Clicking For Groceries In Brazil
Abilio Diniz was fidgeting in his chair, struggling to stay quiet. The top executives of Grupo Pao de Acucar were fielding questions from journalists who had packed an auditorium at the company's Sao Paulo headquarters one morning in March, eager for news of the supermarket chain's new e-commerce Internet portal. The press conference had already dragged on for an hour, and company president Diniz, 60, wanted to wrap it up. "Remember, we're not a virtual anything. We're a real company with real stores," Diniz interjected. "Are we done now?"
It's no wonder Diniz was anxious to get back to work. Running Brazil's No. 2 food retailer, with a network of 380 supermarkets, is a big job, particularly when you've got giants like Carrefour of France and Wal-Mart Stores Inc. of the U.S. for competitors. Indeed, Pao de Acucar's ability to hold its own against such behemoths is a source of pride in business circles in Brazil, where over the past decade scores of local companies have been gobbled up or sidelined by multinationals. Diniz is no drum-beating nationalist, though. Last year he took on France's Casino Guichard-Perrachon as a minority partner in a deal analysts called a strategic coup.
Now, Diniz is betting on the World Wide Web. Already an Internet pioneer in Brazil, the supermarket chain is launching an e-commerce portal that, when completed in September, will allow Brazilians to shop for their groceries, order a video, and arrange for their dry-cleaning to be picked up--all without leaving their homes or offices. "We're not just battling the competition," Diniz says matter-of-factly. "We're really beating the competition."
CLASH OF TITANS. Once again, Diniz is out to prove that he is more fleet-footed than his rivals. He had been doing battle with Carrefour for years when, in the mid-1990s, Wal-Mart arrived in Brazil. Many analysts predicted that Pao de Acucar would not survive the clash between these two foreign titans. But they were wrong. Diniz embarked on a shopping spree, financed in part through a 1997 listing on the New York Stock Exchange.
In the last three years he's added some 140 stores to his network and plans to open another 50 this year. That fast and furious expansion helped drive up Pao de Acucar sales 32% last year, to $3.2 billion. Yet net profit was down to $35 million because of the devaluation of the Brazilian real. Carrefour, with an estimated $3.7 billion in sales last year, is still the market leader--but maybe not for long. Analysts expect the two chains to log in some $4.4 billion in sales each in 2000.
Retailers in Brazil now find themselves following in Diniz' footsteps. "Pao de Acucar sets the trends," says David Wheeler, retail analyst with Bear, Stearns & Co. in Sao Paulo. With little variation in pricing between the chains, customer service and specialized products are what count. Pao de Acucar was the first chain to keep many of its stores open 24 hours a day. It was also the first to popularize its own brand of food items. Its stores in Sao Paulo's upscale neighborhoods boast gourmet bakeries, and those in the city's Japanese and Jewish neighborhoods carry ethnic fare. Pao de Acucar has even added jazz to its repertoire: On Saturdays, shoppers at some stores cruise the aisles to the strains of live music.
Diniz' shrewdest move yet was to make the enemy of his enemy his friend. In September, he sold a 24% stake to Casino, Carrefour's compatriot and rival, for $865 million. For Diniz, there could not be a more perfect partnership. He still calls the shots at Pao de Acucar, and his war chest, which had been drained by the acquisition binge, has been replenished.
Thus, Pao de Acucar is now armed for a virtual expansion. The chain was one of the first anywhere to go on the Net. Its delivery service, launched in 1995, allows customers to order groceries by phone, fax, or Internet. Sales via the Internet totaled $5.6 million in 1999 and are expected to more than triple this year, thanks in large part to the new e-commerce portal. Soon customers logging on to www.amelia.com.br, will be able to buy products from Pao de Acucar and its partners. The company is negotiating deals with Eastman Kodak, Dryclean USA, and Blockbuster. The site, which will cost $5 million to set up, will also offer advice on health, nutrition, and parenting. "This is a quality-of-life site aimed at the CEO of each household," says Ana Maria Diniz, Diniz' daughter and the chain's vice-president of operations.
In fact, Pao de Acucar has been so aggressive on the Web that investors have begun treating it like an Internet stock, even though less than 1% of its sales are online. Its ADRs, which trade under the company's formal name, Companhia Brasileira de Distribuicao, surged from $27 in early December to $37.50 on Apr. 6, only to fall back to $29.43 on Apr. 26 as investors beat a retreat from tech stocks.
But the recent slide has not derailed Pao de Acucar's plans to cash in on its huge lead in Net grocery shopping, which is more popular in Brazil than in the U.S. In the bygone days of hyperinflation, Brazilians were in the habit of buying in bulk. Though inflation has abated, consumers still find it convenient to order a week's worth of groceries online and have them delivered to their home. Pao de Acucar has "a huge advantage" in e-commerce, says Marcelo Kayath, director of Latin American research for Credit Suisse First Boston Garantia in Sao Paulo. "The barrier to entry for competitors will be enormous."
DOMINANT. Pao de Acucar's Achilles' heel may be its dependence on Diniz. While he stands by his company's motto ("Our people make the difference"), Diniz is clearly the dominant figure at Pao de Acucar. In Brazil, he is a near-celebrity--which can be a curse as well as a blessing. In 1989, he was kidnapped and held for six days by a leftist group. And in December, a Brazilian court upheld a ruling sentencing Diniz to 16 months in jail for a "crime against the financial system," a charge stemming from an allegedly illegal loan made by a credit company owned by Pao de Acucar to the parent company in 1992. Diniz is appealing the ruling, and the markets have shrugged it off. "The chance of someone of his stature going to jail for such an obscure crime is almost nil," says one analyst.
While the case limps through Brazil's court system, Diniz continues to race ahead. He works out three times a day: a swim in the morning, a run or weight-training at lunch, and a game of squash to cap the day. "Sports teaches you to deal better with competition and challenges and helps release stress," he says. As long as Diniz is in perpetual motion, his competitors will be the ones feeling stressed out.