A growth journey toward green and local

McKinsey: From your perspective, how did the market conditions for grocery retail evolve in 2023? And how was business for Auchan?

Yves Claude: Last year was a challenging one for the industry in multiple respects. The French economy went through some difficult times. Things went reasonably well for Auchan during the first three quarters of 2023, but the fourth quarter was more challenging. In addition, our suppliers increased their prices significantly, and with only 8 percent market share in France, we don’t have much bargaining power. We had to pass on price increases to our customers, and many of them traded away to other players.

The customer experience has to be grounded in the warmth of human interaction.

Yves Claude, CEO, Auchan Retail

McKinsey: Did you experience the same challenges in other countries as well?

Yves Claude: Not as much. In other countries, such as Portugal and Spain, Auchan offers the best prices in the market. This is a real advantage in times of high inflation. Some markets have shown more resilience, both in terms of sales and in terms of profitability, because consumers there are more willing to spend money on groceries. Households in Spain and Portugal have lower average incomes than those in France, but shoppers in those countries will still spend money on good food. In Spain, we also successfully integrated the Dia stores we acquired in mid-2023, subsequent to the acquisition the previous year. That was a big step for us. And in Portugal, we signed the acquisition of Dia stores.

McKinsey: What are your thoughts on inflation?

Yves Claude: In France, inflation dominated the news in 2023, and it put pressure on our profits. Now, as inflation slows, the sector can return to more conservative commercial strategies. We ended 2023 with an overall price increase of 1 to 2 percent. For some products, we will even lower prices. Overall, and as with most of our competitors as well, our customers bought much more of our private label this past year.

Our buying alliance with Intermarché and Casino will be a real game changer.

McKinsey: How has 2024 been so far?

Yves Claude: We’re off to a challenging start, with strikes and protests that are affecting our supply chains. But we also see signs of hope. Thanks to the acquisition of the Dia stores, we will be able to double our market share in Portugal in 2024. Another reason for optimism is our ten-year buying alliance with Intermarché and Casino. This will be a real game changer. Together, we have 32 percent market share in France. That makes us a force to be reckoned with.

In Paris, half the population now lives alone, so they prefer packaged meals and smaller portions.

McKinsey: How are shopping habits changing in the markets in which you operate?

Yves Claude: In Paris, half the population now lives alone, so they prefer packaged meals and smaller portions. Our new concept stores will help us gauge the demand for ready meals. We will even offer our customers the option to eat these meals on-site. Hypermarkets are still working for families or older customers, but a lot of younger people don’t shop there. They prefer to buy their groceries close to their home, in a local store with a human touch. So we must improve the experience to keep these customers coming into our stores. The customer experience has to be grounded in the warmth of human interaction.

We try to purchase as much locally as possible.

McKinsey: What are you doing to promote sustainability?

Yves Claude: We’re a family business. We take a long-term view. We want to make sure that we are responsible. We can’t aspire to please everyone; we aspire to stand up for our values. For example, we try to do as much local purchasing as possible. We also want to be long-term partners for our suppliers. We have worked with some of them for over 60 years, and we will stand by them in the quest for sustainability.

McKinsey: How are your customers responding to your commitment to sustainability?

Yves Claude: Consumers want healthy food, ideally from local producers, but they are also price conscious. We want to offer consumers with smaller budgets quality products that more affluent shoppers buy in small local shops. Our purpose is “#vivre mieux” [“#live better”], and it drives all our decisions. We want consumers to have food sovereignty. To make this happen, we need to communicate clearly about the quality and the origin of the food we sell so consumers can make informed choices. Take chicken. Many grocers import chicken from faraway countries to get better prices. At Auchan, we sell only French chicken. We shrink our margin to do it. We can’t turn the tide alone. It takes a joint effort, including the government, associations, and farmers.

McKinsey: How far along are you on the e-grocery journey?

Yves Claude: The average Auchan shopper has 30 products in their cart, including heavy packs of bottled water, frozen products, and ready meals. That’s a lot of variety, and it’s hard to handle in terms of logistics. To make things even more difficult for us, most of our online customers want home delivery.

For click-and-collect to be fully effective, pick-up locations need to be on a consumer’s path from their place of work or study to their home.

McKinsey: Is click and collect a viable alternative?

Yves Claude: It could be, but for it to be fully effective, the pickup locations need to be on a consumer’s path from their place of work or study to their home. Our current store locations are not always ideal for that type of business.

McKinsey: What about the online experience itself?

Yves Claude: Customer expectations are very high. They expect a sleek, highly functional website with features such as filtering tools, customer reviews, and videos. We don’t have all of that in place at this point. So the online purchasing journey isn’t yet as engaging and as seamless as we would like it to be. We’re working on it, but we take it one step at a time to get it right. Some parts of our assortment, such as textiles, aren’t even available online yet. We will change that soon.

McKinsey: What are your thoughts on format evolution?

Yves Claude: I don’t think more hypermarkets will open in the countries in which we do business, or at least only very few will. Because of changing shopper needs, we expect to see a lot of stores with smaller footprints to open in the future, which will restore balance in the market. To partake in this development, we are working on a franchise model to build a network of small, independent stores run by local entrepreneurs. When we advertised this opportunity internally, many of our employees started selling their Auchan shares to free up capital, start their own store, and be their own boss. This project is very close to my heart because it’s about empowerment. It’s a way for us to give something back to the people who work for us and expand our network at the same time. We are also now reducing the size of our hypermarkets.

McKinsey: Looking ahead beyond 2024, what is your top priority?

Yves Claude: We will push for growth in the markets in which we are already present, rather than enter new territories. Right now, our market share is relatively low in most markets: 8 percent share in France, 6 percent in Spain, 5 percent in Romania, 3 percent in Poland. As a result, our volumes are too low to command attention from suppliers. For suppliers, volume is key, and they prefer exclusivity. Some suppliers shut us out because of this. So growing market share is a priority for us. Our aspiration is to reach a double-digit market share in each market. France, Spain, and Portugal are our priorities right now, but we will pursue market share growth in other countries as well.

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