Latin America offers promising markets for European retailers

After eastern Europe and Asia, Latin America has developed into the third most important target region for European retailers over the last decade. It offers them great potential demand, fragmented, easy-to-access markets and numerous major centres of population as sites for competitive large-scale store formats.

Compared with the situation in eastern Europe and Asia, however, only a few retailers from France, Portugal and the Netherlands have invested in Latin America so far. The major German and UK retailers are conspicuous by their absence.

The first moves into Latin America were by Holland's SHV and the French group Carrefour into Brazil in the seventies. For a long time, Brazil remained the only South American market of both companies. It wasn't until the eighties that they expanded their presence into Argentina. Subsequently SHV moved into Venezuela, Carrefour into Mexico and the Portuguese group Sonae into Brazil. Smart & Final, the American subsidiary of Casino, opened a number of stores in the Mexican border region. Both SHV and Carrefour focused primarily on consolidating their chains before turning to new markets. By the time they entered their third Latin American markets, Carrefour was already operating 36 hypermarkets, while SHV had 27 cash & carry stores in Brazil and Argentina.

An increasing number of European retailers discovered Latin America as a worthwhile area for expansion in the second half of the nineties. The vast majority of them were large French companies – Auchan, Casino, Castorama, Comptoirs Modernes, Leroy Merlin, Pinault-Printemps-Redoute and Promodès – but they also included Ahold from the Netherlands and Portugal's Jeronimo Martins.
Three out of four new market entries were in this period, most of them in Brazil, followed by Argentina, Colombia, Chile and another eight countries. Before beginning their Latin America involvement, almost all the companies had been active to a varying extent in Spain and Portugal and so had experience of markets of a similar culture. This was indeed the case for the two Portuguese companies.

Thanks to its early market entry and the long absence of European competitors, Carrefour is today the biggest retailer in South America with its two main markets Brazil and Argentina.
96 of Carrefour's 120 stores are in these two countries. The company leads the market in both countries with gross revenues of over five billion euro in each. There are 18 Carrefour stores in Mexico and three each in Chile and Colombia.
The French company originally based its foreign expansion solely on the hypermarket format. The merger with Promodès and Comptoir Modernes explains why its portfolio also includes 250 supermarkets and 200 discount stores. Promodès opened its first Dia discount stores in Argentina in 1997 and established a joint venture with the supermarket chain Norte. Comptoir Modernes also already owned several supermarkets.

After selling its European Makro stores to Metro, the SHV group retained its Asian and Latin American cash & carry operations. Following Brazil in 1972 and Argentina in 1988, SHV moved into Venezuela in 1992 and Colombia in 1995. Since then the Dutch company has concentrated on consolidating its chain of stores. The 60 Makro stores in Latin America achieved sales of around 2.3 billion euro last year. More than half the stores are in Brazil.

Carrefour and SHV pursued identical strategies in transferring their successful European sales formats and strengthening their market presence primarily through new store openings. In almost all cases, they cooperated with local partners who acquired equity interests in the respective national companies.
Ahold and Casino took a different approach, establishing joint ventures or buying shareholdings which they later increased or used as a basis for full takeovers.

In 1996 Ahold acquired a 50% stake in Bompreço, the leading chain in the north-east of Brazil. Two years later, it set up a joint venture with the Argentine group Velox; this joint venture purchased majority interests in the Disco supermarket chain in Argentina and the Santa Isabel chain in Chile.
Ahold's third major investment in Latin America is another joint venture which in 1999 bought a majority shareholding in La Fragua, the leading Guatemalan chain store. At the end of last year, the Dutch company owned a 570-store network of hypermarkets and supermarkets in eight South and Central American countries achieving sales of around five billion euro.

Leaving aside its smaller Smart & Final investment in Mexico, the Casino group was among the later arrivals in Latin America, but soon made a major impact. In 1997 it set up a joint venture with Disco in Uruguay, followed two years later by the opening of a Géant hypermarket in Montevideo. In 1998 it acquired a majority interest in the Argentine hypermarket chain Libertad. A year later, Casino invested in three chain store operations in Brazil, Colombia and Venezuela. In Brazil it purchased a minority stake in Companhia Brasileira de Distribuição (CBD), which ranks just behind market leader Ahold with over 400 stores and a market share of 13 percent. In Colombia it bought a minority interest in Exito, the country's biggest hypermarket chain. Finally it acquired a majority shareholding in Venezuela's leading supermarket retailer Captiven.

At the end of 2000, these companies owned around 630 stores, including 90 hypermarkets and 340 supermarkets, and had estimated sales of 7.5 billion euro. Casino itself posted consolidated net sales of 950 million euro. At present the company is testing its Leader Price discount format in Argentina. If the tests are successful, it would be the second European discount chain after Dia to be introduced in Latin America.

The two Portuguese retail groups Sonae and Jeronimo Martins have so far concentrated on the large Brazilian market.
In 1989 Sonae bought a minority stake in Companhia Real de Distribuiçao and went on progressively to purchase the whole company.
In 1997 Jeronimo Martins acquired the small supermarket chain Se, based in the state of São Paulo. Sonae has over 160 hypermarkets and supermarkets and sales of 1.6 billion euro, while Jeronimo Martins owns just under 50 supermarkets with sales of 0.4 billion euro.

The Latin American presence of the remaining French retailers is more of a bridgehead, with a small number of stores concentrated in one or two markets. Castorama operates three home improvement stores in Brazil, Leroy Merlin four. Auchan has two hypermarkets each in Argentina and Mexico. Not too long ago, Pinault-Printemps-Redoute set up its first two Fnac media stores in Brazil.

Latin America offers the European retailers the advantage of being able to concentrate on a small number of high-potential markets while not having to contend with too many competitors, at least up to now. Apart from the Mexican market, there is no great competition from the USA either. The disadvantages are the frequent economic and financial crises in the Latin American countries which prevent steady business development.

- Study by EHI