Daniel Kratinski’s casino bet: can the French retailer be revived?

Czech billionaire Daniel Kratinsky has outmaneuvered rivals with a proposal to bail out heavily debt-ridden French food retailer Casino, but his predicted victory could prove to be a landslide.

France’s sixth-biggest food retailer is in dire straits after years of underinvestment to pay off huge debts, a situation getting worse as it races to negotiate a bailout with creditors.

In a profit warning issued last week, the casino said it would make an operating loss of around €175 million in the first half, while annual operating profit would be almost a quarter lower than what it had predicted only two weeks earlier. Shares of the group have fallen by more than 75 per cent in the last year.

The plan, led by energy veteran and reputed Francophile Kratinski, includes recapitalization and debt restructuring to ease immediate pressure on the company, which has €6.4 billion in debt. Analysts caution that the proposal will provide some relief but does not guarantee that the underlying operational issues can be fixed.

Some question whether Kratinski’s plan to lead the €1.2 billion equity injection will be enough. The casino has lost about 3 percentage points of market share to rivals over the past five years, according to Kantar data, and owners of the Francprix and Monoprix chains are grappling with cash crunch.

“The new cash injection seems too limited to fully relaunch the casino in France,” said Brian Garnier analyst Clément Jeannelot, who thinks it could cost the company up to €3bn to fix. ” “I worry that a further capital injection or, potentially, more physical asset disposals will be necessary in the next year or so.”

The challenges Kratinski and his partners – Marc Ladreit de Lachariere’s Fimlac and hedge fund Atester – will face in turning the group around are immense, partly because of the casino’s strained finances, but also because of France’s highly competitive food retail Also because of the area.

“Food retail in France is less concentrated than in places like the UK and Spain where there are fewer players. This means that the competition is very high,” said Frederic Vallet, retail specialist at Kantar.

Two of the more successful groups, market leader Leclerc and number-three player Intermarche, benefit not only from being unlisted and thus protected from shareholder pressure, but also from operating an alternative business model, whereby stores are run by independent entrepreneurs, not paid workers. Number two player Carrefour is adopting the same approach to try to stay competitive. The entry of discounters Aldi and Lidl about a decade ago has also put pressure on prices.

“There has been a price war going on in France for at least the last decade,” Jeanlot said, adding that those who did not or could not invest in price cuts such as casinos were particularly vulnerable to rising inflation. Were sensitive to losing customers. “Most food retailers are not listed and hence they are more open to renegotiation of prices,” he added.

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Casino troubles have been compounded by the COVID-19 pandemic and the war in Ukraine, with inflationary pressures hurting bottom lines as consumers buy less and become more price conscious.

Barclays analyst Nicolas Champ said, “All this over a span of two or three years, coupled with the impact of Covid and inflation on raw material and operating costs, has compounded the difficulties for some players.”

The long-awaited consolidation wave is now underway. Carrefour announced last week that it was buying 175 stores under the Cora and Match brands from Belgium-based Louis Delhaize Group for about €1 billion, its biggest acquisition in France in decades.

“There is a movement going on in France towards integration and we are taking the initiative. , , We are aggressive,” chief financial officer Matthew Malige told the Financial Times.

As the casino’s woes deepen, rival food retailers have also become predatory, seeking to grab a larger share of its French operations. Intermarche reached an agreement in May with Jean-Charles Naury, the casino’s current controlling shareholder, to buy about 120 stores and last week Lidl made an offer to certain creditors to acquire about 300 Monoprix stores.

The casino was built on debt-based acquisitions, including leveraging multiple holding structures through which Naori controls the retailer. The idea was that revenue from the retail business would pay down debt on the parent companies, but the debt burden became impractical in 2019 due to court-protected restructuring.

However, that move left the casino with little money to invest in its stores and staffing, and also forced it to keep prices higher than competitors.

According to Jeanlot, rebuilding the casino’s price competitiveness will take time, as it often takes a year or more for customers to become aware of pricing policy changes and modify their buying habits.

The casino has attempted to shore up its finances in recent years by selling assets, including its business abroad, particularly in Brazil. However, most of them have been disposed of.

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Kratinski has said he plans to reposition the group around its strength in urban small-format convenience stores in cities such as Paris, as well as through Francprix and Monoprix. The new executives will be led by Philip Palazzi, the former chief operating officer of German retailer Metro, where Kratinski is also a shareholder.

“We will never present a resolution that does not allow the company to deal with its own problems. , , With us, we go through the process once and then deal with the problem. But you really have to accept the financial reality of today,’ Kratinski told the FT in an interview.

Nouri and a court-appointed mediator are examining Kratinski’s offer and are expected to decide by the end of the month whether to proceed. It will still need approval from some creditors, so the reorganization is likely to take several months to finalize, which would see Nouri lose control of his company and virtually wipe out shareholders.

There is some optimism in the industry about the value of casino stores. “Apart from its financial problems, the casino is a great group that has a good portfolio of brands and brands like Franprix, Monoprix. , , They are very profitable,” said the valet in Kantar. “I think they will last. , , (And) I think there will be a good level of energy and investment.

Its hypermarket and supermarket formats have suffered more, and Kratinski indicated that some may have to be sold if they cannot be fixed. After May’s deal with Intermarche, Genlot expects more sales.

“They have to raise another capital. , , Or they will have to sell assets in France. Monoprix is ​​the only option that is possible at the moment. , , If they do, there will be huge interest,” Jeannelot said. “Over the next few years, Kratinski will have to decide how to proceed.”

Czech billionaire Daniel Kratinsky has outmaneuvered rivals with a proposal to bail out heavily debt-ridden French food retailer Casino, but his predicted victory could prove to be a landslide.

France’s sixth-biggest food retailer is in dire straits after years of underinvestment to pay off huge debts, a situation getting worse as it races to negotiate a bailout with creditors.

In a profit warning issued last week, the casino said it would make an operating loss of around €175 million in the first half, while annual operating profit would be almost a quarter lower than what it had predicted only two weeks earlier. Shares of the group have fallen by more than 75 per cent in the last year.

The plan, led by energy veteran and reputed Francophile Kratinski, includes recapitalization and debt restructuring to ease immediate pressure on the company, which has €6.4 billion in debt. Analysts caution that the proposal will provide some relief but does not guarantee that the underlying operational issues can be fixed.

Some question whether Kratinski’s plan to lead the €1.2 billion equity injection will be enough. The casino has lost about 3 percentage points of market share to rivals over the past five years, according to Kantar data, and owners of the Francprix and Monoprix chains are grappling with cash crunch.

“The new cash injection seems too limited to fully relaunch the casino in France,” said Brian Garnier analyst Clément Jeannelot, who thinks it could cost the company up to €3bn to fix. ” “I worry that a further capital injection or, potentially, more physical asset disposals will be necessary in the next year or so.”

The challenges Kratinski and his partners – Marc Ladreit de Lachariere’s Fimlac and hedge fund Atester – will face in turning the group around are immense, partly because of the casino’s strained finances, but also because of France’s highly competitive food retail Also because of the area.

“Food retail in France is less concentrated than in places like the UK and Spain where there are fewer players. This means that the competition is very high,” said Frederic Vallet, retail specialist at Kantar.

Two of the more successful groups, market leader Leclerc and number-three player Intermarche, benefit not only from being unlisted and thus protected from shareholder pressure, but also from operating an alternative business model, whereby stores are run by independent entrepreneurs, not paid workers. Number two player Carrefour is adopting the same approach to try to stay competitive. The entry of discounters Aldi and Lidl about a decade ago has also put pressure on prices.

“There has been a price war going on in France for at least the last decade,” Jeanlot said, adding that those who did not or could not invest in price cuts such as casinos were particularly vulnerable to rising inflation. Were sensitive to losing customers. “Most food retailers are not listed and hence they are more open to renegotiation of prices,” he added.

You are viewing a snapshot of an interactive graphic. This is probably due to being offline or JavaScript is disabled in your browser.

Casino troubles have been compounded by the COVID-19 pandemic and the war in Ukraine, with inflationary pressures hurting bottom lines as consumers buy less and become more price conscious.

Barclays analyst Nicolas Champ said, “All this over a span of two or three years, coupled with the impact of Covid and inflation on raw material and operating costs, has compounded the difficulties for some players.”

The long-awaited consolidation wave is now underway. Carrefour announced last week that it was buying 175 stores under the Cora and Match brands from Belgium-based Louis Delhaize Group for about €1 billion, its biggest acquisition in France in decades.

“There is a movement going on in France towards integration and we are taking the initiative. , , We are aggressive,” chief financial officer Matthew Malige told the Financial Times.

As the casino’s woes deepen, rival food retailers have also become predatory, seeking to grab a larger share of its French operations. Intermarche reached an agreement in May with Jean-Charles Naury, the casino’s current controlling shareholder, to buy about 120 stores and last week Lidl made an offer to certain creditors to acquire about 300 Monoprix stores.

The casino was built on debt-based acquisitions, including leveraging multiple holding structures through which Naori controls the retailer. The idea was that revenue from the retail business would pay down debt on the parent companies, but the debt burden became impractical in 2019 due to court-protected restructuring.

However, that move left the casino with little money to invest in its stores and staffing, and also forced it to keep prices higher than competitors.

According to Jeanlot, rebuilding the casino’s price competitiveness will take time, as it often takes a year or more for customers to become aware of pricing policy changes and modify their buying habits.

The casino has attempted to shore up its finances in recent years by selling assets, including its business abroad, particularly in Brazil. However, most of them have been disposed of.

You are viewing a snapshot of an interactive graphic. This is probably due to being offline or JavaScript is disabled in your browser.

Kratinski has said he plans to reposition the group around its strength in urban small-format convenience stores in cities such as Paris, as well as through Francprix and Monoprix. The new executives will be led by Philip Palazzi, the former chief operating officer of German retailer Metro, where Kratinski is also a shareholder.

“We will never present a resolution that does not allow the company to deal with its own problems. , , With us, we go through the process once and then deal with the problem. But you really have to accept the financial reality of today,’ Kratinski told the FT in an interview.

Nouri and a court-appointed mediator are examining Kratinski’s offer and are expected to decide by the end of the month whether to proceed. It will still need approval from some creditors, so the reorganization is likely to take several months to finalize, which would see Nouri lose control of his company and virtually wipe out shareholders.

There is some optimism in the industry about the value of casino stores. “Apart from its financial problems, the casino is a great group that has a good portfolio of brands and brands like Franprix, Monoprix. , , They are very profitable,” said the valet in Kantar. “I think they will last. , , (And) I think there will be a good level of energy and investment.

Its hypermarket and supermarket formats have suffered more, and Kratinski indicated that some may have to be sold if they cannot be fixed. After May’s deal with Intermarche, Genlot expects more sales.

“They have to raise another capital. , , Or they will have to sell assets in France. Monoprix is ​​the only option that is possible at the moment. , , If they do, there will be huge interest,” Jeannelot said. “Over the next few years, Kratinski will have to decide how to proceed.”