French watchdog asks court to fine Carrefour over franchise operations

A view shows the logo of French retailer Carrefour in front of a supermarket in Montesson near Paris, France, September 13, 2023. REUTERS/Sarah Meyssonnier/file photo

LONDON/PARIS (Reuters) - France's finance ministry has asked a court to fine retailer Carrefour over contracts with franchisee stores that it says were unbalanced in its favour, it said on Tuesday, a move the group denounced.

The ministry's General Directorate for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF) said in a statement that its investigations had found several companies in the group engaging in practices contrary to the French Commercial Code.

The watchdog asked the Commercial Court in Rennes to declare several clauses of the contracts binding the franchisees and the Carrefour Group null and void, and to impose a financial penalty on the group, it said.

Carrefour contested the ministry's "grievances", saying it was intervening in a dispute that began several months ago without providing new information on the merits, and that it had "full confidence" in its ability to demonstrate the validity of its contracts.

The company called the amount of the fine unfounded.

The ministry's complaint is part of the proceedings brought by nearly 170 franchisees at the end of 2023, DGCCRF said.

The statements confirmed a report from French daily newsletter La Lettre which published a legal complaint from the ministry on Monday that claimed Carrefour's contracts with franchisee stores contained "a significant imbalance".

The document recommended a 200 million euro ($215 million) penalty, which the newsletter said was a "record civil fine".

Shares in Carrefour were down 9% at 13.24 euros per share at 1100 GMT, after earlier dropping as much as 9.6%.

Bernstein analysts said investors' reaction to the report was exaggerated.

"We think this court case pertains to a very small number of franchisees and only 200 members of the more than 2,000 franchisees," Bernstein said.

The legal document demands that the company immediately amend around 10 clauses in the franchise contracts, with a penalty of 50,000 euros per day if it fails to take action.

The clauses cover areas such as excessive recommended resale prices and a requirement to source almost exclusively from Carrefour.

Carrefour aims to make half its revenue in France from franchised stores, CEO Alexandre Bompard has said.

($1 = 0.9318 euros)

(Reporting by Samuel Indyk in London and Dominique Vidalon, Dominique Patton and Leigh Thomas in Paris; additional reporting by Dagmarah Mackos; Editing by Amanda Cooper, Jan Harvey and Bernadette Baum)