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The Historical Development of Carrefour and its Competitive Advantage in Taiwan- An Analysis on the Basis of Customer Value

Pei CHAO

Assistant Professor, Department of Marketing and Distribution Management National Koahsiung First University of Science and Technology

1 University Road, Yuanchau, Kaohsiung 824, Taiwan, R. O. C

Tel: 886-7-6011000 ext. 4224; Fax: 886-7-6011043 E-mail: peichao@ccms.nkfust.edu.tw

Hitoshi TSUCHIYA

Senior Instructor, Department of Marketing and Distribution Management National Koahsiung First University of Science and Technology

1 University Road, Yuanchau, Kaohsiung 824, Taiwan, R. O. C

Tel: 886-7-6011000 ext. 4213; Fax: 886-7-6011043 E-mail: hitoshi@ccms.nkfust.edu.tw

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The Historical Development of Carrefour and its Competitive Advantage in

Taiwan- An Analysis on the Basis of Customer Value

Abstract

Carrefour has become a leading hypermarket retailer in Taiwan. In other Asian

countries (e.g., Hong Kong, Japan and South Korea), however, Carrefour did not have

the same successful experience. It is an interesting issue why Carrefour has had a

prosperous business in the marketplace of Taiwan, but languishing in other Asian

markets. Competitive advantage established by Carrefour, relative to both inter- and

intra- institutional competitors, may account for its success in Taiwan. Following the

contention of the extant marketing and strategy literature, this study asserts that the

essence of establishing competitive advantage comes from delivering superior value

offering to customers. Thus, the concept of customer value was applied to understand

the accomplishment of Carrefour’s development in Taiwan. According to the research

findings in this study, Carrefour outperformed competitors on the basis of economical

value; that is, to lessen customers’ monetary and nonmonetary (e.g., time and effort)

expenditures. Until recently, Carrefour opened a shopping-mall-type hypermarket that,

unlike traditional hypermarket stores, offers customers more hedonic value (e.g.,

entertainment). Whether this special offering receives customers’ acceptance and

widespread popularity requires further observation.

Key words: Institutional Development, Hypermarket Retailing, Competitive Advantage, Customer Value, Carrefour

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Introduction

Retailing, like many other industrial sectors, in Taiwan has experienced a rapid

change for the last three decades. In the meantime, the evolution of retailing industry

manifested two major characteristics: specialization and concentration. Specialization

means that the retailing industry has been fragmented; that is, a variety of retailing

formats such as convenience store and hypermarket, emerged in Taiwan during the

time period. The emergence of the individual specific retailing formats was not only

in response to the diversity of consumption patterns but also in reaction to changes in

the socio-political environment. Concentration means that, given a retailing format

(i.e., a set of involved participants whose operations are perceived as homogenous),

participant companies have become larger in size and smaller in number. In 2005, the

top two convenience-store retailers (i.e., 7-11 and Family Mart) owned store number

more than 70 percent of the total store number in this retailing sector. In the same year,

the top two hypermarket retailers (i.e., Carrefour and RT Mart) held sales volume

almost 60 percent of the total sale volume in the hypermarket sector.

Hypermarket has become one of dominant retailing formats (including

department store and convenient store) in Taiwan. In 2005, hypermarket held almost

20 percent market share in the general merchandise sector, right behind department

store (28%) and convenient store (25%). Among hypermarket retailers in Taiwan,

Carrefour has been viewed as a leading hypermarket retailer in terms of owned store

number and corporate annual revenue. According to the most recent record (on

February, 2006) showed that Carrefour owned the store number growing to 37 (33 %

of the total hypermarket stores). In 2005, Carrefour’s corporate annual revenue was

about NT$ 56 billion (40% of the total sales volume in the hypermarket sector) that

was twice more than that of the second hypermarket retailer- RT Mart.

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Carrefour has been a pioneering retailer undertaking international expansion

since its first entrance to Belgium in 1969. Within the internationalization process for

more than three decades, Carrefour has achieved mixed consequences in different

countries. Carrefour is the leader within European countries such as Spain, Belgium,

Greece and Italy, becomes the number one in Taiwan and holds a leading position in

Brazil. On the contrary, Carrefour withdrew from the U.S. market in 1993, Hong

Kong in 2000, Hungary in 2003, Japan in 2004 and Poland in 2005. Elsewhere,

Carrefour is still striving for its survival in the marketplaces such as South Korea and

Thailand. It is interesting to inquire why Carrefour experienced success in some

countries but failed in others. The explanation to Carrefour’s success and failure may

come from different theoretical perspectives. In this study, however, we tend to apply

the concept of customer value to account for why Carrefour has been successful in

establishing its competitive advantage, relative to inter- and intra- institutional

competitors, since its entering to the Taiwan marketplace in 1989.

This study is organized as follows: first, we discuss theories of institutional

evolution, which can be expanded to account for relevance and importance of

customer value. After that, the concept of customer value is discussed in detailed. And

then, we begin with separating the historical development of Carrefour into three

phases, and identify what, on the basis of customer value, contributes to the

competitive edge of Carrefour within the individual phases. Finally, we discuss the

research conclusion and recommend potential topics for future research.

Theoretical Background

Theories of Institutional Evolution

The evolution of a given institution (i.e., retailing format) may be examined on

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the basis of different theoretical perspectives, categorized as environmental,

conflict-based, and cyclical (see Brown 1987a; 1987b; 1988). The environmental

perspective asserted that the institutional evolution reflects changes in the conditions

(e.g., economic, demographic, social, legal, and technological) of marketplace. That is,

the environmental circumstances not only facilitate the emergence of novel retail

institutions but threaten the existence of extant institutions as well. According to the

adjustment theory of Gist (1971), retail institutions that are able to adjust themselves

to match with the changing environmental circumstances are likely to prosper and

survive in the long run. Otherwise, they are inevitably extinct.

The conflict-based perspective proposed that the dynamic interaction (or dialect)

between a novel institution and existing ones results in the institutions’ evolution. In

the dialectical theory of Gist (1968), the change of retail institutions comes from

inter- institutional dialects in terms of the thesis-antithesis-synthesis sequence. An

inter- institutional dialect occurs when the established retail institution (i.e., thesis) is

confronted with a newly emerged institution (i.e., antithesis). The inter- institutional

dialect may function as a process of mutual assimilation between the two opposite

institutions. As the mutual assimilation continues, a synthetic institution (i.e.,

synthesis) emerges eventually. However, the synthetic institution becomes the thesis

as long as another antithetic retail institution appears.

The cyclical perspective contended that the evolution of a retail institution takes

place in a rhythmic pattern. That is, the replacement of one retail institution by the

other may be manifested as a cyclical fashion. This cyclicality of institutional

evolution may be accounted for by the “wheel of retailing” theory (McNair 1958) and

the “retail accordion” theory (Hollander 1966). According to the McNair’s (1958)

theory, the institutional evolution is described in terms of the price-quality aspect; that

is, a new institution starts with low-cost and cut-price operations. Over time, the

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institution trades up by enhancing quality levels (e.g., better locations, in-store

ambience and delivery services). All these trading-up operations are driving up the

institution’s expenses and selling prices. Eventually, the institution matures as a

top-heavy establishment based on service quality instead of selling price. This makes

the mature institution vulnerable to a newer institution that, once again operating in a

lower cost structure, appeals to customers with lower selling prices. On the other hand,

the retail accordion theory (Hollander 1966) proposes a general-specific-general cycle,

where the institutional evolution is described in terms of the number (i.e., wide versus

narrow) of merchandise lines carried out by the focal retail institutions. That is, the

cyclical pattern may be manifested as generalists (handling a wide variety of

merchandise) and specialists (focusing on a narrow range of merchandise) dominate

alternately in a retailing sector with the passage of time.

In sum, these theoretical perspectives, although each concentrates upon one

particular facet (Brown 1987a; 1987b; 1988), all contribute to our understanding of

why and how a focal retail institution evolves. In this study, we are not devoted to

elaborate the merits and the shortcomings of the individual theoretical perspectives.

As suggested in the extant literature (Brown 1987a; 1987b; 1988; Hollander 1996), no

theory is able to provide a complete explanation to the evolution of retailing

institution. Hence, this study applies consumer demand, either explicitly or implicitly

relevant to all these theoretical perspectives, to examine the success of Carrefour

since its presence in Taiwan seventeen years ago.

Relevance of Consumer Demand to Institution-evolutionary Theories

In order to argue the relevance of consumer demand to these theoretical

perspectives, we start with the raison d’etre of retailing institutions. The fundamental

function carried out by retailing institutions is to serve as a system to bridge from

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manufacturers to consumers (May 1989). The system cannot exist in vacuum but

embedded in its operational milieu. Implicitly, the influence of environmental

circumstances on the system’s operations is present although not always salient. As

one important constituent of environmental circumstances, consumer, differing from

other environmental constituents, always exerts a salient influence on the system’s

operations. By definition, the outcomes of the system’s operations directly deliver to

consumers. And then, it is logical to assume that consumers have heterogeneous

demands, stemmed from difference in lifestyles, values and shopping habits. When

the bargaining power is changing to be uneven in favor of consumers, the system is

forcedly or voluntarily fractioned into a variety of operational formats (e.g.,

department store, convenience store or hypermarket). With the combination of various

operational components (e.g., selling price, merchandise assortment and sales policy)

perceived by consumers, each operational format tends to satisfy the particular

demand of a certain consumer group (i.e., a market segment). The competition

between the formats (i.e., inter-institutional strife) emerges from the shift of consumer

demands. The competition within a focal format (i.e., intra- institutional strife) occurs

when its target segment is shrinking or the format’s excess capacity appears. Thus,

consistent with the contention of May (1989), we assert that changes in consumer

demand are the principal causes of the evolution of retailing institution.

Competitive Advantage and Customer Value

As mentioned before, the analysis of this study is upon the level of the

development of the specific retailer- Carrefour. According to the disciplines of

marketing and strategic management (e.g., Day and Wensley 1988; Porter 1985),

competitive advantage has been viewed as central explanation to a firm’s success and

long-term survival. The firm, relative to its competitors, can establish competitive

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advantage by means of delivering more value its customers in a more efficient manner

(Day and Wensley 1988; Porter 1985). However, in search for competitive advantage,

the firm should focus upon its customers’ concerns instead of its internal operations

(Czepiel 1992; Zeithaml 1988). Therefore, the importance of customer value has been

emerging as the major theme in the marketing and strategic literature (Desarbo, Jedidi

and Sinha 2001; Parasuraman 1997; Slater 1997; Woodruff 1997). From the

perspective of customers, the overall value receipt determines whether one firm,

relative to competitors, holds an advantageous position or not. That is, customers

patronize retailers from whom the customers expect to receive the most value from

the shopping experience and from the merchandise acquired (May 1989). Thus, the

competitiveness of value offering delivered to customers is the primary determinant

of retailers’ success.

Following the contention of Zeithaml (1988), customer value in this study may

refer to the customer’s overall assessment of the utility of a store’s patronage based on

“what is received and what is given” (p.14). By implication, the concept of customer

value represents a trade-off between the two basic components: received benefits and

incurred costs. The enhancement of customer value may result from either increasing

the received-benefit component, decreasing the incurred-cost component, or doing

both simultaneously. The component of received benefits consists of three

components: functional (e.g., the quality of merchandise acquired) (Holbrook 1999;

Sweeney and Soutar 2001), hedonic (e.g., emotional pleasure aroused from in-store

atmosphere) (Holbrook 1999; Sheth, Newman and Gross 1991; Sweeney and Soutar

2001), and social (or symbolic) (e.g., respects received from interactions with

salespersons) (Holbrook 1999; Sheth, Newman and Gross 1991; Sweeney and Soutar

2001). The component of incurred costs refers to economical value that includes both

monetary (e.g., purchasing prices of merchandise) and non-monetary factors (e.g.,

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time, effort, and energy involved in the overall process of merchandise acquisition)

(May 1989; Zeithaml 1988).

With intention to outperforming competitors (including inter- and intra-

institutional) by means of enhancing customer value for their target segment, retailers

may undertake various operations, each contributing to either an increase in the

received-benefit component or a decrease in the incurred-cost component. For

example, to lower selling prices is directly associated with a reduction of monetary

expenditures incurred to customers. Location convenience saves customers time

needed to travel to and return from stores. By selling higher quality of products (e.g.,

durables) creates customers’ functional value resulted from longer duration of

consuming these products. The improvement of in-store atmosphere rewards

customers with pleasure in their shopping experience (i.e., hedonic value). Thus, we

assert that this is the value offering delivered by retailers to customers determines the

retailers’ prosperity and long-term survival.

Historical Development of Carrefour and Its Competitive Advantage

On the basis of store number owned by major hypermarket retailers (including

Carrefour, Makro and RT Mart) within the time period from 1989 to 2005, we

separate the historical development of Carrefour into three phases: market presence,

market expansion, and market leadership, as illustrated in Figure 1. In this study, we

will not attempt to be exhaustive; rather, we highlight important events occurred

within the individual phases. Concurrently, this study tends to identify operations

carried out by Carrefour and its competitors (including inter- and intra-institutional),

to specify the associations of these identified operations with the value offering to

target customers, and then to describe the establishment of Carrefour’s competitive

advantage, relative to the competitors’, on the basis of the creation of value offering

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from the perspective of customers.

Figure1: Accumulative Number of Stores Owned

by Major Hypermarket Retailers

0

10

20

30

40

1989

1991

1993

1995

1997

1999

2001

2003

2005

Year

Sto

re N

um

ber

Carrefour

Makro

RT-MART

Phase of Market Presence (from 1989 to 1993)

Inter- institutional Competition

Carrefour was one of pioneers (including Makro) in establishing hypermarket as

one innovative retailing format in Taiwan. The first Carrefour’s hypermarket store

was opened in Kaohsiung, the largest city in the southern part of Taiwan, in 1989. The

name “Carrefour” is transliterated into Mandarin as “a household’s happiness and

prosperity.” This seems a starting-up edge appealing to consumers; however, the key

to the consumers’ acceptance is still the innovative retailing format itself. The essence

of the hypermarket format consists of low selling price, convenience in free parking,

and wide product assortment (i.e., one-stop shopping). These features altogether

formed an attractive offering in the eyes of consumers, relative to those offered by the

existing retailing formats such as conventional small-scale retailers, supermarkets,

and department stores.

The main segment targeted by hypermarket is limited- income customers (or

households) who are mainly influenced by selling price while acquiring merchandise.

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Because of many competing demands in their daily lives for the limited income, these

customers are attracted to the best buys; that is to meet their needs with minimal

monetary expenditures. On the other hand, the low selling price offered by

hypermarket may also appeal to other customers, viewed as smart shoppers, who

enjoy playing the game of shopping- in search for optimizing their purchases by

visiting several stores in order to get the best value with the lowest price.

In addition to the selling price of merchandise, customer value can be also

created in terms of saving time and effort involved in the merchandise acquisition.

The wide range of merchandise carried out by hypermarket appeals to time-pressed

customers who prefer not to visit a number of stores for their regular and routine

purchases. That is, customers receive better value from shopping hypermarket that not

only offers lower prices but also supplies one-stop shopping with a wide array of

merchandise in one location. Moreover, the vast assortments of merchandise also

provide customers with an opportunity to try out various ‘new’ products that were

formerly unreachable to the customers given their time constraints. With this widened

selection within one store, time-pressed customers can assemble their own portfolio of

merchandises to enrich their distinct lifestyles. Therefore, hypermarket offered

customers substantially more value for their expenditures (i.e., monetary and

nonmonetary) than did other existing retail formats.

Intra- institutional Competition

At the same year, Makro (a Dutch retailer) opened its first store located at

Taoyuan, about 30 kilometers south from Taipei city. Different from Carrefour who

targeted individual consumers and households, Makro was positioning itself as a

warehouse-type hypermarket whose customers are supported to small retailers and

organizational buyers. Although without proximity convenience and sophistic layout

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design, Makro’s economy-value offering (large package and low price) also attracted

household customers to patronage. Perhaps, with the reputation widely spread through

the press, Makro, instead of Carrefour, very quickly became the dominant player of

the hypermarket format in Taiwan. For example, in 1993 Makro and Carrefour owned

the equal number (7) of stores; however, the former’s annual sales (NT$ 22.4 billions)

was almost double more than the latter’s (NT$ 12 billions). Moreover, the name of

Makro was even known as a substitute for the hypermarket format in the customer’s

mind.

In view of potential wholesaling market, Carrefour opened a warehouse-type

store at Sanchong, a part of the Taipei metropolitan, in 1993. Since then, Carrefour

separated its stores into two groups (retail-type and wholesale-type), each store-type’s

operations corresponding to the different segments: households and organizational

buyers. To respond the Carrefour’s competition, Makro started with emphasizing its

operations on the household segment at the same year. By means of selling

merchandise based on larger package with lower price, Makro offered customers

(including households and organizational buyers) with the most economic value per

unit. The household customers eventually realized that they were not really better off

with Makro’s value offering in that the received benefit was unable to be compensated

by additional stock-up cost, due to limited storage space for extra quantity. Therefore,

the households were motivated to deflect if there existed the availability of the better

value offering. As Carrefour expanded its stores whose trading areas overlapped with

Makro’s, Carrefour easily attracted Makro’s household shoppers. On the other hand,

organizational buyers also found out the most economic value per unit being diluted

by the crowding shoppers which may slow down their shopping speed and waste extra

time waiting in check-out lines. Therefore, the organizational buyers hesitated to

patronize Makro. In other words, Makro tended to appeal to the two customer

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segments with almost identical operations. As a result, neither segment was delighted.

The mismatch of Makro’s operations with the demands of both segments led to latent

hazard to its subsequent development.

Phase of Market Expansion (from 1994 to 2001)

Intra- institutional Competition with Multinational Rivals

The leading role of Makro in the retail sector was apt to receive the jealousy of

inter- or intra- institutional competitors. In 1994, the Taiwan authorities were informed

of Makro’s violating the regulations of land usage. That is, stores located at industrial

districts are prohibited in undertaking commercial (i.e., retailing) transactions, for

example, directly selling to households or individual consumers. This unlawful action

forced Makro to close its two stores located at Wugu and Kaohsiung. Concurrently,

one ready-to-open store at Jhongshan (a part of the Taipei metropolitan), a location

strategically important to Makro, could not receive the business license from the

Taipei county government. Store expansion of Makro had been suspended not until

1998. The negative image known by the public and the insufficiency of store number,

however, caused Makro to lose opportunity to win back its initial leading position in

the marketplace. In 2000, Makro tended to reposition itself as a warehouse-type

hypermarket. There still existed the mismatch between the operations and the

customer’s demand. That is, relative to competitors (e.g., Carrefour), Makro could not

offer the greater value to its customers so that Makro’s perfomance suffered financial

deficits since 2001. When receiving the operation permission from the authorities of

Mainland China, Makro withdrew from the marketplace of Taiwan in 2003.

Intra- institutional Competition with Domestic Rivals

When Makro was striving for its survival, one domestic hypermarket, RT Mart,

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emerged in 1996. RT Mart expanded rapidly its store number (from two stores in 1997

to 19 stores in 2001) by means of merging or cooperating with several local

hypermarket retailers. Therefore, RT Mart owned the store number (7) equal to Makro

in 1998. In terms of sales revenue, RT Mart (NT$ 24 billions) replaced Makro (NT$

18 billions) as the second hypermarket retailer in 1999. In 2000, RT Mart sold about

67% stock share to Auchen (a French Retailer). After this ownership transference, RT

Mart slowed down its store expansion; that is, 23 stores were owned by RT Mart until

2005.

In the meantime, Carrefour underwent an extensive store expansion (from eight

stores in 1994 to 25 stores in 2001) in hope of achieving the economy scale, relative

its intra- institutional competitors. In view of the intensity of intra- institutional

competition, Carrefour continuously improved its operations such as emphasizing

fresh produce quality, introducing private brands and reinforcing low-price corporate

image.

The consumption of fresh produce occupied a major proportion of household’s

living expenditures. The improvement of fresh produce quality may be viewed as an

important element to establish competitive edge. Buying locally allowed Carrefour to

respond closely to consumers’ preferences and to ensure the quality of fresh produce.

The improved quality of fresh produce represented to create additional benefits (e.g.,

nutrition retention, better taste and longer duration of storage) to customers.

Concurrently, a comfortable in-store atmosphere (e.g., air-conditioned) also rewarded

the shopping experience to many housewives who used to buy fresh produce in the

conventional marketplace.

The main reasons for the adoption by retailers of a private brand are a need for

independence from national and multinational brands, an urgency to increase profit

margin, and a desire to differentiate themselves from competitors. Derived from the

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information of customer database, Carrefour selected several categories of daily-used

products that were the most frequency purchased by its target customers. Additionally,

Carrefour observed that customers’ purchase of these products was mainly influenced

by the selling prices, rather than brand names. Therefore, in 1997, Carrefour began

with introducing its private brand, NO.1, with a red tag displayed on the shelf. The

products of NO.1 were priced, on the average, 30% lower than those of national

brands. As discussed previously, the private brand with lower prices created more

value to customers by saving their monetary expenditures. In addition, the red tag

displayed on the shelf may also create customer value in terms of saving customers’

searching cost (i.e., to spare efforts in undertaking price-comparison activities).

By predicting that price-oriented formats (e.g., hypermarket) have had more

sustained growth than service-oriented formats (e.g., department store and convenient

store), Carrefour clearly positioned itself as price-oriented format by promoting the

image of “Every Day Low Price” (EDLP) in 1999. Since then, the message has been

widespread through TV commercials although advertising on TV was not very

common for hypermarket retailers. Perhaps, due to the powerful advertising activities,

the low-price image was strongly established in the minds of the target customers.

Since then, Carrefour has become the first-choice destination of customers’ patronage.

In order to maintain the EDLP policy, Carrefour continued to undertake store

expansion in order to achieve the economy scale so that Carrefour lowered its

operational costs and then past saving on to customers. Concurrently, the greater store

number owned by Carrefour engendered its greater bargaining power relative to

suppliers so that Carrefour was able to obtain the lowest purchasing price.

Furthermore, Carrefour adopted “back margin” practices (i.e., supplier ’s credit term

longer than the stock turnover) and multi- form trade allowances (e.g., merchandise

supports and slotting allowances) to strengthen its own financial consequences. Most

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of these practices undertaken by Carrefour have been considered by its suppliers to be

unfair or unethical. The business relationships between Carrefour and its suppliers

have been mired in conflict. These conflicting relationships were expected to be

unhealthy to the long-term development of Carrefour in Taiwan.

Phase of Market Leadership (from 2002 to the present)

Intra- institutional Competition

Carrefour continued to hold its leading position in the hypermarket sector.

However, the advantageous position was seemingly not sustainable because of the

imitation of competitors (e.g., RT Mart) who followed more or less Carrefour’s

operations. For example, to improving the quality of fresh produce, RT Mart searched

for innovative ways to offering customers the service (special to seafood) of

on-the-spot slaughtering. In the eyes of traditional housewives, fish handled by

on-the-spot slaughtering is perceived more freshness than that of prepackaged fish

placed on the iced shelf. At the same time, RT Mart also introduced its own private

brands (i.e., THUMB) with lower selling prices relative to those of national brands.

Thus, the difference in customer value offered by Carrefour relative to its

intra- institutional competitors’ (e.g., RT Mart) became diminishing.

As competitors were catching up fast and became more aggressive, Carrefour

continued to reinforce the EDLP image through TV commercials and the press.

Besides, Carrefour also tended to differentiate by undertaking trade-up operations, for

example, improving store layout design and offering 24-hour opening in several

special occasions such as Chinese Lunar New Year and Ghost Festival (the seventh

month in Chinese Lunar Calendar). The sophistication of store design may enrich

customers’ shopping experience while acquiring merchandise. The 24-hour opening

provided customers with a flexible schedule so that they could shop at any time

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convenient to them. Although the improvement of these services temporally created

Carrefour’s competitive advantage, they may not be sustained due to easy in

imitation.

Having a global-asset trading deal with Tesco in 2005, Carrefour acquired

Tesco’s owned chain (a British retailer entering the Taiwan’s marketplace since 2000).

This acquisition significantly contributed to Carrefour’s store number (37) relative to

RT Mart’s (23). The difference in store number owned by Carrefour relative to RT

Mart may create Carrefour a more sustainable competitive edge. In addition to the

improvement of scale advantage, new-acquired stores enabled Carrefour to approach

customers who used to be geographically unreachable. These customers typically

selected stores for their convenient locations to which transportation costs would be

minimized. In other words, Carrefour enhanced customer convenience by expanding

the geographic distribution of shopping locations.

Prospective Inter-institutional Competition

The hypermarket sector may be mature in the marketplace of Taiwan. According

to the report of AC Nielsen Shopper Trends in 2004, Taiwan, among Asian countries,

was the country with the highest density of hypermarket stores. By implication,

market opportunities to hypermarket retailers have been diminishing. The growth rate

of the hypermarket sector was changing from double-digit increase to single-digit

growth, even lower than the growth rate of the general-merchandise sector in recent

years. On the other hand, as illustrated in Table 1, Carrefour’s average sale revenue

per store was less than that of competitors (e.g., RT Mart); that means that the

marginal contribution of an additional store to Carrefour’s total sales revenue showed

in a diminishing fashion.

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Table 1: Average Sales Revenue per Store (NT$100million) Carrefour RT-Mart Makro Avg. Sales

Revenue Store

Number Avg. Sales Revenue

Store Number

Avg. Sales Revenue

Store Number

1994 $18.75 8 $36.33 6

1995 $19.00 10 $32.83 6

1996 $18.54 13 $34.00 6

1997 $18.75 16 NA 2 $34.33 6

1998 $17.60 20 $20.00 7 $27.14 7

1999 $18.18 22 $18.46 13 $20.00 9

2000 $20.00 24 $20.00 16 $22.50 8

2001 $17.04 25 $17.37 19 $10.88 8

2002 $16.07 28 $16.67 21 $12.50 8

2003 $16.13 31 $17.27 22 2004 $14.71 34 $16.00 23 2005 $15.14 37 $17.39 23

One illustrative strand can be identified in the society of Taiwan; that is, leisure

time has become increasing important in contemporary lifestyles. A growing

proportion of people emphasized their leisure time more than before. To the

time- impoverished consumers, shopping may bear an additional function by offering

them opportunities to escaping from daily- life routine, even boring, activities. When

the conventional distinction between leisure and shopping becomes obscured,

shopping has been viewed as a new expansion of leisure activity to these consumers.

This expressed demand of consumers may provide Carrefour with profitable

opportunities for diversification.

In 2005, Carrefour diversified its original operations to introduce a new retailing

type, shopping-mall- type hypermarket (located at Neihu, Taipei). This innovative-type

store has modern- looking facilities, emphasizes one particular theme (mainly based

upon a well-known brand name) on each floor and creates various shopping spaces

for all family members. For example, on the food and beverage flood, a variety of

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cuisines (e.g., the Chinese and the western) are included to satisfy diverse preferences

of eat-out households. This building includes not only the playground floor for

children to play video games and purchase various toys, but also a small public library

(owned by the city government of Taipei) and bookstores. To households and

individual consumers, the value offering of this new-type store seems, if not more

than, at least equal to those offered by department store and shopping mall. It is an

interesting issue to observe how these inter- institutional retailers respond to the

Carrefour’s diversification. From the viewpoint of customers, the image created by

this new store may not be consistent with the original EDLP image established in the

customers’ mind. Does this image inconsistency matter to customers? Whether this

new type hypermarket has added value to customers and then becomes their favorite

patronage destination requires further observation.

Research Conclusion and Recommendation for Future Studies

The retailing sector in Taiwan has been rapidly changing for the last three

decades. Derived from the theories of institutional evolution, the swiftness of retailing

transformation was simulated by the growth in various demands of customers, the

dynamism of those involved retailers and the liberal nature of legislation on the

investment of foreign retailers.

Among pioneering foreign retailers, Carrefour has become a successful

hypermarket retailer since its presence to Taiwan in 1989. The retail format of

hypermarket has received a wide acceptance in the Taiwan marketplace because this

retailing format (e.g., low price and one-stop shopping), relative to existing formats,

mainly appeals to customers by reducing their monetary and nonmonetary (e.g., time

and effort) expenditures involved in merchandise acquisition.

Another foreign hypermarket pioneer, Makro, experienced adverse destiny

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although the retailer initially seemed to be more promising than Carrefour. The

violation of Taiwan land-usage regulations suspended Makro’s development in store

expansion. Furthermore, Makro mismatched its operations with the particular

demands of its target segments. That is, after realizing that value offering delivered by

Makro was significantly lower than that offered by Carrefour, customers were more

willing to defect from Makro to Carrefour. These serious mistakes made by Makro

left Carrefour an opportunity to wining the advantageous position as the most favorite

hypermarket in the mind of customers.

At the phase of market extension, Carrefour reinforced its competitive edge by

means of improving the quality of fresh produce, introducing its own private brand

and establishing the EDLP image in the mind of customers. As the domestic

hypermarket retailers (e.g., RT Mart) have been more aggressive by following similar

operations undertaken by Carrefour, the difference in the advantageous position

between Carrefour and its competitors becomes diminishing. Although Carrefour

attempted to undertake trade-up operations such as providing 24-hour opening in

several special occasions and improving the sophistication of in-store design, these

trading-up operations were easily imitated by competitors. Up the present, the

competitive edge of Carrefour, we consider, can be sustained by both the number of

stores owned by Carrefour and the EDLP image deeply established in the mind of

customers. As to the future development of Carrefour in Taiwan, there exist several

hidden difficulties. Among them, the conflict between Carrefour and its suppliers is

worth further observation. The continuity of the vertical conflicting relationship, we

believe, will not be constructive to the forthcoming development of Carrefour in

Taiwan.

In view of the maturity of hypermarket sector and the importance of leisure time

to consumers, Carrefour diversified its original operations (retail-type and

21

wholesale-type) to introduce a shopping-mall- type hypermarket. Whether this special

effort enables Carrefour to differentiate itself from competitors (including inter- and

intra- institutional) in delivering more value to customers requires further observation.

Recommendation for Future Studies

This study tended to apply the concept of customer value to explain the success

of Carrefour in Taiwan. The research findings of this study may be criticized as

exploratory, lack of inter-subjective certificate. If it is valid to assume that customer

value is the principal cause to the success of a specific retailer, a quantitative,

longitudinal survey may be undertaken in future research to justify the cause-effect

relationship. That is, a retailer that, relative to its competitors, continues to offer more

value to customers, the temporal success of this retailer and its long-term survival

should be granted. On the other hand, the research nature of this study may be viewed

as an “emic’ study whose research setting was in the specific country- Taiwan. By

implication, due to the limited generalization, the research findings should be

interpreted with caution. That is, the focal relationships that are validated in the given

research setting (i.e., Taiwan) may not be justified in other research settings.

Therefore, “etic” studies (i.e., cross-country research) are recommended for future

research although difficulty is recognized in undertaking such research.

22

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