Taking A Jab At Wal-Mart

While consumers and food makers fret about genetically modified food, grocery stores have another worry: how to stay alive in an industry that, like all the others, is rapidly consolidating and going global. Wal-Mart is the industry's 600-pound gorilla, a U.S. retailer that dwarfs its competition--and is now lumbering into Europe. Though not eager to admit it, Europe's grocery chains and spacious hypermarkets must counter the threat. Last week two of Europe's largest retailers did just that. Promodes and Carrefour announced a $16.5 billion merger that will create Europe's largest supermarket chain--and a possible foil to the ambitions of Wal-Mart.

Shareholders responded favorably to the deal, and so did the French press. After the bruising takeover fight between BNP, Societe Generale and Paribas that ended two weeks ago, here was a friendly French marriage. In a front-page headline, the daily newspaper Figaro called it a "merger without a crisis." Not quite. French farmers, who tirelessly denounce globalization and American agricultural "imperialism"--from genetically modified grains to McDonald's restaurants--greeted the new French retail champion with scorn. In an ironic twist, Europe's farmers and mom-and-pop stores are no longer threatened merely by gruff, greedy outsiders. European companies themselves, scrambling to build a Pan-European or even global presence, are the new enemy of tradition.

With nearly 9,000 stores in 26 countries, the French combine will be a heavyweight. The newly created company, to be called Carrefour, will have enormous buying power--and that is precisely what frightens French farmers. They envision being strong-armed into lowering their prices. A spokesman for the National Federation of Farmers Unions said the enlarged Carrefour would be a "quasi monopoly," adding: "Suddenly there is one group with the power to buy approximately one third of France's food production. If a producer can't sell to that group, it could mark the end of his business."

Such concerns are shared elsewhere. Carrefour has invested heavily in foreign markets for years--partly because French law has effectively outlawed the construction of vast stores, pioneered by Wal-Mart, which offer economies of scale. If the EU approves this merger, the new group will have 67 stores in Asia and 109 in Latin America. In Spain, the French will command one quarter of the retail market. That fact was enough to spark protests last week by Spanish unions and consumers.

Christian D'Olean, a spokesman for Carrefour, told NEWSWEEK that "protecting ourselves from Wal-Mart is only one element of the merger. There is also a clear need for globalization." Promodes, a family-owned company, was not by itself rich enough to buy up foreign chains, and Carrefour certainly understands that, in a Darwinian corporate era, the only key to survival is to keep getting bigger. That accomplished, the two companies can now turn their attention back to what they stack on their shelves.