Carrefour enters Kazakh market as crisis hits retailing

Carrefour enters Kazakh market as crisis hits retailing
The world's second largest supermarket chain, Carrefour, opens its first store in Almaty amid economic gloom and doom.
By Naubet Bisenov in Almaty February 12, 2016

Carrefour, the world’s second largest supermarket chain, has opened its first store in Kazakhstan in the country’s commercial capital, Almaty, becoming the first truly global retail chain to open in the country.

With the Kazakh economy in economic crisis because of the low price of oil and the economic slowdown in its main trading partners, the French global brand sees an opportunity to tap into a market where the rapidly falling purchasing power is changing the population’s shopping habits.

Different kind of experience

Almaty’s first Carrefour hypermarket opened its doors to shoppers on February 11 after four years of preparations. The store, covering 8,200 square metres of sales areas and a further 4,000 square metres of backrooms, is the first of its kind in the country, Stephane Maurier, general manager of Carrefour Kazakhstan, says standing in the middle of a huge shop, which sells from fresh produces and foods to home appliances and textile.

“We are a different kind of store,” Maurier tells bne IntelliNews. “This hypermarket carries 30,000 items… We provide everything so people save money and time and they enjoy it, because the environment we have is definitely what people are looking for,” he says. “So our prices are competitive because the level of [profit] margin that we have is also lower than the rest of the market so it means that we can compete without any problem – even being cheaper than them.”

The new chain, operated by Majid Al Futtaim Retail, the exclusive franchisee of Carrefour in the Middle East, Western and Central Asia and Africa, with businesses in Georgia and Armenia, will bring “a range of economic benefits” to Kazakhstan. The KZT5bn (€12.5mn) hypermarket is already employing 450 people, with a further 150 direct and indirect jobs in Almaty, and is working with over 500 suppliers from Almaty and the regions, including 130 local producers and farmers, Maurier says.

Despite gloom and doom in the Kazakh economy, the French brand plans to expand into other major Kazakh cities, depending on how fast its business picks up in Almaty. “If we go fast, we can quickly become number one in the city. Some competitors are really strong, but with five or six big stores like this we can immediately become a strong player in the city,” Maurier explains.

Carrefour plans to open a store in Astana “next year probably” and to expand further to the centre of the country’s most densely-populated region, Shymkent, and the western oil town of Aktobe, as well as “some other cities”.

Kazakh shop with French touch

The Kazakh population is changing its shopping habits, as the worst economic crisis the country has experienced since the late 1990s depresses real incomes. The French businessman says his store is “much cheaper” than the markets.

“We are much cheaper in vegetables and in meat and we have tried to rebuild a bazaar atmosphere and it is quite a success,” he says. “We want to be Kazakh, with a little bit of a French touch. But as our group is international, we need international standards, in terms of hygiene, in terms of quality, and in terms of merchandising. This is what people can see today. We make some difference.”

While trying to source most products on sale locally and position itself as local, Maurier admits that his company is working on increasing the French feel at the store. “We do our own French baguette, our own croissants. We have some French products that will come in the near future, not yet. We are still preparing to build the assortment to see what kind of cheese we are going to bring or any kind of French-specific products.”

According to the Kazakh Statistics Committee, retail trade decreased by 0.4% y/y to KZT6.4tn (€16bn) in 2015 against a growth of 10% in 2014 and 27% in 2013, as the two devaluations of the national currency in 18 months – 19% in February 2014 and 30% in August 2015, as well as the rapid depreciation of the tenge in the past six months, have increased the prices of imported goods. 

This has hurt ordinary Kazakhs’ real incomes, which fell by 2.2% in October, 5% in November and 7.8% in December 2015, and is forcing them to cut down on unessential spending and switch back to corner shops and informal markets from modern shopping malls and supermarket chains.

Retail trade started slowing down faster after August 2015, when the authorities decided to allow the tenge to float freely, resulting in a 42% loss in value against the dollar between August 20 and December 31. Retail trade posted a 4.8% growth in August-December 2015. Retail trade at more organised entities (shopping malls and supermarkets) slowed to 2.9% in the period, while trade at corner shops and bazaars is estimated to have grown by 7.9%. As a result, the share of the former in total retail trade decreased from 52.8% to 51.6%, while the share of the latter increased from 47.2% to 48.4% (given poor reporting standards at markets, the actual figures could be significantly higher).

European but not quite

On its first day of operations Almaty bargain seekers defied the freezing weather, arriving early in the morning to enjoy the French shopping experience at Carrefour.

“We’ve come today because it is a new store but, to tell the truth, I can’t see the difference in prices compared to other supermarkets,” Saule, 59, tells bne IntelliNews. “That everything from appliances and clothes to cosmetics and foods are sold in one place looks very attractive,” the pensioner said comparing it to bazaars, where she stopped shopping a while ago. “This is like supermarkets in Europe,” her young-professional daughter, who studied in Europe, added.

Claire, a 50-year-old wife of a French energy executive working in Almaty, said she had come to the store “because it is French” to buy products from home that she misses in Kazakhstan. “I’ve long wanted a French shop to open in Almaty and it is great that one has finally opened,” the Frenchwoman said. “I haven’t compared prices by writing them down but they seem reasonable.” Asked whether Almaty Carrefour lived up to her expectations and satisfied her craving for French products, she said: “I wish they bring more varieties of French cheese.”

However, not all shoppers were happy with the store’s positioning itself as Kazakh. “They sell the same stuff as shops where I live and prices are the same,” Yelena, 52, complains, saying she came to the hypermarket after reading about it on the internet. “As a French company they should style themselves as French and sell French products, otherwise it doesn’t make sense for me to travel here across the whole city,” the rentier, who has “wisely” invested in property and keeps her savings in dollars, explains. “With the high exchange rate now I’ve got a higher disposable income in tenge and can go a bit upmarket.”