Carrefour SA

PAR:CA

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, welcome to Carrefour First Quarter Sales Conference Call. I now hand over to Selma Bekhechi. Madam, please go ahead.

[Selma Bekhechi]

Good evening to all of you, and welcome to our 2019 first quarter sales call. You have no doubt seen the press release we issued after market closed. You will also find the presentation we will refer throughout the call on our corporate website. Matthieu will run you through the business and financial highlights of our Q1 sales performance, then I will briefly discuss the adoption of the IFRS 16 Accounting Standard. Finally, we will be happy to take your questions. Let me now hand over to Matthieu.

[Matthieu Malige, Chief Financial Officer]

Thank you, Selma. Good afternoon to all of you. Let me first highlight the key messages of our presentation today. In Q1, Carrefour posted sales growth of 2.7% like-for-like driven by a strong performance in Brazil, satisfactory food sales in France, and the high growth in food e-commerce. This quarter saw rapid progress in the implementation of the Carrefour 2022 Transformation Plan. In particular, further initiatives have been taken to improve price and nonprice competitiveness; reallocate underproductive space in hypermarkets; and deepen the digital transformation. We continue to build a sustainable growth model on top of a culture of operational efficiency and financial discipline. Before we look at our Q1 numbers, let me share with you some comments on the progress made in the Carrefour 2022 plan, and some of the new initiatives that we launched in the quarter. As you know, we set ourselves the ambition of being the leader in the food transition for all, and this quarter saw new advantage. Sales of organic products continued their strong growth momentum, up more than 20% in Q1 2019. In France, we saw strong growth of Carrefour organic food offer both in existing dedicated corners in our stores and in new corners opened over the quarter. In Brazil, we have doubled to 49 the number of hypermarkets where we have rolled out organic and healthy food areas. Earlier in April, we completed the acquisition of So Bio, a specialized banner that complements Carrefour BIO. We intend to develop this banner as part of our efforts to further accelerate inorganic products. Carrefour also took initiative in favor of profitability, notably with block chain technology applied to a national brand in Europe in partnership with Nestlé. We're also stepping up the fight against food waste with the deployment in all French supermarkets of the Too Good To Go app from mid-April. A second pillar of our plan is the construction of a sustainable growth model. And hereto, Carrefour made progress in Q1 with numerous initiatives in 5 areas. Let me walk you through them. Number one, we have taken strong steps to strengthen price and nonprice competitiveness in various geographies in Q1. In France, we have invested in the so-called Primes Fidélité, which offers notably 10% rebates on 10,000 private labels and [indiscernible]. There are permanent and substantial discounts given to customers to encourage their loyalty. In April, we also launched the so-called prix imbattables, the best price in the catchment area on 10 daily fruits and vegetables in hypermarkets. In Argentina, we have frozen prices on meat during 3 months in a context of strong inflation, which allowed us to significantly improve both our price positioning and price perception. In Spain, we initiated investments in fresh products in the southern part of the country. In Italy, we launched a new multiformat repositioning called Prezzo ribassato with price decreases on 5,000 products. Number 2, Carrefour has continued to overhaul its commercial proposition in all store formats enriching the offer. We're making progress in our target of reducing assortments by 15% worldwide by 2020, and reworking the offer of Carrefour-branded products towards the goal of having them represent 1/3 of food sales by 2022. Number 3, we decided to systematize our efforts to revamp the hypermarket model. We are continuing to reduce underproductive sales area throughout the group. I remind you that our target is to reduce hypermarket sales area by 400,000 square meters by 2022 throughout the group, mostly in non-food. In France, we recently reopened the hypermarket in Avignon with a model that is inspired by Maxi in Argentina with a reduced sales area, fewer assortments, racking display, and a better price positioning. Carrefour is also developing new commercial concepts, such as in beauty or creating a service area at the entrance of stores to improve the quality of customer reception. We have just opened such a space in [ April ] that brings together financial services, customer relation and services, such as rental, ticketing or parcel collection.In Italy, we have unveiled the plan to adjust hypermarkets and reduce sales area in 5 stores. Carrefour is partnering with best-in-class players to better operate nonfood. For instance, consumer electronic corners operated by Gome will be deployed in 140 hypermarkets in China. Number 4, we continue to invest in the deployment of the omnichannel ecosystem. In Q1, we opened 62 new drives. We have multiplied ticket and delivery services including pedestrian drives in France. In Brazil, we signed the partnership with Rappi, a fast-growing express delivery app. We're also deploying new technologies and recently inaugurated the Carrefour-Google Lab in Paris. Number 5, we are continuing to roll out our growth formats, convenience and cash & carry stores. Atacadão opened 4 new stores in Q1 in Brazil. 4 more stores were converted to the Maxi banner in Argentina. 91 new convenience stores were also opened in several countries in the quarter. The third major pillar of this Transformation Plan is implementing a culture of operational efficiency and financial discipline throughout the group. We also making headway on these fronts. One key aspect of this is the continued transformation of organizations. In France, we have taken new initiatives, and have engaged in a number of organizational changes in our stores and back offices to make organizations flatter and leaner. Functions are changing, and we are encouraging greater versatility. We are adopting new social tools to implement this. Potential headcount reduction is estimated to be around 500. We are also reorganizing operations in Italy, with a plan that is expected to result in a maximum of 590 departures or about 4% of the total workforce. Another key aspect is continuing cost reduction and strengthening the selectivity and productivity of our investments. We confirm we will see the first gains of our purchasing alliances this year. We're also continuing to implement an industrial approach in revamping operating processes of buying these not for resale. After this overview of our further progress in our Transformation Plan, let's now look at our Q1 numbers. As shown on Slide 9 of our presentation, total Q1 sales reached EUR 20 billion at 0.5% at constant exchange rates. The growth includes a minus 1.6% calendar effect marked by Easter, the negative contribution of petrol as well as plus 1.2% relating to openings. Scope, closures and other effects represented minus 0.9%. Note that the quarter was also impacted by a strongly unfavorable currency impact of minus 3.4%, largely due to the Brazilian real and the Argentinian peso. On a like-for-like basis, sales rose plus 2.7%. This performance has been achieved despite competitive markets and a complex macroeconomic environment in a number of our geographies. Let's now take a look at our Q1 sales performance by geography, starting with France. In France, in a new regulatory context marked by the new EGALIM law, Carrefour like-for-like sales rose by 1.0% in total. This was driven by a satisfactory performance in food, at 2% like-for-like, while nonfood remains difficult, dropping by 5.4% like-for-like. Growth momentum in organic products and e-commerce is strong. As a reminder, Q1 numbers last year were impacted on one Saturday by operational disruption in hypermarkets. Since the beginning of the year, we launched new commercial initiatives to improve price and nonprice competitiveness. Price investments have been made in all formats and channels with the new Primes programs launched in February. These programs offer permanent, significant discounts credited under loyalty card to encourage customer loyalty. These discounts are offered across all formats and channels, which is a first for Carrefour. Other initiatives include the launch in April of the Unbeatable prices on 10 fruits and vegetables that are part of the daily diet. Assortments are also being reassessed to better meet customers' expectations with a focus on private labels. The digital strategy and an omnichannel food offer was rolled out with new drives and pedestrian drives. All these initiatives are signs of our determination to restore competitiveness and achieve sustainable growth. Let's move on to our performance in other European countries. Sales in the region reached EUR 5.4 billion, down 1.5% like-for-like. Our performance showed contrasting trends. In Spain, in an environment that remains competitive, like-for-like sales were down 2.8%. Performance was impacted by closures on Sundays in the Levante region. Moreover, following a clean-up in inventory throughout 2018, destocking operations of nonfood products were less significant in 2019 than in the past year, impacting our nonfood performance. Actions launched in late 2018, such as strengthening digital, improving the offer of fresh organic products and private labels will accelerate in 2019. In Italy, like-for-like sales were down minus 3.8%. In a market under pressure, the trend over the quarter remained similar to that of 2018. Sales were also impacted by our decision to reduce underproductive sales area. As you know, we appointed a new management team last fall. After a careful review, a Transformation Plan was unveiled in February. This plan includes a major simplification of the organization, workforce reduction, price investment, sales area reduction and the opening of 300 convenience stores over the next coming years. In Belgium, trends improved sequentially and Carrefour sales were broadly stable. In the persistently competitive environment, Carrefour is rolling out Act For Food initiative. We expect positive customer reaction as evidenced notably by strong growth in organic products. Carrefour continues in Romania at plus 3.3% like-for-like as well as in Poland at plus 3.0% like-for-like. In Poland, commercial initiatives helped to successfully limit the impact of the law on Sunday closures. Now turning to Latin America. Carrefour continued its strong sales momentum with sales of EUR 3.9 billion at 15.6% at constant currency and at 14.5% on a like-for-like basis. In Brazil, sales increased by 6.6% like-for-like with solid growth both at Atacadão and Carrefour Retail. Atacadão posted double-digit growth in total sales and benefited from expansion with 4 additional stores in the quarter. Carrefour Retail for its part posted strong sales acceleration with like-for-like growth of 6.1% in Q1, versus 3.5% in Q4 of last year. This represents its best quarter since Q1 2017. It was notably driven by strong commercial and omnichannel initiatives and good e-commerce performance. Financial services also posted another excellent performance with total billings of 23% in Q1 driven notably by the fast growth of the Atacadão credit card, which now has 1.7 million holders and accounts for 1 quarter of total billings. In Argentina, like-for-like sales were up 49%. The good momentum continued with an acceleration of the growth of sales and volumes, thanks to strong price investment and a permanent focus on customer retention and service. We conclude our geographic overview with Asia. Total sales stood at EUR 1.7 billion, down 3.4% like-for-like. In China, with like-for-like of minus 4.4%, sales remained under pressure in a challenging macroeconomy and competitive environment. Carrefour is continuing to proactively adapt its commercial and operating model with the reduction and reallocation of sales area. A second Le Marché store opened in Shenzhen. The partnership with Gome in consumer electronics will be extended to 140 stores. In Taiwan, like-for-like were down 1.1%. Activity was hit by challenging market conditions during the Chinese New Year campaign. In conclusion, our performance in the first quarter confirms that the strong transformation momentum initiative in 2018 continues at a rapid pace. As you saw, 2019 is a year of deepening of our transformation initiatives to build a sustainable growth model. Our Q1 performance and transformation dynamics confirm the relevance of the Carrefour 2022 plan. We confirm all of our objectives. I will now hand over to Selma to discuss IFRS 16.

[Selma Bekhechi]

Thank you, Matthieu. Indeed another salient feature of this quarter is the application since January 1, 2019, of the IFRS 16 Accounting Standard, which concerns the principles of accounting for leases, which replaces IAS 17 - leases and its interpretations conduct. As an introduction, I would like to state that it is an accounting change that does not impact our economic model. It doesn't change the way in which we run our business, and it will have no cash impact. Carrefour has opted for a simplified retrospective approach. This allows to adopt an updated view of lease contracts some of which were signed a long time ago.Our first half 2019 consolidated financial statements to be published in July, will be established in accordance with the IFRS 16 rules, without restating the 2018 consolidated financial statements. At that time, we would be able to give you a full picture of its impact. We will provide you with pre and post IFRS 16 numbers, both in H1 and in the full year with a bridge to help you understand the impacts. We currently estimate the new IFRS 16 lease liability at around EUR 5 billion as of January 1, 2019. This estimate is still subject to change until the group presents its first half consolidated financial statements, including first-time application on opening balance sheets. Thank you very much for your attention. Matthieu and I are now happy to take your questions.

[Operator]

[Operator Instructions] We have our first question from Arnaud Joly from Societe Generale.

[Arnaud Joly, Equity Analyst]

I have 3 questions on France. The first one you mentioned, 2% like-for-like in food in France. Can you please provide the trends in food for both hypermarkets and supermarket? My second question on the price adjustments for French hypermarkets. Have you really started to invest and reposition the banner? Or is it just to offset the price increases we saw on certain national brands due to the change in regulation? And the last question on the concept essential that we saw in revenue. How many hypermarkets project this concept? And if you can give more flavor regarding the price repositioning or the reduction in the number of SKUs in these hypermarkets?

[Matthieu Malige, Chief Financial Officer]

Thank you, Arnaud. On first question relating to food like-for-like, it's a new information that we decided to share with you today. As you know, food is a key priority in the Carrefour 2022 strategy plan. And in nonfood, we are adapting our presence in order to make sure we have the right approach on a catchment area by catchment area basis. This is why we discussed food. We are satisfied with the 2% food at national level, it's a positive dynamics and shows that the number of initiatives that we're taking in the food segment have been perceived. The second question relates to the pricing policy. As you know, it's not our policy to comment in great details. It's clear that following the implementation of the EGALIM law, there's been a number of prices, which have been increased due to the implementation of the law. There's been also repositioning in a number of other products. It's clear that the market is competitive and that the implementation of the law has not changed the -- or reduced the competitiveness of the market. So we have launched the Primes Fidélité. It's not just an investment in hypers. I think one of the message we want to share is that we -- it's a program that applies to all formats, including online, in order to run the Fidélité points and also to use the Fidélité points. So it is a complete omnichannel program, which is permanent. So we used to have loyalty points, which were given to in catalogs. Now this is a permanent program. So it's just the beginning. We think that the market is still transitioning to the implementation of EGALIM law. We're very happy that [ we choose the offense ] by launching the program quite early after the law was implemented. It's part -- maybe to answer more precisely to your question, it's part of our global need to more competitiveness. We know that we want to build a growth -- and sustainable growth dynamics. We know that Carrefour was behind the curve versus competitors in terms of competitiveness, and that a number of investments were needed. We've made a number of first moves in France, and not only in France during the first quarter. Avignon, so you're right. We opened Avignon just a few weeks ago. The philosophy of hypermarket is really to adapt through each catchment area. We want to have, and that's the case in Avignon, more customer focus, more customer service. We also want to liaise the hypermarket with e-commerce proposition with more drive, really used by that 3,000 square meters, the nonfood section in Avignon, by compacting some families, by also exiting for some -- exiting some of the nonfood category. We have also reviewed the fresh section with new layout with shorter assortments and a strong focus on fresh. In terms of FMCG, we have also reduced the assortment quite substantially and have now presented it in racks. In terms of pricing, specifically, on that point we made substantial investments so that the store is very competitive in its catchment area. So what's the potential? It's really too early to know relative to the store. We have other -- ideas of other stores that we could take. Again, the approach is adapt the store, its definition, its format, its sales area to its catchment area. So we need to have a little more feedback on Avignon and -- before we can draw any conclusions.

[Arnaud Joly, Equity Analyst]

Just a follow-up on my first question. In the future, will you disclose the like-for-like sales growth for food for hyper because this would be very helpful to capture the real performance of the format?

[Matthieu Malige, Chief Financial Officer]

Well, we're not joking. We're happy to give you a little more. I was pretty sure that you would ask for another stat. Again, food is important. We see what's meaningful so you can have a good feeling of the dynamics that are going on inside the group. So we'll see depending on how things will develop and the various initiatives that we take.

[Operator]

The next question is from Xavier Le Mené from BAML.

[Xavier Le Mené]

2 questions if I may. First, maybe a stupid question but technical one. How do you account for the Primes Fidélité? Are they accounted in the sales or not actually, so just to know? And then can you give us a bit more granularity on the progress you've seen since the launch of this initiative, so the Primes Fidélité especially. Have you seen the footfall changing, going up? Have you seen the average basket going up? So any color here will be quite helpful.

[Matthieu Malige, Chief Financial Officer]

I think that the Primes Fidélité is deducted from the sales. So it's really a negative on the top line. In terms of impact, we are happy with the way the customers perceive the implementation of the program. I think they've understood the mechanics. They have developed subscription, which is in line with our expectations. Now it's really early to draw any conclusion beyond that point. First, you credit the loyalty benefit, and then you have the possibility to give them. So I think it's too early to draw any conclusion in terms of customer behavior. Believe me, we are monitoring that very closely. But the good news is that the mechanics is understood, and well understood by customers.

[Operator]

The next question is from Andrew Porteous from HSBC.

[Andrew Ian Porteous, Analyst, European Retail]

A couple for me, all on France actually. Could you -- when you talk about the food like-for-like of 2%, you're also talking about price investments there as well. Is it fair to assume that your food volume growth is above the 2%? If so, are you pleased with the elasticities you're getting when you're investing in prices? And then the other question was on the nonfood side of things. When we see like-for-like down 5.4%, do we assume that this is sort of self-inflicted as a result of your range rationalization? And therefore, would that be positive for profits? Or should we assume that it's more about the market and that will -- it's still a bit of a headwind?

[Matthieu Malige, Chief Financial Officer]

Yes. Thank you, Andrew. I think you get it right that our food like-for-like is impacted by our price investments. I think in terms of its elasticity following on the previous answers to Xavier's question, I think it's really too early. I think it's important that everyone has in mind that the Transformation Plan and the transformation of the hypermarket in particular; and the increasing competitiveness, price and nonprice is really a holistic movement, which includes obviously price investments, but also, all the work we're doing on assortment, the investments we're making on increasing the private label products, improving their quality in terms of food that also includes transforming our stores in terms of commercial concepts, in terms of sales area. So again, it's a holistic movement that takes time. A number of initiatives started last year, including the omnichannel proposition. It is continuing this year, and it will take time. Each quarter, we are moving 1 step at a time. I think it's not possible to draw any mechanical elasticity of 1 specific decision. It's really a holistic movement of competitiveness and attractiveness of our stores that we are implementing. In terms of nonfood, I'd say, it's a little bit of both. The negative nonfood number may seem high. It's been the case for quite some time at Carrefour and marginally for food retailers. Our markets are down. We have a number of e-commerce, especially the number of brick-and-mortar specialists, which are present in this segment. It's also a segment where the markets are difficult in terms of market trends. So I'd say that on this specific quarter, a good portion of the performance is imposed by the markets, these markets are negative. A small portion of it relates to the fact that we are indeed reducing a number of sales area, but most would come from the market.

[Operator]

The next question is from Fabienne Caron.

[Fabienne Caron, Head of Food Retail Sector]

2 questions for me. The first one, Matthieu, how do you make -- for France only, how do you make consumer aware that you are reducing prices? How do they know that you are getting cheaper? You do it through a marketing effort? Do they get an email? So how is it Tier 4 French consumers that [ you made it more difficult? ] And the second question, can you give us in terms of percentage based on your cardholder in France how much have enrolled so far to your Primes Fidélité, please?

[Matthieu Malige, Chief Financial Officer]

Thank you, Fabienne. You're right, investing in price is key, and in order to accelerate the perception and the elasticity that we are trying to generate with our investments, communication, and making sure that our customers perceive the price investments we're making is a key element. So we have -- so we communicate, obviously, on sites. It's very, very visible. We also have a number of data relating to our customers, so we have the possibility to have a more direct and personalized discussion and contact with them. And we're also making mass communication in order to make our options as visible as possible. So that's on communication. Then in terms of the progress of the Primes Fidélité, and it is obviously very sensitive data that we cannot share for obvious competitive reasons. Again, I will repeat what I said earlier that so far, the level of subscription is one thing that is in line with our expectations.

[Operator]

The next question is from Cedric Lecasble from MainFirst.

[Cedric Lecasble, Research Analyst]

I have 2 actually. So first one on the way you monitor initiatives versus cost savings. Are you still in the kind of same philosophy of trying to get the cost savings before you invest? And should we expect some moves into phasing as cost savings throughout the year in your EUR 1 billion kind of speed on an annual basis? Do you see some -- do you expect more initiatives in the last quarter of the year, for instance? So should we be prepared for some volatility in this? The second question is on France. Should we consider that the legal changes and to be sure that legal frame was fair? You waited a little bit maybe with negotiations being sure of having good terms and maybe all the commercial actions you were planning to do were a little put forward because of the negotiations on the one side and the new legal frame on the second, i.e. could we see an acceleration in commercial initiatives in the next quarters? And last question on the other European countries. It would be extremely useful to have the same information without going into the breakdown of formats that you don't want to give in France. And if we could have the food numbers for Italy, Spain and Belgium, like-for-like, it would be great.

[Matthieu Malige, Chief Financial Officer]

Thank you, Cedric, for these questions. On the first one, maybe one word about the philosophy of our strategic plan. As you know, and I think I said about earlier Carrefour was behind the curve that is competitive in terms of attractiveness and competitiveness. And so we knew we would have to capture in order to return to a sustainable pace of growth. So we're still in the early stage of a plan where substantial investments are required in our prices or shopping experience and our omnichannel offering. The objective is to regain price and nonprice competitiveness in order to rebuild a sustainable sales dynamic. And these sustainable top line dynamics will then drive profits and free cash flow growth. That's the philosophy. Now practically, you know that -- and I think we commented that earlier that these price investments started in 2018, and they're an important point of 2019 as you can see in our communication today. You're right, our cost savings gave us resources for these investments and the strong dynamics of cost savings gives us more resources for these investments. Then, obviously, depending on market dynamics and the competitive intensity we see what part of the cost savings can be retained to support profit. As you understand, we're determined to relaunch sales growth. That's no change in the philosophy of the plan. On France, I think the answer is, yes. We waited until the legal framework was clearly defined before we launched our prefeasibility program. You may remember that last year we decided to invest very early into the year in the pricing of supermarket. It was a standard price repositioning. As far as the hypermarkets is concerned, it's a more complex commercial policy where promotion plays an important role. We think -- we thought it wouldn't make sense to have entered into a new commercial mechanics without knowing precisely what would be the legal framework for implementing commercial operations. So yes, we wait. And as soon we waited and as soon as the legal framework was clearly precise and in place, we started to launch our program. And I take good note of your point on the third item relating to food like-for-like in other geographies.

[Cedric Lecasble, Research Analyst]

Maybe I can ask it differently, if I may. These markets might be -- especially Italy was also restructuring plan a little bit more -- are you more confident on your ability to change things rapidly to get this inflection in France than in the other markets? Or do believe that as -- nothing has really started in terms of huge initiatives in these markets you still have some hope to get this inflection going forward?

[Matthieu Malige, Chief Financial Officer]

Yes. Well, first of all, on food/nonfood I think that the dynamics that you read through our French numbers where food has better dynamics than nonfood. I think that dynamics applies to all of our European markets and it's not just Carrefour. Again, it's a market trend. Now in terms of food performance and how we can transform our operations. We are taking a number of initiatives. I have mentioned a number of them in my speech. In all our countries and are convinced that by implementing our plan, again, it's a holistic approach on pricing, on nonprice investments, we improve the competitiveness of our store. The fact that we were behind the curve in terms of competitiveness also applies to our other European countries. So we are implementing our initiatives by reducing our cost and we're progressing step-by-step in this holistic approach, and we are confident that by implementing these actions we will regain attractiveness in these markets.

[Operator]

The next question is from Bruno Monteyne from Bernstein.

[Bruno Monteyne, Senior Analyst]

I'm going to first come back to 2 of the previous questions. The first one is on the food like-for-like in France. I know it's in your measure. But can you say whether it has materially improved in quarter 1 versus the previous quarter 4 in France, as a new measure? My second question is going back to the last section on -- you made clear last year that price investments and quality investments were ahead of the cost savings in France. If I really listen to your answer carefully just a few minutes ago, you're still saying that it's still the case as of this time in France. You're still investing in France and do cost savings. Did I understand that correctly? And the third one is on your total lease liability of EUR 5 billion, you have a bit more than EUR 1 billion in rent payment. So it seems quite a low multiplier as you only have five times the rent than lease liability. Do you have any indicators why that's so different from other European peers? Is it because of a higher discount rate in Brazil and Argentina, for example, or what would be driving the much lower multiplier?

[Matthieu Malige, Chief Financial Officer]

Thank you, Bruno. On food like-for-like, I think the -- well, it's hard to read. You know that Q4 was very particular in -- with the yellow vest movement. So I think that -- well, the dynamics is steady. We do not think that -- well, again, the change in hypermarkets and change in competitiveness is something that will take time. We are investing on all areas step-by-step, and I think it's too early to say that there's been an inflection in the trend. That's clearly not our message tonight. In terms of price investments, in France, let me maybe precise that. You're right that in 2018, there were a number of elements. The first one is that we started the year quite behind the curve in a number of areas and that's clearly penalized our like-for-like in France. And we decided to make up front investments early in the year, notably in the supermarkets, ahead of the benefit from the cost savings. That has put our recurring operating income under pressure. And as you saw in our full year numbers, recurring operating income was down. For 2019, well, 3 points. The first one is I think we're starting the year in a slightly better position than last year, after having made first investments in 2018 and having put on the side of the road a number of legacy topics relating to the size of the headquarters, relating to the [ exit year perimeter ]. Then a number of the cost-savings measures that we initiated last year will impact our P&L this year. So we have much more cost savings that we're expecting to impact the French P&L in 2019 that relates to the HQ reorganization of last year, that includes the purchasing alliances including [ Foreign Language ] and some other cost-saving initiatives that we have launched. In the meantime, and in parallel to that, we are launching new commercial and pricing initiatives. I think I've mentioned them, the cream, the unbeatable prices in fruits and vegetables, and we're also making non-price investments. So I think the dynamics of 2019 will be different with more cost savings that we are expecting to impact the P&L. Now it's obviously too early to comment for the profitability for the year. But clearly, we expect more cost savings in France in 2019 than was the case last year. Then on your -- on the lease liability, well there are several aspects. The first one is that we have shorter rents probably than competitors. Notably a number of Anglo-Saxon competitors are present in the U.K. or the U.S. may have long term leases. You know in IFRS 16 the duration of the liability relates to the [ Foreign Language ] of presence in the store. So if we have shorter-term contracts, it may lead to a lower multiplier. We'll get more into details in the H1 publication when we have finalized our works. Again, it was a first rough estimate that we wanted to share with you today.

[Operator]

The next question is from Carole Madjo from Exane BNP Paribas.

[Carole Gladys Madjo, Research Analyst]

2 questions for me. So first one, now that your -- the decisions with suppliers are behind us, can you maybe share some feedbacks on your alliances with Système U and Tesco, and how you benefit from it? Second question just to come back on the hypermarkets. So you mentioned that of course there is still no inflection point, but the reason you should be able to maintain a flattish to positive LFL growth in the hyper in the next quarter.And just lastly, on the yellow vest, you didn't mention yellow vests for Q1. So should we assume that the impact was very, very limited?

[Matthieu Malige, Chief Financial Officer]

Thank you, Carole. In terms of first the sourcing alliance, we indeed are very happy that we've been able to start these alliances last year and that we conducted this negotiation campaign being not isolated. Together with Système U, the teams have gotten well in order to implement and run the negotiations. So -- but it's hard to comment precisely on how the negotiation went and what's the outcome. I confirm right here that we record the first gains as early as 2019. Again, it's -- and I think that's an important point, it's a long-term agreement that we have with Système U, it's a 5-year agreement. The partnership for sourcing with Tesco is a 3-year agreement. So it's -- first year we saw gains and we're confident for the future of this partnership. On like-for-like, in hypers and what we expect for Q2, we see -- I'm not going to make any speculation for Q2. Let me just remind you that we're benefiting in this quarter from the strikes at the end of the quarter in -- of the first quarter in 2018. So we have a slight positive effect due to lower historicals in the hypers sales last year. Third question on the yellow vest. It still have an impact in Q1. It's clearly, far less -- far more limited, far less than the impact we suffered from in Q4. However, we still have some stores notably in city centers, which have to close on some Saturdays. We still have some stores which were deteriorated and had to close. And I think more generally and that's probably difficult to quantify, there's a mood for shopping on Saturdays, which is not perfect with this atmosphere of strikes and demonstrations. So overall, not a very good climate in Q1 due to the yellow vests but clearly, nothing to compare this with Q4.

[Operator]

Your next question is from Sreedhar Mahamkali from Macquarie.

[Sreedhar Mahamkali, Analyst]

Matthieu, just one quick follow-up and 3 questions. Just -- again, sorry to go back to the French food like-for-like, the 2%. You've had this disclosure on and off in prior years. Are you now saying we will get this every quarter going forward?

[Matthieu Malige, Chief Financial Officer]

I'm not saying that. I think it's an important point for you to understand the dynamics, as food is a priority. So, obviously, through the questions tonight, I understand it's a point of strong interest, so we take that into consideration.

[Sreedhar Mahamkali, Analyst]

Okay. And then just following on that. Again, sorry to belabor the point, the 2% number. You said the technical impact or small benefit, are you able to give us a sense if that -- what sort of magnitude roughly? And adjusted for that, why not calling an inflection point for food like-for-like in France? Are there any factors that we should keep in mind for the rest of the year that may make it substantially different to an adjusted 2% number for the rest of the year? That's the first question. Second one just going back to price investments, is the focus of your price investments private label and loyalty only? If so, why not brands? And what about noncard holders? And the last one, the dull and boring consensus question. What do you see it as? And any thoughts on how you feel about it?

[Matthieu Malige, Chief Financial Officer]

Thank you, Sreedhar. So on the impact on historicals, you know we -- it's not completely our style to isolate this or that item. We did not precisely quantify the [ year overheads ]. We did not really personalize the social movements last year. I think we have to lead with these ups and downs. It's part of the life of a retailer. So that's our performance. We did, for respect, and for you to have a fair understanding of the performance of the quarter to the point on that to be comprehensive. I think -- and that also relates to your question on consensus. For the rest of the year, we see -- we're not making any forecast. We're still very early in the year and it was a small Q1 with Easter being in Q2 this year. Hard to forecast. We know that the environment is challenging and volatile from a macro standpoint. We also suffered from Forex impact and obviously, and notably in Europe political and social instabilities each year. I think more importantly, I answered that in an earlier question, the new legal framework is in place. Everyone is still monitoring and assessing the reaction. So I think it's -- was really a transition quarter this Q1. I think that the message is that there's a lot to do and a lot more to do in order to revamp the hypermarkets model in order to regain competitiveness. We think there's a lot to do. This is why we are implementing these investments in pricing and we are accelerating in all our levels of the plan. There is still more to be done and we need more time to make it more visible and make it more larger -- large scale.

[Operator]

The next question is from Maxime Mallet from Deutsche Bank.

[Maxime Mallet, Research Analyst]

Most of them have been asked, actually. But out of curiosity, the first one would be with regard to the duty promotion operation that started, I think, this year, 2 weeks earlier than the previous year. And according to IRI, it drove HBC sales up 7% for hypers and supers in March. So I was wondering whether you could give us some color of how this develops your sales in Q1 and if this is including the plus 2% of food like-for-like you've mentioned. The second one was regards to the April sale concepts in Avignon that you discussed. You mentioned that you've made some price investment which is [ the concept ]. Can you maybe give us some color about where the store is positioned now versus before moving to this concept? Or you mentioned the competitive catchment area. Where does it try to position like best-in-class in terms of pricing? And if you expect already to launch this kind of concept after [ finish ] contracting all the stores and how long do you think it take for you to test it before wider large-scale deployment for this one? And the last one, with regards to Italy and the transition plan you mentioned. When do you expect this transition plan will start to bear fruit and show some results on the sales side?

[Matthieu Malige, Chief Financial Officer]

Thank you, Maxime. So well, there are commercial operations from 1 year to another. They may move from date. I think that's life of retail. It's hard to quantify what's the impact of 1 specific company. So it is included in our numbers, I mean the sales are what the sales are. I don't know what the impact -- I think it's really life of the commercial operations. Coming to Avignon, so yes, it's a concept. Again, the philosophy is to adapt to each catchment area so it's a concept that we have designed to be efficient to be lean, to be simple and to be competitive. Then where it leads? What's the reaction of competitors to our pricing investments? It's clearly a model in the catchment area. We think that we need to be well positioned and, clearly, well attractive for customers because there is a strong sensitivity in that catchment area to the price competitiveness of our store. Now it's really moving parts. It is just 2 or 3 weeks, so we need more time to assess where we are and how competitors react. How long will it take us before we can take any decision and potential implementation? I was told it's really too early to say. It will obviously depend on what the nature and the magnitude of the reactions. Well, clearly, to date it's too early. In terms of Italy -- so, the transition plan was just announced just 6 or 8 weeks ago. And as you've seen it's a very comprehensive plan, which includes the main items of the Carrefour 2022 strategic plan. With a focus on reducing further levels, strong focus on the hypermarkets format and how it can be transformed. And there's also strong investments in pricing. As I mentioned, in my speech, 5,000 products, which are repositioned. How long will it take before we see the first signs? Well, again, very difficult to know. Clearly, too early. I think you have to keep in mind that this implemented in the context of the specific Italian market environment, which is quite volatile and quite difficult at the moment. I think we have time for a last question.

[Operator]

The next question is from Nick Coulter from Citigroup.

[Nick Coulter, Director]

2 quick ones, if I may. Firstly, please could you comment on whether you were volume positive in the French hypers [ for ] food? I guess the initial read would be that the food volumes in the hypers were incrementally down. But I just wanted to get your directional sense there, if I may, please.And then secondly, could you also give an indication of the like-for-like contribution from online grocery, again, in France?

[Matthieu Malige, Chief Financial Officer]

Well, I don't have the volume in mind in the French hypers but -- well, again, the sales are stable. We have some technical effect, which benefited a little bit the sales. So I don't have a precise number in mind. In terms of e-commerce, we said that the growth rate at group level is above 30%. We don't disclose it specifically for France but given the base effect where the activity of online is stronger in France. It's a lower percentage level, but still a high percentage. So we're very satisfied with the dynamics of e-commerce in France. This is why we're accelerating. We're accelerating with more [ drives ]. We're accelerating with a [ Drive coupon ]. We're investing with the fulfillment hubs. We opened a new one in January in the outskirts of Paris in order to prepare our online orders with speed, with efficiency, with lower cost and with a high-quality of preparation. So strong dynamics in food e-commerce in France and more investments to be done. We know it's a priority for us. It's one of the growth areas that we have, and we are convinced that it's a very interesting tool to attract new customers. This is what we see notably with a [ Drive coupon ] that we have a number of new customers that are joining Carrefour. And it's also an interesting tweak to develop the loyalty of existing customers and no doubt that the [ pre-existing ] mechanics be omnichannel will even further reinforce -- or contribute to improving the loyalty of customers.

[Nick Coulter, Director]

But of that 1% like-for-like in France, are you seeing a 10 or 15 basis points of contribution from online? Is it registering yet in terms of its impact?

[Matthieu Malige, Chief Financial Officer]

Well, I think that now food e-commerce is -- it's still small, but it's not nothing. And again, the dynamics is positive. So hard to give you a precise number. I don't have it in mind right now, but good dynamic from online. Well, thank you very much, Nick. Thank you very much, all of you, for attending this call tonight and for your question. And we'll gather again for H1 release at the end of July. Thank you very much, and have a nice evening.

[Operator]

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.