Groupe Promodès S.A.

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Groupe Promodès S.A.

123, rue Jules Guesde
92309 Levallois Ferret Cedex
France
(01) 47 15 67 51
Fax: (01) 61 63 88
Web site: http://www.promodes.fr

Public Company
Incorporated: 1957
Employees: 55,012
Sales: Ffr 103.54 billion (1996)
Stock Exchanges: Paris
SICs: 5400 Food Stores; 5411 Grocery Stores

With 11 percent of the French market, Groupe Promodès S.A. ranks among the top three food distributors in its home country. Stores in the Promodès network are grouped into five business segments—hypermarkets, supermarkets, discount supermarkets, convenience stores, and institutional food services—each exploiting a specific market niche. In each segment, stores are either owned outright by Promodès or affiliated with the company through franchised partnerships. Built by a succession of acquisitions, the company’s foreign growth has largely fit a pattern of regional, rather than national expansion. In general, the company enters a region—whether through an acquisition or through a partnership—only when it can achieve a dominant presence. In this way, the company promotes not only synergies among its store concepts but also economies of scale in purchasing. And, with 1996 net sales of more than Ffr 103 billion, generated through more than 4,000 stores targeting five distinct marketing segments in 11 countries, Promodès is well on its way to achieving its long-treasured goal of being one of the top three food distributors in Europe.

The bulk of Promodès’ activity is directed toward southern European and nearby countries. France—where legislation passed in the 1990s severely restricted new store openings—remained the company’s largest revenue source, with Spain and Italy the next largest sources of revenue. The company opened operations in Greece, Portugal, and Turkey, and more recently in Belgium. In late 1996, Promodès all but exited Germany after unsuccessfully competing with that country’s own supermarket heavyweights. Unlike competitors such as Carrefour, Promodès has pursued a limited global expansion, preferring to stick close to its European base. However, Promodès has entered partnerships and opened stores in Morocco, Dubai, Taiwan, and Argentina.

Promodès’ flagship and chief revenue generator is its chain of Continent (called Continente in Spain and Portugal) hypermarkets. The first of the Promodès concepts to be exported, the Continent format features selling areas of a minimum of 6,000 square meters, ranging to 12,000 square meters or more. While the hypermarket itself sells merchandise apart from food—spanning categories from books and compact discs to bicycles, major appliances, and televisions, to gardening, furniture, and toys—many Continent stores also function as anchors to Promodès-owned shopping malls, in which selling space is rented at a discount price to other merchants complementing Continent sales. The Continent chain also features its own Continent private label for foods and other products. After the divestiture of 36 German hypermarkets to that country’s Spar Handels group in 1996, the Continent chain counted more than 160 hypermarkets owned and operated by Promodès and its franchise partners.

While Continent fills the hypermarket niche, Promodès’ Champion stores operate within the more traditional supermarket concept. Approaching 550 units, all but approximately 65 of which are franchised, the Champion network operates three basic supermarket formats, depending on location. The smallest format, designed for urban selling areas, is limited to 1,200 square meters, while the mid-sized Champions, which operate in urban peripheries and rural areas, reach 1,800 square meters. These two formats form the bulk of the Champion chain. The third format, introduced in 1995 and dubbed Hyper Champion, features floor space ranging between 2,500 square meters and 3,500 square meters and operates as a bridge between the supermarket and hypermarket concepts. Until the mid-1990s, the Champion chain remained entirely based in France; with the introduction of legislation barring new supermarket construction, Promodès has begun exporting the Champion concept, principally to Greece, Portugal, and Belgium. Champion stores, as well as Continent stores operating within France, are supplied by Promodès’ Logidis distribution network.

The third segment in the Promodès Group is its chain of Dia discount supermarkets. Featuring limited assortments, the more than 2,000-store chain ranged from 250 square meters to 650 square meters in selling space and operated primarily within city centers. The chain originated in 1979 in Spain, where it has achieved dominance in that country’s discount market. The chain’s multitude of food products were displayed warehouse-style on pallettes. Approximately 50 percent of these products were sold under the Dia private label; stores were supplied through a European-wide network of 12 warehouses providing integrated organization, purchasing, and logistics. After more than a decade of operation in the Spanish market, Dia began to enter the French, Italian, Portuguese, and Greek markets.

Rounding out Promodès’ retail operations is its convenience store segment. This segment, restructured in the mid-1990s, featured three distinct store concepts. Shopi, with some 800 stores located primarily in rural and suburban locations, featured a sales area ranging from 450 to 600 square meters and locations offering close proximity to its customers. The smaller 8 à Huit stores offered, as their name implies, extended opening hours, as well as a range of services and an 1,800-product assortment, including national and private label brands. The third convenience store concept, the 75-year-old Codec, purchased by Promodès in the early 1990s, specifically targeted high-end consumers with quality products, including fine wines, champagne, exotic fruit, coffee, tea, and other specialty products. At an average size of 500 square meters, Codecs were typically located in urban city centers, suburbs, and resort areas. Promodès supplied its convenience store network with its “Grand Jury” private label products.

The fifth segment of the Promodès group was its institutional food service operations. Promocash, one of the oldest divisions of the company, operated as a cash-and-carry chain and provided nearly 10,000 products, including wines, seafood, fruits and vegetables, and meats to the institutional food service and restaurant industries. The 126 units in the France-based Promocash chain featured selling space of 2,500 to 3,500 square meters. An affiliated chain of nearly 50 Puntocash stores offered similar services in Spain. A third unit, Prodirest, operated 47 product distribution warehouses targeting institutional food services including hospitals, schools, military installations, and other businesses, as well as caterers, cafeterias, and hotel chains.

Building a Supermarket Giant

Promodès was formed in 1957 by combining the food distribution interests of five founding families, with the Halley family assuming the company’s leadership. Originally focused on wholesale food distribution, a position reinforced by the creation of the company’s Promocash subsidiary in 1965, Promodès shifted towards the retail food market when Paul-Louis Halley replaced his father as head of the company in 1971. Paul-Louis Halley remained in command of the company in 1997, and the Halley family controlled about 40 percent of the company and 51 percent of the company’s voting rights. Members of four other founding families controlled an additional 15 percent of the company’s stock.

With two marketing concepts, the Champion supermarkets and the Continent hypermarket, Promodès remained an entirely French-based concern in the 1970s, a time of crushing competition among food retailers in France. The proliferation of super-markets and hypermarkets neared saturation of the market, and these stores faced the rise of new co-op store chains, including eventual French market leaders Leclerc and Intermarché. In the mid-1970s, faced with the difficulties of expanding within Promodès domestic market, the younger Halley began transforming Promodès into a major international food distributor. The first steps into the foreign market were taken in Spain and Germany with the introduction of the company’s Continent hypermarket concept. Rather than going in alone, Promodès established a network of partnerships in each country, achieving economies of scale and greater purchasing power, while drawing on their partner’s knowledge of these countries’ markets. Wholesale distribution, however, remained the chief revenue generator for the company. Yet, by the end of the decade, the company’s hypermarket and supermarket activities had grown to represent nearly 40 percent of Promodès’ annual sales.

Within five years, that balance would shift in favor of retail sales as Halley led Promodès on an aggressive expansion pro-gram. In Spain, the company established its new Dia network, with the first store opening in Madrid in 1979. The Dia concept of limited assortment discount stores, which adopted a ware-house-style shopping concept, with food displayed simply on palettes, remained largely focused on Spain for the next decade. But Halley had his eye on an even larger market: the United States. In 1979, Promodès made a bid to buy Chattanooga-based Red Food Stores, Inc. for $23 million. By 1980, the acquisition was completed, for a total of $36 million. The Red Food purchase gave Promodès a chain of 23 supermarkets centered primarily in southern Tennessee, but with stores in Georgia and Alabama as well. In order to finance Promodès’ expansion, which would invest more than Ffr 2 billion between 1979 and 1984, the company went public in 1979.

Company Perspectives:

“On each of Promodès’ markets, and in each of its business segments, the mission of its 55,000 employees is to meet customer requirements with professionalism and to offer them quality products at the best possible price.”

Promodès’ international expansion came at just the right time. By 1982, the international recession had caught up to the French market, leading to a devaluation of the French franc. Most of the major supermarket chains experienced tighter profit margins as sales volumes slumped across the country. Adding to the gloomy retail climate were a series of price control restrictions, which saw the major independent chains lose still more market share to the rising co-op chains. Promodès’ international investments, however, helped buffer the company from the domestic crisis. The domestic recession caused sagging profits among its French holdings, which by then numbered 40 Champion supermarkets and 23 Continent hypermarkets, as well as the company’s wholesale operations. But the company’s Spanish holdings, which by then included eight Continente hypermarkets, and U.S. holdings were performing well. In 1983, Promodès moved to expand further in the United States, acquiring the 40-store chain of Houchens supermarkets, based in Bowling Green, Kentucky, for $25 million. That acquisition raised the company’s total U.S. annual sales volume to $600 million, representing 12 percent of Promodès consolidated 1983 sales of Ffr 19.8 billion. Despite the difficult economic climate, Promodès posted a profit of Ffr 203 million for the year.

Refocused Expansion in the 1990s

While continuing to develop its French and Spanish markets, Promodès began eyeing further expansion in the United States, setting up a wholesale distribution arm in New York to import French food products, signing up with Bloomingdale’s to provide gourmet products and Giant Food Stores to provide basic products. But the company’s focus remained on expanding within the retail sector, and in particular by importing the superstore concept to the U.S. market. With plans to invest $100 million over three years, Promodès moved into the Chicago market, opening a series of warehouse stores under the Cub Food franchise name. Promodès’ Chicago foray would not last long however. Unable to build sufficient market share against established leaders Dominick’s and Jewel, the company would exit the Chicago area by the beginning of the 1990s.

Meanwhile, Promodès prepared to launch a fresh expansion program in the European market. In 1987, the company re-turned to the stock market, selling shares worth Ffr 600 million to help it finance a two-year, Ffr 2 billion investment drive. Plans called for the opening of ten hypermarkets, 100 Dia stores, and four new U.S. warehouse stores. At the same time, the company prepared to enter new markets in Portugal, Italy, and Greece. Next, in 1990, the company went on an acquisition binge, buying up, among others, the Plaza hypermarket chain in Germany, part of the Codec retail group in France, and the 900-store chain of Alf stores in Spain—activity which helped make Promodès the fastest-growing French food distributor. By that year the company was operating nearly 3,000 stores in six European countries and the United States, with consolidated sales of $11.6 billion.

The company still hoped to make its mark in the United States, announcing a new $100 million investment program for the Red Food Store chain. But Promodès’ U.S. holdings grew slowly, reaching $650 million by the beginning of the new decade. While other French and European-based supermarketers were attempting to introduce the hypermarket concept to an American consumer base uncomfortable with the idea of buying their food and refrigerators in the same store, Promodès rejected that approach in favor of a more limited ‘superstore’ approach offering, a 50/50 mix of food and general merchandise. That concept, too, proved a hard sell with American shoppers. While the Red Food stores remained profitable, that chain’s sales amounted to only four percent of the parent company’s total sales. Promodès, involved in a fresh expansion drive in its European base, found itself unable to achieve its expansion goals in the United States. In 1994, the company sold off its Red Food holdings to Netherlands-based Ahold for $120 million.

In Europe, the company made plans to position itself among the top three European food distributors by the end of the century. The 1993 acquisition of the Ffr 2.6-billion Discol wholesale food chain, a subsidiary of France’s Pinault-Printemps retail group, placed Promodès firmly in the lead in France’s wholesale food distribution industry. The company’s retail arm was also growing rapidly, particularly with the expansion of the Dia chain into the French, Italian, Greek, and other markets during the first half of the decade. By 1994, the company’s Continent chain totaled 170 stores across Europe, while in France, the Champion chain of supermarkets numbered more than 450. Promodès also began eyeing new markets in Turkey and Taiwan.

Despite a new economic crisis in Europe in the first half of the 1990s, Promodès grew rapidly and profitably. In 1994, the company topped Ffr 1 billion in profits for the first time in its history, on net sales of nearly Ffr 95 billion. The following year, the company’s net sales topped Ffr 100 billion. The company’s German holdings were struggling, however, posting losses of DM 43 million by 1995. The purchase of the Plaza hypermarket chain, which adopted the Continent name, had been made during the euphoria of Germany’s reunification. But the costs of the reunification led to a slump in that country’s economy. Unable to achieve any significant market share—and thus more favorable purchasing terms—against its larger German competitors, Promodès sold off its German subsidiary’s 36 hypermarkets to Spar Handels in September 1996.

The company remained dedicated to its foreign expansion, however, introducing the Continent name to Belgium, as well as to Morocco and Dubai. Within France itself, meanwhile, Halley began hinting at a possible merger between Promodès and another of the country’s major retailers, Casino. With consolidated net sales rising to Ffr 103.5 billion in 1996, Promodès remained in position to reach its year 2000 goal as a top-three European food distributor.

Principal Operating Units

Continent and Continente (hypermarkets); Champion (supermarkets); Dia (discount supermarkets); Shopi, 8 à Huit, Cedec (convenience stores); Promocash, Prodirest (institutional food service).