despite these challenges, retailers are facing a slightly more optimistic economic environment in 2016 compared with any time since 2007 (Figure 1). First, the European Central Bank has created an easier monetary environment. Over time, this environment is expected to relieve pressure on prices, increase investment, and boost consumption. Second, consumer purchasing power has risen for the first time since 2007, primarily due to lower global oil prices. Private consumption is growing faster than other parts of the economy as a result. Finally, many companies and industries — though not retail — are reporting improved profits than at any point since 2007. Many of these firms plan to reinvest these profits back into growth, which ultimately will flow through to increases in retail consumption.

Figure 1. Key Performance Indicators (KPIs): The French Retail Grocery Market in Numbers, 2016-2021

Scale of KPI 2016 2021 Change Implication(s) for Retail Much of the growth in the economy will be Real GDP % a result of consumer confidence and 1.2%- 1.8%- Growth Moderate consumer spending, allowing retailers to 1.4% 2.0% (Annual) begin investing ahead of profits once again.

Annual Inflation 0.1%- 1.4%- The price wars of 2007-2016 will soften in Very large % (HICP) 0.2% 1.6% the years ahead.

France will continue to be home to a wide diversity of retailers with the ability to Nominal Retail EUR506 EUR574 invest outside France. However, emerging Moderate Sales in Euros billion billion markets like India will soon be bigger than France, so French retailers will need to look for inspiration outside Europe.

Retail will once again become an Nominal Retail 1.6%- 2.8%- Moderate economic sector that investors will seek Sales Growth (%) 1.8% 3.0% out and look to develop.

France’s grocery sector will expand by just Net sales Grocery EUR143 EUR154 EUR11 billion, making it important for added of Retail Sales billion billion retailers to look at other sectors of private EUR11 billion consumption for growth.

Source: Banque de France, INSEE, and Kantar Retail projections

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Retail Conditions in 2015/2016

Despite the more optimistic outlook for retail in France in the years ahead, the reality is that 2015/2016 trading conditions have been very difficult for both retailers and suppliers due to the rate of growth and the pricing environment. A review of monthly retail sales and consumer price figures illustrates these problems clearly with both metrics declining over time (Figure 2).

Figure 2. Pricing and Volume Growth Among Large-Scale Retailers in France (January 2012- April 2016)

Source: INSEE

Economic Conclusions

Given the overall situation in France, the following facts become important to explore in more detail:

‒ Demographic: How will different types of households do their shopping? Elderly households? Single households? Families under financial stress? People living in shared accommodation?

‒ Investment: When French retailers begin investing ahead of profits again, where will they invest? What sources of inspiration will they turn to when thinking about the new demographic realities in France?

‒ New categories: When shoppers begin to spend more robustly, grocery is unlikely to be the main benefactor. Therefore, France’s grocery retailers will need to ask: What will we do to move into areas of growth when connecting to the new demographic realities of France?

We will attempt to answer each of these questions in the following sections.

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France: The Modern Retail Landscape, Channel Developments, and Implications for Sustainability Programs

The French market is characterised by a power struggle due to high levels of consolidation, which have resulted in price wars, more format innovation/experimentation, and an increasingly active anti- competitive regulatory environment. We explore each theme here.

Market Consolidation

France has one of the highest modern trade penetration rates in Europe combined with a tightly contested retailer concentration rate. With their individual market shares between 5% and 20%, France’s Big 7 grocery retailers account for more than 85% of the modern grocery trade. Each operator fights the others to gain fractions of market share points every month.

The French grocery retail market of 2016 can be split between the grocery giants (the Big 3) and large-scale national/international grocers (the Next 4).

‒ The Big 3 are Carrefour, E. Leclerc, and Intermarché, each with market shares near 15% and above and reported revenues in France from all formats exceeding EUR40 billion.

‒ The Next 4 are Auchan, Système U, Casino, and Cora (of Belgium), each with market shares near 5% and above and reported revenues in France and overseas all approaching EUR20 billion and beyond.

This highly competitive environment and limited opportunities for growth led to the formation of international purchasing alliances starting at the end of 2014. The Big 7 all have either revised their European or international purchasing affiliations so they can partner with one other member of the Big 7 in France or have joined alliances for the first time in their history.

‒ Carrefour (1) and Cora (7) have formed a buying partnership in France, the first time Carrefour has made such a move.

‒ E. Leclerc (2) rejoined COOPERNIC, which includes Delhaize of Belgium, Rewe of Germany, and Coop Italia, which came as a surprise to most observers.

‒ Auchan (4) and Système U (5) have created a ‘merger of equals’, forming the basis of nearly complete cooperation. Auchan works with Metro Group of Germany for international purchases in another ‘merger of equals’ arrangement.

‒ Intermarché (3) and Casino (6) have joined purchasing agreements in France, but operate independently outside France and create different alliances depending on the country or the category of goods.

The primary rationale for these buying alliances has been to gain leverage over global suppliers and to gain larger scale with local suppliers and private label. However, these alliances now include an

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element of sustainability; in many instances, the agreements aim to cut carbon emissions, reduce redundant logistics, and decrease road congestion in city centres.

Price Wars

France’s Big 7 grocery retailers share something in common with a popular French stew known as a bouillabaisse. The classic way of creating a bouillabaisse is to take the remains of unsold fish in the market and add vegetables and flavorings. Like bouillabaisse, the Big 7 retailers in France have been left with some unwanted items. Deflation is one. Growing interest in online shopping in general merchandise categories such as clothing and electronics is another. The success of new business models such as Amazon Premium and Lidl’s more enriched daily fresh items is a third. Fourth has been the race to form purchasing alliances.

The result of the bouillabaisse created by the Big 7 grocers has been a series of price wars. These price wars have increased brand shares compared with private label, but they have also increased the percent of goods sold at discount to the point where not one of the Big 7 has sustainable EBIT levels over the long term. A reset in thinking began in 2015. Most of the Big 7 retailers now report better conditions but at a steep price — they have all slashed spending in multiple areas including innovation in sustainability initiatives.

Format Innovation

Consolidation has forced most of the large retailers in France to have a multichannel proposition with various large and small formats. Once dominated by hypermarkets, France, like many neighbouring mature markets, is witnessing a proliferation of small and compact formats (supermarkets, discounters, convenience) that increasingly incorporate a digital component.

Retailers in France are rapidly innovating ultrafresh branding and small-basket solutions and ensuring high frequency/or exclusive loyalty.

Anti-Competitive Regulations

France is becoming increasingly regulated as local authorities attempt to balance power within the trade. This is due to consolidation and government efforts to introduce elements of sustainability to the retail competitive landscape.

A series of recent laws has had market players manning either side of the barricade. Large retailers are usually in the crosshairs. Laws that regulate urbanism, which limit options for expansion (Duflot); support the shopper’s purchasing power (Hamon); regulate affiliation (Macron); and impose greater contractual transparency and flexibility (Sapin) lead established retailers to find new ways of sustaining growth.

Decline of the Mighty Hypermarket

France pioneered and perfected the country’s No. 1 channel — the hypermarket — and France’s biggest retailers exported it. The hypermarket has long stood as the symbol of French retailing. Hypermarkets will continue to be the largest retailing channel at over EUR75 billion in annual turnover. However, hypermarkets are losing their raison d’être, primarily due to the demographic and

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economic challenges described earlier in this report. Without serious reinvention, the mighty hypermarket may eventually lose out to new forms of retailing. While the transformation will be gradual, it will impact how France’s best retailers think about sustainability and investment in new forms of sustainable retailing.

Hypermarket operators are each opting for a tailored mix of two strategies:

‒ Reinventing format by incorporating digital solutions and added services into stores to reenergise the decreasing appeal of the format: Most hypermarket chains undergo major interior design and layout reconfigurations to improve navigation and entice shoppers to explore their vast offer. All major hypermarket retailers have also invested heavily in added-value services like click-and-collect to help maintain top-line volumes.

‒ Realigning by rationalising and improving assortments to address changing baskets and trips: Most stores have resegmented their offer to address a mix of shopping missions in a more targeted fashion. Ultrafresh, discount, HBC, apparel, media, and cultural goods, to name a few, have all been individualised at the same time their roles within stores have been reshuffled.

The Rise of Proximity Grocery Formats

Medium-size to large-surface supermarkets have had a difficult time distinguishing themselves from their much-larger hypermarket cousins. As a result, supermarkets were underdeveloped as a format in France up to 2007. However, with the challenges facing hypermarket operators, illustrated earlier in this report, supermarkets have enjoyed a quiet renaissance. It would be wrong to call out neighbourhood supermarkets as a channel of their own. When combined with other formats such as convenience stores and on-the-go express shops, however, the trend towards proximity shopping becomes clear.

These proximity stores can be understood best by grouping them into two types of ‘express’ or ‘proximity’ retailing:

‒ Proximité spécialisé (specialised convenience): In this channel, retailers design stores as ‘niche’ solutions to solve specific shopping needs. Organic and well-being stores are increasingly present, especially in urban agglomerations (Carrefour Bio). Ultracompact stores are taking over transport hubs (monop’station) and high-traffic urban areas (Express). Rural formats (8 a Huit, Carrefour Contact) also continue to improve their appeal to shoppers and potential franchisee partners.

‒ Proximité généralisée (neighbourhood convenience): In this channel, hypers and supers attempt to make shopping faster, easier, and solution-focused by making a big store smaller. These stores generally go by the name ‘express’, ‘mini’, or ‘market’. They tend to stock most of the same categories, products, and product sizes as their bigger cousins. This group grew most rapidly from 2007-2015. However, from 2016 onward, Kantar Retail predicts these retail formats will require substantial repositioning or specialisation based on shoppers’ time-of-day demands and weekday versus weekend shopping needs and the end of stock-up shopping.

While proximity stores account for a small share of French grocery retailing, they are in one of the channels that received the highest level of investment, surpassed only by Drive/eGrocery. With one

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exception, all of France’s major grocers have invested in developing this channel. The exception is Leclerc, which continues to focus on its hypermarket-eGrocery model. Even Auchan, traditionally an exclusive hypermarket-large supermarket operator, has recently entered the channel.

Proximity stores help retailers get closer to shoppers, expand and consolidate their brand image, and gain market share. At the same time, given their relatively small setup and operating costs, convenience stores become a low-investment growth model for retailers, which often run franchising programs for the format.

Given the economic, demographic, and retailer consolidation trends in France, this channel is poised to grow considerably in the next five years. However, observers should be mindful of the shift from generalised proximity towards specialised proximity. It could very well be that the retailers removing generalised proximity stores from their network and using that money to create specialised proximity stores, either with new builds or remodels, will win from 2016-2021.

The Myth About Discounters

In many parts of Europe, you hear that grocery retailers in France have succeeded in stopping the discounters. The rationale behind this statement is that the discounter channel’s market share fell or remained flat from 2009 to the present. Kantar Retail believes this statement is a myth for two reasons.

First, when looking at the 2001-2009 discounter market share, the three largest discounters were actually large hypermarket/supermarket operators. Carrefour’s ED/Dia was a leader in discount. The same was true for Casino’s Leader Price and Intermarché’s Netto. In 2010, the market share story changed with Carrefour selling ED/Dia, reacquiring a much smaller/weaker banner in 2014, and converting the stores to proximity formats in 2015/2016. Likewise, Intermarché’s Netto has never truly received the same level of investment as some of Intermarché’s other formats.

Second, when looking at the 2001-2009 discounter operating model, it is clear that many of these stores should not be considered discounters in the classic operating sense. A true discounter operates incredibly well-disciplined supply chains and minimises any supply-chain confusion very directly. All three of France’s largest discounters — ED/Dia, Leader Price, and Netto — operated as franchise networks with varying degrees of supply-chain discipline and rules regarding assortment and promotion.

This brings us to the present and the surprise many companies experience when they see just how strongly both Lidl and Aldi are performing in France. Both of these discounters are well-positioned to satisfy the changing needs and requirements of the new French household demographics. Going forward, Kantar Retail expects Lidl and Aldi to maintain their key value proposition of low price, but three new sets of shopping solutions will begin to emerge:

‒ Premiumisation: Lidl has officially requested that market researchers classify its stores as proximity supermarkets now that it has created premium private label ranges; introduced brands; and revamped the overall offer with improved quality, packaging, and services.

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‒ Repositioning: Aldi in particular is reinventing its range of fresh and healthy products to align more closely with older shoppers and value-focused families and immigrants.

‒ New models: The eCommerce success Lidl and Aldi are having across Europe indicates that it is only a matter of time before discounters go omnichannel in France.

eCommerce and eGrocery

France has not stood out historically as one of the world’s most digitally innovative countries. To demonstrate the point, ask this question, ‘What is the equivalent of Silicon Valley in France?’ The answer is Sophia Antipolis. Very few people would likely answer that question correctly. The reason is simple. Unless you dig a bit, France does not stand out as having the digital innovations, such as new gadgets and new software, we are used to seeing. Yet, Sophia Antipolis has reinvented the connections between education and digital careers, between developers and apps, and it continues to pioneer new ways of writing code.

The French eGrocery landscape is similar. If you ask someone to name the most successful eGrocery retailer in the world today, you may hear answers like Amazon or Tesco. However, these responses do not take into account French retailers, which are launching innovations daily. They are also growing eGrocery sales and profitability. Actually, French eGrocery innovation is probably the most exciting thing happening in online retail today outside of Asia. However, many companies overlook eGrocery as just click-and-collect for France’s hypermarkets. This short-sighted view will ultimately cost many companies a chance to understand and see the global best practices taking place in France.

The eGrocery market has developed rapidly over the last five years due to a series of factors:

‒ Drive: Drive is a dedicated shopping solution for shoppers who want groceries delivered directly to their cars as fast as possible. It requires unique supply-chain and assortment commitments on the part of the retailer. Starting in 2013, all major grocery retailers rallied around this form of click- and-collect. Once Leclerc adopted the format and started rapidly developing it in the early 2010s, all major competitors made it a priority, including Auchan, which is credited with inventing Drive in the early 2000s.

‒ Pure play: This increasingly popular eCommerce channel features an ‘all-under-one-platform’ philosophy. While Casino’s Cdiscount pioneered the channel, Amazon now dominates it and rapidly gained leadership by gradually expanding its ranges and reach.

‒ Specialist grocery platforms: Returning to fashion following a temporary dip credited to pure- play retailers, these platforms leverage shopper demand for specialist advice on key categories ranging from food to nonfood.

The most innovative aspect of eGrocery is France’s Drive model. When looking at France, it is important to understand that Drive is not the same as classic click-and-collect and that the Drive supply chain and sustainability formula do not operate in the same fashion as classic click-and-collect. Drive changes shoppers’ perceptions of the total time they invest in shopping. In terms of new locations, Drive has reached maturity. With most retailers now offering the service, they are increasingly shifting focus towards supply-chain efficiency and offer relevance. To that end, retailers

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are employing a combination of the following innovations, many of which include elements of sustainability:

‒ Expanding fulfilment to as many locations as possible: Supermarkets, convenience stores, automated lockers, or remote stand-alone Drive locations help expand reach and consolidate shopper loyalty.

‒ Perfecting platforms to ease navigation and improve merchandising as shoppers increasingly browse and order from mobile devices: From creating express shopping lists that shoppers can save and easily access to incorporating inspiring solutions like recipes that convert into shopping lists, retailers are constantly improving their online offerings.

‒ Creating bespoke promotional campaigns: These campaigns help attract traffic, with online prices often below the retailer’s in-store prices.

‒ Partnering with suppliers to create bespoke pack sizes and price points: Various retailers offer custom bulk pack sizes that appeal to stock-up trips.

‒ Expanding services beyond groceries: Leclerc is pioneering this front by integrating auxiliary ranges like sushi or by integrating its nonfood and food offer.

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Retailers on the Move: Who Is Innovating in France?

Carrefour

As one of the most complex retailers in France, Carrefour is trying to balance defending its leading position with developing its multichannel proposition. The retailer is complementing its core hypermarket channel (approximately 50% of its French sales) with a developing multichannel proposition in which convenience and online play key roles. Carrefour has so far managed to maintain its leadership of the French market by sustaining its organic and franchise growth, but recently intensified its acquisitions to maintain its status. Among other measures, several stand out as key trends within Carrefour:

‒ Hypermarket revamp: Reinventing the hypermarket is an ongoing process aimed at sustaining like-for-like sales by constantly working on improving the hypermarket offer and price appeal while facilitating shopping. Carrefour’s new approach to hypermarket design is leading edge. It has been able to bring in a range of shopper lifestyle solutions to create a more holistic shopping approach by creating zones within the hypermarket focused on shoppers rather the products. This design includes new features such as a pizzeria, a beer cave, and a chocolaterie.

‒ Proximity format focus: Leveraging proximity formats has gradually become key to compensate for the decline of hypermarkets and to maintain Carrefour’s shopper penetration. Beyond expanding (through franchising, the Dia acquisition), supermarkets and convenience stores have gradually developed their role by incorporating eGrocery solutions or by becoming increasingly targeted, thus helping Carrefour consolidate its relevance and omnichannel shopper perception.

‒ eCommerce development: Carrefour hesitated to invest in eCommerce, but is now fully investing to gain an advantage in conversations with digitally engaged shoppers. Carrefour still lags the market’s eGrocery leaders in fulfilment points and operational excellence. However, it demonstrated its commitment to the format by acquiring Rue du Commerce, which gave it the expertise and motivation to enter and develop in the marketplace.

Carrefour continues to invest in sustainability, including healthier eating and farming. In 2015, the company launched the Veggie label, the first own-label vegetarian product range in France. Other retailers will likely follow suit. As an official partner of the United Nations Conference on Climate Change (COP21), Carrefour has pledged to reduce energy consumption dramatically by 2030, using 2010 levels as a benchmark. The company has already reduced consumption by 12% and continues to redesign stores to work more efficiently. Carrefour also stands out as a global pioneer in ecological product development with its Carrefour Quality Lines initiative, in which the retailer works with farmers and others across every step of the supply chain to guarantee eco-friendly products.

E. Leclerc

For more than a decade, E. Leclerc has managed to sustain its market share gains by expanding gradually and using a strong core low-price proposition message. This has been difficult work. Leclerc has a complex management structure in which store ownership and decision-making are, for the most part, decentralised. This structure has created a sense of camaraderie among store managers and

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staff and has reinforced the differences between the Leclerc way of retailing and alternatives. The differences in how Leclerc retails has helped it offset some of the decreasing appeal of hypermarkets by developing new approaches to retail. One of Leclerc’s prime innovations is its extensive Drive network, which has required huge technological investments and a complete reinvention of the group’s logistics systems.

Unlike its competitors, Leclerc has a smaller auxiliary engine — represented by approximately 1,000 category specialist stores (some 6% of sales) — where the company can learn new ways of operating and bring other innovations to the fore.

The Leclerc group — and the group’s charismatic head Michel-Edouard Leclerc — regularly feature in French media on such topics as the switch to biofuels, the battle over food waste, and packaging. Perhaps the biggest sustainability innovation Leclerc can offer is its focus on reduced packaging. The group has an innovative approach to identifying products (such as toothpaste or yogurt) that require heavy packaging. Then it invests in finding lower-impact packaging as an alternative. The new products are marked with special symbols that identify them as ecologically friendly and are regularly featured in promotions.

Intermarché

As the No. 3 player among the Big 3, the Intermarché group, or ‘Les Mousquetaires’, has performed admirably in the middle of the market. Carrefour and E. Leclerc have been battling with considerable money to spend. Lower-ranked retailers, such as Système U, have invested with more focus. Yet even with a smaller budget than Carrefour and E. Leclerc and with less focus then the Next 4, Intermarché has performed well.

One of the most noteworthy aspects of Intermarché’s ability to fight in the middle has been its continued investment in sustainability. As one of the only ISO 26000-certified retailers in the world, Intermarché continues to improve its quality levels using this ISO framework. Moreover, the group has been a designated Haute Qualité Environnementale business in France since 2012.

As a reward for these efforts, Intermarche’s biological/ecological product ranges accounted for 3.7% of total sales in 2014. The numbers, which continue to rise, are among the highest for general retailers.

Auchan

With declines in market share that required a new set of ideas, Auchan has been on a quest to reinvent itself. The result has been so dramatic that Auchan’s management structure no longer contains any trace of its former approach. Changes include:

‒ A complete reorganization of corporate and country management structures to facilitate innovation and speed decision-making

‒ Rationalisation of nonessential operations (eGrocery and concepts — Prixbas, Halles, Arcimbo) with continued development of concept formats (Les Partisans du Goût, Simply Market Gourmand) and proximity (A2Pas)

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‒ Accelerated hypermarket revamps under the Auchan.fr banner and broadened eCommerce capabilities incorporating big data (Ysance, Blu Data)

Given the magnitude of Auchan’s reinvention, it would not be surprising if Auchan lagged other retailers in sustainability initiatives. To some extent, this is the case. However, looking more closely, Auchan has pioneered some programs that other French grocers have been slower to move on, such as adopting opaque outsourcing rules, particularly in Southeast Asia. Auchan has a tough battle ahead, but it appears the retailer will fight with more passion and with a greater sense of urgency than it has in the past.

Système U

Système U’s performance in France has been strong. The group continues to challenge larger chains in proximity shopping, Drive/eGrocery, prices, and range. The cooperative’s efforts to align with Auchan produced some synergy, although the two companies announced plans to stop short of full supply-chain integration. As a cooperative, the group is highly innovative, particularly with farmers and small suppliers. Recently, the group made headlines with its unique approach to recycling. The group now helps shoppers recycle everyday home items, such as clothing, to more complex items, such as paint. The group is proud of its status as France’s biggest recycler of designer jeans. Due to its cooperative structure, it will continue to innovate in ways that other grocery chains simply cannot.

Casino

Casino is a retailer with the right formats in the right locations at the right time. The group has always had an ultra-urban and proximity strategy, and shoppers have caught on. As a result, the group is growing more robustly than other chains in France, particularly within the Casino Proximité group of stores. The company has faced the following challenges head-on:

‒ Paying down debts by divesting its Asian operations to improve its financial position

‒ Improving margins through smarter category thinking and better purchasing alliances (notably Dia and Intermarché)

‒ Enhancing availability and store appeal. Leader Price has focused on reimagining and improving store functionality with automatic stock replenishment and improved checkout times. Casino implemented a new loyalty program for all formats. The group diversified the monop’ formats and expanded Monoprix with new openings that started in June 2015.

Casino’s efforts to create sustainability programs are also positive. Casino is the first mainstream retailer to have a purely organic store format — Naturalia, which is part of the Monoprix division. The banner expanded with 37 new stores in 2015. In addition, rather than manage sustainability directly, Casino created a business called GreenYellow that works with stores to reduce their energy efficiency. The savings pay for GreenYellow’s expenses.

In 2016, Casino’s Cdiscount eCommerce division launched one of the biggest innovations of the year with Startup Booster, a program to help new eCommerce-focused food producers get up and running

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quickly. The program is widely expected to help small-scale producers in ways that have not been tried before.

Lidl

Lidl’s growth has been stunning over the past two years. Not long ago, the chain, which is part of Schwarz Group of Germany, was rarely mentioned in France. Today, it is top of mind. As measured by Kantar Worldpanel, Lidl has posted 2012-2015 year-over-year market share gains that have made it a major player with more than 5% of grocery market share.

Lidl’s refocus on high-quality and local fresh food has also made it a force to be reckoned with in sustainability. As a discounter, Lidl already embraces the philosophy of low emissions, an ultra- efficient supply chain, and limited waste. This, combined with its fresh focus, has helped Lidl change direction. Lidl is the only retailer in France to be part of the GlobalG.A.P. movement, which works with farmers, fishermen, and retailers to create better products for the environment.

Amazon

Amazon is changing shopping around the world, and France is no exception. Amazon launched its one-hour Prime Now delivery service in Paris in June 2016. This platform partners with local supermarkets, small producers, and restaurants to create more efficient and cheaper forms of home delivery in the urban environment.

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Conclusion

France’s economic challenges may represent a blessing in disguise for the country’s most innovative grocers. On the one hand, the economic climate has been punishing. Price wars, market share battles, and profitability declines have all taken their toll and pushed sustainability investments lower down the list of priorities for France’s CEOs. On the other hand, France’s shoppers have been incredibly demanding, particularly around sustainability issues such as better packaging, lower energy consumption, environmentally friendly food production, and waste reduction.

As a result, Kantar Retail believes that all of France’s major grocers are in strong positions today to innovate even more strongly in sustainability. At the same time, the solutions they develop are now more affordable and, therefore, easier to export to other countries and retailers around the world.

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ABOUT KANTAR RETAIL

Kantar Retail (kantarretail.com) is the world’s leading shopper and retail insights and consulting business and is part of the Kantar Group of WPP. The company works with leading branded manufacturers and retailers to help them transform the purchase behaviour of consumers, shoppers, and retailers through the use of retail insights, consulting, analytics, and organisational development services. Kantar Retail tracks and forecasts more than 1,300 retailers globally, has purchase data on more than 200 million shoppers, and counts the annual PoweRanking® survey (U.S. and China) and Industry Shopper Study among its market-leading reports. Kantar Retail works with more than 400 clients and has 20 offices in 15 markets around the globe.

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 understand the trends of today and prepare for the realities of tomorrow.

Kantar Retail Market Insights studies more than 1,300 of the world’s leading retailers, providing invaluable data and insights for the industry and for our clients. Clients access Kantar Retail’s Market Insights through its online platform KRiQ, by attending workshops or conferences, through Webinars, or by having our retail subject-matter experts visit client offices.

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For More Information

Contact: Amy McCoy +44 (0) 207 450 2609 [email protected]

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Disclaimer: The analyses and conclusions presented herein represent the opinions of Kantar Retail. The views expressed in this publication do not necessarily reflect the views of the companies covered by this publication. This publication is not endorsed, or otherwise supported, by the management of any of the companies covered herein.

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