Latin American retail continues its vertiginous consolidation, and nothing indicates that the process will cool down in coming months. Brazilian wholesale chain Atacadão’s acquisition of Carrefour for US$1.18 billion in 2007 was followed in May by the announcement of the merger of Chilean firms Falabella and D&S. The list continues, with the alliance between Chile’s Cencosud and France’s Casino to run the Easy chain in Colombia, the upcoming arrival of Chile’s Almacenes Paris in Argentina and Colombia, and multiple rumors about the sale of Wong, Peru’s largest supermarket chain.
Although not involved in these acquisitions and alliances, Wal-Mart is, in reality, causing a large part of this concentration in the region. “Considering that in Mexico and Central America there isn’t much space to keep growing, Wal-Mart’s next movements will be focused on the south, and this is making the rest of the chains strengthen their market share in advance of its arrival,” says Frederic Gautier, head of the Latin American Institute of Distribution Channels (Ilacad), in Buenos Aires.
The war that promised cross attacks at the beginning of this decade between the North American model that is strong in the northern part of the region, and the French model that predominates in a large part of South America, appears to already be defi ned. In the midst of the fall of its sales in Europe, Carrefour decided to pull out of Mexico in 2005, a market in which it was not a relevant actor, and now it will only defend its leading positions in Brazil and Argentina. The Wal-Mart strategy, however, is more offensive.
To anticipate where Wal-Mart will bite next in South America, one has to closely follow the fortunes of trade and political relations between some countries and the United States. “Wal-Mart is strong in Mexico and Central America, where there are free trade agreements with the United States, but it is hesitant to advance too far in markets where it does not have this type of accord, and which are not planning to have them soon,” says Ilacad’s Gautier.
“The chain seeks security for its investments and finds it in countries that, because of a signed free trade agreement with the US, are obligated to maintain their fi scal accounts in order, and maintain a good evolution of their currencies in relation to the dollar. This is why we don’t expect any new movements by Wal-Mart in Argentina, there are expectations in Colombia and there are good possibilities in Peru,” he adds. In fact, the US giant is the fi rst in a list of parties interested in the Wong chain, in tight competition with the Chilean fi rms Falabella, Cencosud and Ripley.
And Brazil? Although there is no free trade agreement in sight, the Lula administration’s macroeconomic policies, far from the populist policies of other countries in the region, and the wide margin for consolidation to continue in that enormous market (only 34.1% of sales in 2006 were shared between the main chains) are magnets for Wal-Mart investments. There, after the purchase of the Bompreço and Sonae chains for more than US$1 billion, in the last three years the US chain went from seventh to third in the retail chain sales ranking. Such an advance whetted the appetite of large retailers for smaller chains. This explains, according to the analysts, the high price Carrefour paid to get Atacadão, a very strong chain in the C and D social sectors.
Apart from building defenses against Wal-Mart’s Brazilian advance, the acquisition of Atacadão goes along with the prevailing retail model in the region. “To be successful today, you must have a multi-format model: a channel focused on low prices, which is the one that allows for more traffic and volume, and also to have other brands oriented to middle and upper segments, which give higher profit margins,” says Salvador Arenas, senior analyst from Chilean financial services firm LarrainVial. Carrefour complies with that maxim: in addition to its super and hypermarket, it owns the discount chain Dia in Brazil and Argentina, and this year launched a dozen Carrefour Express stores in Argentina, a medium sized format with which it is seeking to capture the daily purchases sector. It will have to come face to face with Wal-Mart in this territory. From its series of acquisitions in the region, the US chain inherited small points of sale (of some 500 to 1,000 square meters) oriented to discount with low operating costs.
“Ten years ago, you had to have big points of sale to grow faster,” says Gautier. “Today, you have to have hypermarkets in good areas, medium points of sale, discounts with or without their own brands. It is the diversity of the offer that makes the chains successful.” This diversity will be key for the chains to be able to get a foothold in a business that will continue to consolidate in the region over the next several years. “Supermarkets in Latin America are still not very relevant within food distribution, and this will tend to change as they offer better prices. That is why a push is expected to see who reaches greater scale,” says LarrainVial’s Arenas. The buying dance will continue, then. Although, of course, Wal- Mart will continue to drum the beat.
