Why is Carrefour going to turn more than half of BIG stores into hypermarkets?

In a call with analysts this Monday, the company showed that, of the 80 BIG stores, 45 will become hypermarkets

Carrefour Brasil will adapt 47 of BIG’s 80 points of sale to hypermarkets. Despite being a much less representative number than the new Atacadão stores (there will be 70, in all), renovating stores to bring new hypermarkets – at a time when the end of Extra is still fresh in memory – may seem counterintuitive at first glance. . And, after all, Why is the company going to invest in expanding the network of this type of establishment?

What the company shows is that it will keep part of the idea that Walmart had when it arrived in Brazil: to become almost a “hybrid” between hypermarket and wholesale, with the proposal of selected offers every day. The tone of executives Stéphane MaquaireCEO of Grupo Carrefour Brasil, and David Murciano, the company’s CFO, is that the large stores created for this purpose should not be completely extinct over the next few years. In detailing the Carrefour operation, the executives stated that two other reasons are related to the fact that it is the best banner to reconcile expansion with ability to scale up e-commerce services (today, the cash-in-store model is present in 224 Carrefour stores) and the opportunity to sell products with higher average ticket via Carrefour card.

The switch to the hypermarket banner, however, caught the attention of analysts in an earlier conference call. In response to questions, Maquaire highlighted that the change does not reflect a definitive positioning, at all costs, but an attempt to reconcile the ecosystem of services that Carrefour offers. “We will continuously evaluate all our stores and, if necessary, promote changes over time”, said the executive.

The company also presented analysts with a per-store margin estimate (which excludes corporate expenses and expenses not related to operating the location itself) during the conference call. According to the data, BIG stores have a store-level Ebitda ranging from 4 to 6% of net sales and hypermarket stores have a contribution of 6 to 7%. Even so, it is lower than the 7-8% of Atacadão stores.

During the conversation with investors, Carrefour spokespersons did not detail the investment by type of business, but only stated that structural changes to stores will take two months to complete, while brand changes (in the case of this operation) have a well-planned process. faster, three days. It is worth remembering: total capex is R$ 2.1 billion.

“It is a company that believes in the hypermarket format, very much supported by the discourse that today it is down, but in the future it may gain strength. In addition, they are the only company with a presence of this format throughout Brazil, post-acquisition. For now, we do not see any migration in this direction, but, in fact, if income improves and people start to make the opposite migration, from wholesale to retail, the company will benefit”, says Guilherme Camacho, analyst at Neo Investimentos .

On the operational side, the company expands, since last year, the number of Carrefour stores in which it is possible to withdraw products purchased over the internet: it went from zero, in July last year, to 224 until today. In the earlier call, executives highlighted that BIG has made significant advances on the digital front over the past few years and that the new combined company (NewCo) will now capitalize on this potential by strengthening ‘last mile’ deliveries across the country. .

Regarding the Carrefour card, the operation generated R$ 30.9 billion in revenue, an increase of 19.2% over the previous year, being the main vertical in terms of credit to the public (the Atacadão card, in the same period, generated R$ 16.6 billion, an increase of 38.9%). In addition, within the retail operation, the Carrefour bank grants greater financing to home appliances, with a 41% penetration in the category.

“It makes sense that the growth also considers the expansion of Carrefour bank, which is something expected since the acquisition was announced. It is a very well-run operation, which will gain greater capillarity and access more potential consumers”, says Camacho.

The purchase of BIG by Carrefour cost BRL 7.5 billion, as the executives reaffirmed in this Monday’s call. The amount was paid 70% in cash and 30% in shares. Despite the disbursement of R$ 5.3 billion from the company’s cash, the concern was to show that the indebtedness remains at healthy levels, with leverage of 1.8 times. Today, Carrefour holds 68% of the combined company’s share capital, Peninsula holds 7%, Advent 4%, Walmart 1% and the others in free float.

Carrefour’s shares closed the day quoted at R$ 17.02 (the trading session opened with the shares quoted at R$ 17.75) and, currently, the company is valued at R$ 33.8 billion.

Source: Exam