France's Carrefour faces challenges in Belgium(70189)

Carrefour faces uphill struggle with Belgian revamp

French retailer Carrefour faces a battle to revive its troubled Belgian unit, with trade unions fighting planned job losses, rivals likely to respond to price cuts and few buyers if it all goes wrong.

Restructuring charges, costly strikes and loss of Belgian market share to Delhaize and Colruyt COLB.BR will hit 2010 earnings. Ultimately the world's No 2 retailer could even seek to exit Belgium, analysts say.

Carrefour made 4.7 percent of its 96 billion euros (61 billion pounds) sales in Belgium in 2009, one of its main "G4" markets in Europe along with France, Spain, and Italy, and the success of its second restructuring there in three years is being watched as a sign of whether the group can deliver on a global turnaround plan.

"The (Belgian) turnaround scenario is not an easy one. There is a huge degree of uncertainty," said RBS analyst Justin Scarborough.

"Near-term, I don't see much light at the end of the tunnel ... Longer-term, there is no guarantee the plan will improve profitability. Either they improve the business or they leave the market," he added.

Carrefour's share price leaves little room for error. It trades at 15.8 times estimated 2010 earnings, against 12.3 times for French rival Casino and 11.4 times for Delhaize.

A PROLONGED FIGHT WITH UNIONS?

Carrefour is meeting on Monday and Tuesday with trade unions to discuss plans to cut 1,672 jobs or 11 percent of its workforce in Belgium and close 21 stores by end-June to fix operations it calls "structurally loss-making."

Carrefour, which has an estimated operating margin of 1.3 percent in Belgium, says it suffers from a higher hourly labour cost than its rivals.

It wants to re-align wage rates, develop franchises, transfer 17 supermarkets to partner Mestdagh, and cut overheads.

Analysts fear Carrefour could be in for a prolonged and costly fight with unions in a country still reeling from General Motors' European unit Opel's decision to close its Antwerp auto plant.

The planned job cuts prompted workers to strike on February 27, which Carrefour said cost it 14 million euros. Belgium media have put the cost of the strike at 40 million euros.

Unions have so far abstained from calling for further strikes. But Myriam Delmee, a vice-president of the BBTK union, told Reuters last week this was "to preserve our force for the coming weeks when we will really need to negotiate."

Plant closures and opposition from the powerful Belgian unions -- more than 90 percent of Carrefour's employees in the country are union members -- stand to benefit rivals while they will damage Carrefour's image in Belgium, analysts say.

Carrefour has not yet quantified restructuring charges tied to the plan but these could be substantial.

Exane BNP Paribas estimated in a note that Carrefour will need restructuring charges of 150 million euros and write down around 450 million of goodwill. Another sector analyst predicted one-off charges of 300 million euros could hit 2010 earnings.

EXITING BELGIUM?

Carrefour entered Belgium in 2000 when it bought struggling retailer GIB. The business has lagged amid fierce competition from Belgian rivals Delhaize and Colruyt and discounters Aldi and Lidl. Between 2001 and 2009, Carrefour's local market share fell to below 25 percent from 33 percent.

Carrefour could lose an additional 3-5 percentage points in market share from the restructuring, analysts say.

"It is clear that Delhaize (like Colruyt) will benefit greatly from a weaker competitor. It is on track to significantly increase its market share in Belgium," Bank Degroof analyst Ivan Lathouders said in a note.

Carrefour operated 56 hypermarkets, 378 supermarkets and 191 convenience stores in Belgium at end-2009.

Under the plan it will set aside 300 million euros to remodel stores and relaunch sales. RBS's Scarborough said he was not sure this would deliver the hoped-for results.

"Knowing the operators they are competing with -- which is probably the most consolidated market in Europe -- the risk is that everybody follows in terms of any pricing initiative that Carrefour does," he said.

Chief Executive Lars Olofsson has said he did not intend to exit Belgium, where Carrefour employs about 15,000 people.

But some question the economic benefit for the group, which is already outsourcing its logistics, of staying in Belgium.

"The most intriguing question for us is whether Carrefour will eventually exit all its owned stores in Belgium seeing that if it enacts this plan it will have only 39 owned hypers and 38 owned supers left in Belgium," Citi analysts said in a note.

Carrefour could seek to franchise more stores or sell them to other groups though buyers have not been exactly queuing up.

"Probably the only reason they haven't moved already is that buyers have not been available," Citi added.

Longer-term, analysts see Belgian rivals as possible buyers of Carrefour's stores. There has also been recurrent speculation Dutch grocer Ahold might be interested.

Earlier this month, Ahold CEO told analysts he was looking at ways to enter the Belgium market. Analysts however believe Carrefour stores may be too big for what Ahold could have in mind. Colruyt and Delhaize did not comment.

France's Carrefour faces challenges in Belgium

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