Carrefour collapses in Paris, risks 200 million fine

(Il Sole 24 Ore Radiocor) - Slip of Carrefour on the Paris Stock Exchange (CAC 40 ), following press rumours that the Ministry of Economy has demanded a hefty fine for the group due to the "imbalance" of its contractual relations with franchise shops. The stock is among the worst in Europe.

According to information published by 'La Lettre' late Monday evening, the Minister of the Economy, Bruno Le Maire, in a 160-page document would recommend 'the imposition of a fine of 200 million euro' against Carrefour for 'abusive practices committed by the latter to the detriment of its franchisees and tenants'. The company would be asked to revise the contractual relationship, judged to be too unbalanced due to a dozen clauses in particular.

In a statement, Carrefour has vigorously contested the Ministry of Economy's charges concerning the management of the franchise network and says it has 'total confidence' in the 'perfect validity of its contracts'. The group also disputes 'the wholly disproportionate nature of the sanction, which can only be decided by the court hearing the case'. The 'voluntary intervention conclusions' from the French Ministry of the Economy are highly critical of Carrefour, according to documentation consulted by Afp. The contractual modalities with respect to franchised shops adopted by the large retail group are defined as 'characteristic of practices restrictive of competition' and 'consist in concrete terms in asphyxiating the franchisees by using a position of strength'.

The ministry relied on an investigation carried out by the Regional Directorate of Economy, Employment, Labour and Solidarity (Dreets) of Normandy between July 2019 and March 2022, initiated after a complaint lodged by 'an association of Carrefour franchisees' with the Rennes court in 2023. Bercy noted that there are 'numerous obligations' in the contracts between Carrefour and its franchisees that are 'disproportionate to the usual rules of how a franchise operates'. It should be pointed out that large retail groups in France frequently rely on franchised stores, in which independent traders pay a commission for using the group's brand name and obtain their supplies from its central purchasing department. At the same time, the group can increase sales without incurring many operating costs. In the case of Carrefour, franchising is one of the pillars of number one Alexandre Bompard's strategy in France, where more than half of the group's turnover is generated by franchisees and manager-tenants. However, the modalities of the contracts differ from group to group.

In the opinion of the Ministry of Economy, Carrefour's practices 'are contrary to public economic order and justify a civil fine' in the amount of EUR 200 million. Bercy is also asking that the injunction to Carrefour to cease such practices be accompanied by a penalty payment of 50,000 euros per day for each day of delay with respect to the court's verdict. as the operators point out, the ministry's stance, however, does not prejudge the court's decision, which in any case will not come until several months from now. In a note, analysts at Kepler Chevreux point out that among the clauses in the contracts with Carrefour denounced by the franchisees are the excessive and non-competitive recommended resale prices, the obligation to source almost exclusively from Carrefour, and the clause on early termination of the contract for the sole benefit of the franchisor (i.e. Carrefour). The group was keen to point out to analysts that the ministry's request is not equivalent to a decision by the judiciary and that court decisions to date have been favourable to the company. 'However, this is the first time that the public authorities have taken such a clear and negative position,' Kepler Cheuvreux experts emphasised, concluding that this casts serious doubt on Carrefour's business model and profitability in France.