In a challenging macro scenario in Brazil, chain evaluates cross-brand initiative
02/28/2025
The Carrefour Group is tasked with expanding this year by leveraging the assets that doubled its revenue following the acquisition of parts of Makro and Grupo Big between 2020 and 2022. One ongoing initiative involves integrating the operational model of Atacadão, a company-controlled chain, into Carrefour’s operations.
Given the business’s scale—R$120.5 billion in gross revenue, nearly double that of Mercado Libre—it might seem simple, but the food retail sector doesn’t operate in such a straightforward manner. Besides, the competition has offered no respite to any chains in the industry.
Consumers won’t purchase more food just because the country experiences economic growth or individuals receive salary increases. Margins in this sector are the lowest in all of retail, requiring a constant pursuit of sales to dilute costs and enhance efficiency.
In an interview at the company’s headquarters, potentially the last before the likely delisting from stock exchange B3, CEO Stéphane Maquaire outlined the measures being implemented for 2025—particularly in same store sales. This revenue grew by 4.9% in 2024 for the company, compared to a 3.4% increase at competitor Assaí.
Carrefour has delayed passing on some price increases to consumers by a few days to counteract the rising food inflation. Mr. Maquaire also noted that the decision to delist, announced earlier this month, is not solely tied to the devaluation of the real against the dollar, although he acknowledges the positive impact of the exchange rate.
The group informed the market last week, following the release of its fourth-quarter financial statements, that it will reduce investments this year as it plans to open fewer stores. No specific numbers were projected.
Between 2023 and 2024, 60% of investments focused on organic growth. Economic uncertainty, exacerbated by high interest rates and currency fluctuations, has influenced these decisions.
The retailer owns the Carrefour (supermarkets and big-box stores) and Atacadão (cash and carry) chains and operates Sam’s Club, owned by Walmart, in Brazil. As of December, the number of stores totaled 1,007.
According to Mr. Maquaire, 2025 will be a year to “reap the rewards” of investments in acquisitions and the maturation of rebranded stores. Last year, 191 supermarkets, big-box stores, and convenience stores were closed due to underperformance, and 18 were converted to Atacadão outlets.
However, the CEO acknowledges internal aspects that need improvement. “We’re working on simplifying traditionally complex systems and processes to reduce expenses. We still have work to do here,” he said.
“We’re also adding new services [bakeries, butcher shops] for Atacadão customers, which will boost revenue without increasing the expense-to-revenue ratio.” This ratio decreased from 14.5% to 13.5% between 2023 and 2024, with both retail and wholesale improving their percentages, although Sam’s Club experienced a decline.
Of Atacadão’s 379 stores, 150 offer these services, representing only 3% of store sales—still insignificant, though they provide higher margins than average.
He acknowledges that expense management “wasn’t well handled,” especially during the integration of Grupo Big. Additionally, the group aims to improve administrative efficiency at its Shared Services Center in Porto Alegre, Rio Grande do Sul.
Workforce reductions will be less significant than the adjustments made after acquiring Makro and Big. “Now it’s more about reviewing expenses, not personnel,” he explained.
In the past two years, Carrefour has dismissed executives, including the C-level, with layoffs affecting around 2,200 employees across the group by December 2024, as reported by Valor. By the end of 2023, the total workforce numbered 150,000.
Alongside internal measures, financial decisions have been made. Carrefour is managing its cash flow to further deleverage the company amid rising interest rate pressures this year, affecting financial expenses.
In 2024, debt costs remained stable compared to 2023 due to reduced loan rates with its parent company.
Carrefour aims for balance: by increasing sales, it can dilute expenses, enhance operations, and consequently reduce leverage ratios. Additionally, by conserving cash, net debt decreases, which can also alleviate leverage pressures.
To calculate this ratio, net debt is divided by EBITDA, which stood at 2.35 times in December. This indicates stability compared to 2023, following acquisitions and investments, although it was 1.92 times at the end of 2022 (with factoring of receivables and rents).
The high Selic policy interest rate further impacts this metric, as does the increased factoring of receivables. The retailer has been increasing the factoring of receivables as part of a tactic to boost sales.
This involves financing installment sales to Atacadão consumers, which has been ongoing since April 2024. Purchases can be paid in three installments using any credit card, a move initially met with skepticism due to financial risks.
The retailer experiences delayed payment for sales and seeks to back this delay through the factoring of receivables. This figure increased by 40% in a year, according to financial reports.
The management claims this strategy is effective, as same store sales accelerated more than competitors in 2024. If it weren’t successful, they would have discontinued it. This payment option accounted for 10% of cash-and-carry sales last year.
Competitor Assaí’s management stated last week that they would test a similar option with corporate clients, but they maintain criticism of the model due to financial costs.
The Central Bank has raised the Selic rate since 2024, following a surge in the exchange rate fueled by concerns over the country’s fiscal fragility and the government’s growth policies, which face increased popular opposition.
Internally, Mr. Maquaire has two ongoing initiatives, the first likely more complex than the second.
He has been working to implement Atacadão’s operational style at Carrefour. While Brazil’s largest cash-and-carry chain, with annual sales of R$86 billion, makes decisions more swiftly, Carrefour is perceived as slow and bureaucratic, sources say.
Carrefour accounts for 25% of Brazil’s sales, while Atacadão comprises more than 70% (excluding Sam’s), yet some processes follow Carrefour’s standards.
“We want the wholesale culture within Carrefour, to align them closely, and I will continue this effort if delisting from the stock exchange occurs,” Mr. Maquaire said.
The group has begun negotiating with suppliers in the same manner as Atacadão. He believes this approach can be replicated in how the global group integrates with its local businesses.
Such efforts are naturally expected to encounter resistance in an operation controlled by a French parent company—despite its 50-year history in Brazil, which will be marked this year.
There is concern that this could become problematic for Atacadão, with the opposite effect, meaning Carrefour’s influence on the wholesale chain. “Atacadão boasts greater team commitment, whereas Carrefour frequently changes its internal personnel, showcasing a cultural difference,” a former executive noted.
The CEO says that would not happen as the group has experienced a “change of mindset.”
“Culturally, we’ve decided to turn things around, working to do everything Atacadão’s way in terms of organization and processes, but obviously, such a major shift aligns with our global strategy. After all, the global entity must also adapt,” he said.
In 2024, Atacadão’s gross revenue grew by 8.7% to R$86 billion, while Carrefour’s (supermarkets and big-box stores) fell by 9.4% to R$27 billion, reflecting store closures. Net earnings reached R$1.9 billion, compared to a R$639 million loss in 2023.
The second initiative involves further integrating the Carrefour, Atacadão, and Sam’s brands. There is a belief that most consumers are unaware that these businesses belong to the same group, including a genuinely Brazilian wholesale chain, which could be better leveraged.
“We need to capitalize on foot traffic with cross-brand initiatives,” the CEO said. Since September, Carrefour credit cards can be used at Atacadão and Sam’s, with certain benefits. “We could establish a universal loyalty program, ‘Meu Grupo Carrefour,’ for all brands,” he said, without providing further details.
Another current focus is the price hikes in stores since late 2024, following the real’s depreciation against the dollar. Initial price increases are positive, as they boost nominal chain revenue. However, in the long run, the effect is detrimental.
Carrefour hasn’t halted price hikes but has delayed them by a few days—up to a week—to provide relief for consumers. They still believe that price increases will lose momentum in the second half of the year, considering the strong comparison base of 2024.
In 2024, the group opened 19 Atacadão units (18 conversions from other chains and one new opening) and seven Sam’s Club locations. No new supermarkets or big-box stores were opened, still outside organic expansion plans. The retail unit is undergoing a restructuring process.
Mr. Maquaire points out that there will be fewer openings in 2025 but refrains from providing forecasts—in a conference call with analysts on the 19th, he mentioned that “everyone” in the country is doing this due to the increased cost of capital with the rise of the Selic rate.
Regarding investments, in 2024, R$2.1 billion was invested, marking the third consecutive year of reduced spending (after accounting for acquisition-related expenses) due to the need to curb cash outflows in 2025.
While future data isn’t disclosed, if investments decelerate as claimed, they might return to pre-pandemic levels—about R$1.8 billion in 2019.
Based on these measures, the group believes it can navigate 2025 without major disruptions—contingent on favorable macroeconomic conditions—and resume accelerated openings in 2026 and 2027.
Regarding the plan for the French controllers to take the company private, Mr. Maquaire considers it a logical decision, given that the asset hasn’t appreciated in the stock market despite recent investments. The chain is valued at R$15.3 billion (€2.5 billion), having lost 50% of its value since going public.
Managers consulted find it hard to understand the timing of this decision, except for the recent currency advantage [a more devalued real against the euro], as the asset hasn’t returned to the R$15 IPO price since late 2022.
“Why not take advantage of [the exchange rate]?” he asks. “France has always believed in growth opportunities in Brazil, and now the [share] price is lower. I also think all governance steps have been taken, simplifying many things. Sometimes, having two listed companies, one above the other, offers little autonomy and creates misalignment.”
Mr. Maquaire also addressed the risk of low participation in one of the proposals to go private. There is an option to convert 11 shares in the country into one share in France, as presented by the controlling shareholders.
Why would anyone choose to be a shareholder in the company in France after the share is valued at R$7.70, in an IPO initially priced at R$15? “Perhaps this is a question for Península Participações [a shareholder in the chain in both Brazil and France]. They’ve already stated their intention to swap their shares. I don’t know if everyone will sell at R$7.70.” Península declined to comment on the matter.
*By Adriana Mattos — São Paulo
Source: Valor International