Ed S.A.S.

views updated

Ed S.A.S.

120 rue du General Malleret Joinville
Vitry sur Seine, F-94405 Cedex
France
Telephone: (33 01) 47 18 17 17
Fax: (33 01) 47 18 17 18
Web site: http://www.ed-fr.com

Wholly Owned Subsidiary of Carrefour S.A.
Incorporated: 1975 as Erteco
Employees: 10,000
Sales: EUR 2.47 billion ($3.25 billion) (2005)
NAIC: 453998 All Other Miscellaneous Store Retailers (Except Tobacco Stores); 445110 Supermarkets and Other Grocery (Except Convenience) Stores; 452910 Warehouse Clubs and Superstores

Ed S.A.S. is the discount supermarket arm of French retail giant Carrefour, the world’s second largest retail distribution group after the United States’ Wal-Mart. Ed, which pioneered the hard discount format in France, remains one of the leading players in that highly competitive market, battling for a position among the top five, alongside German leaders Lidl and Aldi, and fellow French groups Leader Price (owned by Carrefour arch-rival Casino) and Netto (owned by Intermarche). The popularity of the hard discount supermarket format, generally featuring low-frill, warehouse-like stores, limited product ranges and an emphasis on generic and private label brands, has enabled Ed to expand rapidly in the early 2000s.

By 2007, the chain operated more than 950 stores, including a rising number of franchised outlets. Ed differentiates itself from its competitors by operating a “softer” version of the hard discount concept—the company’s shops feature more of the decoration and other amenities of typical supermarkets, while its shelves feature a strong mix of national brand names. These brands, such as Coca-Cola, Nutella, and Danone, represent 20 percent of an average 2,000 products. The company also stocks more than 1,000 items under its Dia discount private label. (Dia, originally from Spain, is Carrefour’s international hard-discount brand name and forms the major part of the group’s worldwide hard discount network of more than 5,500 stores.)

Ed stores operate in two formats: a smaller city center format, with an average building size of 350 square meters, and a larger format operating outside of town with an average building size of 650 square meters. Ed supports its chain of stores with a network of ten regional logistics centers. Ed, which remains 100 percent controlled by Carrefour, generates total sales of more than EUR 2.5 billion per year.

FRENCH DISCOUNT PIONEER IN 1975

The so-called hard discount supermarket format had become highly popular in much of Europe since its invention in the years following World War II. In France, however, the format, which featured no-frill, warehouse-type stores where products were often displayed in bulk on pallets on the floor, failed to capture the public’s imagination until the mid-1970s. The difficult economic climate of that period set the stage for the French consumer’s acceptance of the format. At the same time, the country’s retailers were eyeing the extraordinary success of such hard discount pioneers as Germany’s Aldi (considered the inventor of the format) and archrival Lidl.

The first move to import the discount pricing formula to France came from Simon Bertault, who founded a company called Erteco in a 50-50 partnership with retail group Radar in 1975. Bertault had been inspired by a visit to Germany and his discovery of the Aldi format, and he set out to develop his own supermarket concept. Bertault called his store Archi-Bas, a name chosen to suggest, in French, that the store’s prices were the absolute lowest. Erteco started out by opening five stores, all in Paris.

The company grew slowly in the second half of the decade, developing a mix of products and emphasizing a mix of national brand names. The slow growth was in part due to the distrust held by French consumers for the no-frills, discount format, at a time when consumers were still adapting to the sea of change then underway in the country’s retail market, and due also to their own closely held shopping habits. Traditionally oriented toward small grocer shops, local butchers, and neighborhood bakeries, many French consumers continued to regard the rapid rise of the larger supermarket format, and especially the growing number of so-called hypermarkets, with a great deal of suspicion. Nonetheless, the supermarket format in general did sweep across the country, enabling the emergence of a number of nationally operating distribution groups.

Among these, Carrefour was one of the most aggressive in its drive to expand throughout the country. In the late 1970s, Carrefour, which counted among the leaders in the supermarket and hypermarket sectors, recognized an opportunity for entry into the hard discount market as well. Rather than set up its own operation from scratch, however, Carrefour approached Simon Bertault with an offer to buy out part of his stake in Erteco. Bertault agreed, selling Carrefour a 35 percent share of Erteco in 1978. Radar remained the majority partner. Yet by then the growth of the Archi-Bas store network appeared hampered by Radar’s difficulties in operating and expanding the small store format. Instead, Carrefour stepped in and developed a new format for the stores. Part of this effort involved eliminating the national brand names in favor of the creation of a single private label brand. This brand in turn was supplemented by an array of smaller, less expensive brands. As a result, the total number of products offered by the new stores dropped from 650 to just 450. Of these, half bore the private label brand.

Erteco launched the new format at the beginning of 1980, converting its store network to a new name, Ed l’Epicier (Ed stood for Europa Discount), and restocking their shelves with the newly developed private label, Ed. As the l’Epicier (“grocer”) in the new store name indicated, the Ed format sought to position itself as a local alternative to the traditional city center grocer, as opposed to the large-scale supermarkets more typically opened at the outskirts of town. With an average store size of just 350 square meters, the Ed stores allowed shoppers to meet their basic shopping needs in as little as ten minutes per visit.

Carrefour bought out the rest of Bertault’s stake in Erteco in 1981, then took full control of the company from Radar in 1984. Erteco, however, remained a separate operation within the Carrefour group, overseeing its efforts to develop its hard discount operations. These continued to grow only slowly, representing less than a dozen stores at mid-decade. The company also faced difficulties locating suppliers for its product lines, given the relatively small size of its store network. In order to overcome this hurdle, Erteco launched a new expansion drive, stepping up the pace of its new store openings. By 1987, the Ed network counted more than 100 stores. For the time being, as well, Erteco remained the sole hard discount supermarket group in France.

COMPANY PERSPECTIVES

Ed invented a new distribution model in 1978, the local discount grocer. Ed responds to the expectations of modern consumers: price, quality and speed. Its force is its ability to combine three major features for the benefit of its clients: the simplicity of a full range including brand names responding to all of the needs of the family; the modernity of a concept in phase with the evolution of consumer trends; the efficiency of a sales outlet that enables speedy purchases.

That position changed in 1988, however, when Aldi decided to expand into the French market, setting up its first store that year. The arrival of Aldi set the tone for a new era of competition, particularly given the global recession that struck following the Persian Gulf War at the beginning of the 1990s. At the same time, the appearance of a growing number of hard discount chains, among them Germany’s Lidl, Denmark’s Netto, and Leader Price, owned by France’s Casino group, helped reduce the lingering stigma of the hard discount format. As a result, a growing proportion of the hard-hit French consumer population turned to the hard discount networks as part of their grocery shopping routine.

NEW STRATEGY IN 1996

The arrival of competition forced Erteco to reposition itself into the new decade. The company attempted to meet Aldi head to head, noting the larger German company’s preference for larger store sizes and locations in commercial zones outside of the city center. In 1989, Erteco launched a second supermarket format, dubbed Europa Discount. The new format took up locations in suburban markets as well as out-of-town retail districts, and expanded the Ed stores to an average store size of 600 square meters, adding parking facilities, as well.

This effort enabled Erteco to retain a respectable number two position in France, behind leader Lidl, into the mid-1990s, despite the intense pricing competition of the time. At the same time, Erteco took a lead from its foreign competitors by launching its own international expansion in the early 1990s. The company entered the United Kingdom, for example, in 1993, targeting that country’s southeast region, which had been largely ignored by its rivals, who were focusing on the Midlands and northern regions. The company launched its first Ed discount stores that year, and promised a rapid expansion through an aggressive store opening effort. By 1995, Erteco’s French network numbered only 180 out of a total of nearly 570 discount stores in Europe.

By the end of 1995, however, Erteco switched tactics, and decided to refocus its operations around France. As a result, the company sold its international operations, including selling its U.K. network to Denmark’s Netto in October 1995. In France, meanwhile, Erteco’s Ed and Europa Discount networks continued to face extreme pressure, as its rivals continued to chip away at its market share.

Faced with this competition, Erteco decided to reposition its store networks. The group sought to differentiate its stores from its hard discount rivals by adopting a “soft” discount format. As part of this effort, the group developed a less spartan store interior, adding amenities normally absent from the discount model. As an example, the company outfitted its frozen foods section with freezer cabinets, instead of open freezer bins, which made it easier to access products, while also making it easier to heat the stores. The company also added fresh fruits and vegetables sections to its shops, while boosting its total number of products to 1,000. These included a rising number of national brands. The company also focused its network growth on the city center market, largely exiting the out-of-town channel.

As a result, the Ed and Europa Discount formats moved closer toward the category of local, city center supermarket, rather than the hard discount category. Erteco continued to shift toward this sector through the 1990s. This led the company to rebrand both the Ed l’Epicier and Europa Discount chains under a new name: Ed, le Marché Discount. One result of the group’s repositioning of its store format was its successful expansion into higher-end neighborhoods.

In support of its new strategy, Erteco began to expand the format through acquisitions. In 1996, for example, the company acquired a number of stores from the Cateau group, formerly owned by the United Kingdom’s Tesco, after its acquisition by Promodes that year. In 1999, Erteco took over a further 33 stores from the Cateau group. These stores were largely based in France’s northern regions.

KEY DATES

1975:: Simon Bertault founds Erteco in partnership with Radar in order to launch first hard discount stores in France and opens first Archi-Bas discount stores.
1980:: Erteco launches new format, converting its store network to a new name, Ed l’Epicier, with Ed standing for Europa Discount.
1984:: Carrefour acquires full control of Erteco, as well as the discount store chain, renamed Ed in 1981.
1996:: Ed launches “softer” discount format, adding fresh fruits and vegetables; company acquires stores from Cateau group.
2001:: Ed opens its first franchised store.
2007:: Company steps up expansion of network, with more than 950 stores in operation.

BACK TO THE TOP IN THE NEW CENTURY

By then, Carrefour and Promodes were engaged in a merger that boosted Carrefour into the top ranks of the world’s major retail groups. Indeed, by the middle of the first decade of the 2000s, Carrefour had grown into the world’s number two retail company, trailing only the United States’ retail giant, Wal-Mart. The takeover of Promodes also brought that company’s powerful discount operation, centered on the Dia% discount store brand. Based in Spain, with more than 2,160 Dia% stores there, the Dia% brand became the core of Carrefour’s renewed international discount operations. By the middle of the first decade of the 2000s, Carrefour operated more than 5,500 discount stores worldwide. The company maintained the Ed store in France, adding the % symbol to underscore its affiliation with the larger store network. The Ed network also replaced its private label with the Dia brand. Continued expansion of its stores’ product mix brought the total number of items to 2,000 by 2007.

Now operating as Ed S.A.S., the Ed network sought new growth in the new century. Franchising became an important part of the group’s network expansion, with the first franchise store opened in 2001. Ed also sought growth through acquisitions. This led to the purchase of 44 Treff Marché stores, which had been operated in the Lorraine, Alsace, and Franche-Comté regions by the Edeka retail group in Germany. That transaction was completed in 2003, and the Treff stores were rebranded under the Ed nameplate.

Ed’s next acquisition came in 2005, when the company acquired more than 100 Penny Market stores, primarily in the northern part of France. The acquisition of the Penny Market stores enabled Ed to reclaim a position as France’s second largest discount store group, edging out Aldi but trailing Lidl. In the meantime, the company had also reached an agreement with Coop Atlantique to open another 100 stores starting in 2004. These efforts helped push the group’s total store number past 800.

Yet Ed set into motion a fresh expansion effort, announcing plans to open a record number of stores through 2006. By the beginning of 2007, Ed operated more than 950 stores throughout France. Backed by the powerful Carrefour group, and specifically by Dia, one of the world’s largest discount store networks, Ed looked forward to regaining the top spot in the French discount market in the new century.

M. L. Cohen