The question seems strange for one of the largest distribution groups in Belgium. But it is legitimate as the macroeconomic context of large retailers is tense. Colruyt multiplies diversification activities and invests in sectors far removed from food.
The financial health of large retailers is suffering from record inflation, but also from the end of the “golden period” of the pandemic, when the catering industry was closed. Added to this are the shortages linked to the war in Ukraine and the proliferation of promotions to support purchasing power, which are affecting distributors’ margins.
The financial health of large retailers is suffering from record inflation, but also from the end of the “golden period” of the pandemic, when the catering industry was closed. Added to this are the shortages linked to the war in Ukraine and the proliferation of promotions to support purchasing power, which are affecting distributors’ margins. Colruyt, which is positioned as the best price leader, is also suffering, and perhaps even more so than its competitors. The sign must indeed constantly align itself with the other actors of the large distribution to maintain its promise of the lowest prices. “The ‘Colruyt Best Prices’ format limits increases in these prices as much as possible, which will affect margins”, explains Hans d’Haese, analyst at ING. On the announcement of the results of the Colruyt group, “more disappointing than what we had anticipated”, analyzes Michiel Declercq of KBC Securities, the reaction of the stock market was not long in coming. It’s simple, the Colruyt share lost up to 3.6% from the first exchanges; it fell to 26 euros all round, ie its lowest level since August 2006. It had already fallen sharply in anticipation of the publication of the financial statement. With profitability at half mast, the group is offering a dividend of 1.1 euro to its shareholders, lower than last year (1.47 euro). In addition, the distributor expects its consolidated net profit to decline further this year. If revenues cross the 10 billion euro mark, it is only thanks to the growth of fuel-related activities, positively influenced by price and volume increases since the relaxation of health crisis measures. Operating profit, on the other hand, fell by no less than 28.3%. This means that the retailer’s performance is weaker than expected. “Let’s be on the safe side, in an absolute context, the results may be disappointing, but we shouldn’t over-dramatize,” said Pierre-Alexandre Billiet, CEO of Gondola. The market share in Belgium of Colruyt Group (Colruyt Best Prices, OKay and Spar) increased by 0.2%, although sales were under pressure. With rising costs and low consumer confidence, supermarkets need to invest in lucrative new markets. And in this field, Colruyt is a champion. The group has been active for a long time in sectors other than food, in particular energy, and it does not stop there since its strategy is based on four pillars: food (Colruyt Group, Bio-Planet, OKay, Spar), health and well-being (Newpharma, Jims, SmartWithFood), non-food (Zeb, Dreamland, Dreambaby) and energy (Virya, Dats24). “We believe we can thus reach 25% of the consumer and household budget, or around 9,000 euros per year”, specifies the group’s CEO, Jef Colruyt. This diversification strategy is not to everyone’s taste. “Some acquisitions like that of Newpharma make sense since you can offer them in the store, adds the KBC analyst. Others, on the other hand, largely deviate from core business. “The purchase of the Jims fitness chain, for example, reinforces the image of an opportunistic strategy of acquiring companies at low cost, without any real vision in the background. “Of course, it allows to obtain data on the customers but there is no real synergy and it does not generate net profits”, he adds. “It is not the most strategic company in terms of mass distribution in relation to trends, but is it serious? Many distributors have lost money”, nuances the CEO of Gondola. And if the turnover of the other activities increased by 49.7%, these represented 8.2% of the consolidated turnover. “It’s actually quite limited,” he says. Often perceived as lagging behind in its digital transition, Colruyt also intends to develop the new Xtra application (in reference to the company’s customer card). The aim is to integrate the entire commercial offer as much as possible (Colruyt, Newpharma, Zeb, etc.). “The Xtra app has 800,000 users today. Our goal is to reach 1.5 million next year and 2 million within a few years,” said the group’s president. “On the stock market, Colruyt has lost 5 billion euros in valuation. The brand owes it partly to itself, however, says Jorg Snoeck, of the information platform RetailDetail. It does not dare or cannot change enough quickly and has already missed the digital train several times. This is still a problem. Colruyt has remained the same, but the world has changed and the competition has become much smarter.” For the CEO of Gondola, the question is even to know if the sign does not want or if it cannot change.