The Three-Way Fight for Brazilian ShoppersBy and
Maria do Socorro Brito Lyra never leaves her São Paulo home to go shopping without her supermarket circulars. Each of the nation's three biggest grocers promises to match the lowest price offered by a competitor if shoppers come armed with a rival's flyer. "I always pay the lowest price," declares the 34-year-old teacher, waving a fistful of flyers as she stands at a Wal-Mart (WMT) Stores checkout.
In this most open of the large emerging economies, the world's two biggest supermarket chains and a homegrown competitor are battling for dominance. Leading the field is Companhia Brasileira de Distribuicão Grupo Pão de Açúcar, with revenues of $13 billion in 2009. Close behind is France's Carrefour, with sales last year of $12.6 billion. In third place, but making a big push, is the world's No. 1 retailer, Wal-Mart Stores, which operates under several names in Brazil. It racked up $9.5 billion in sales in Brazil last year.
All three plan to invest big in Brazil in coming years. As its middle class expands, annual spending on food is expected to rise 50% over the next five years, to $406 billion, says Carlos Hernandez, a Madrid-based analyst at consultant Planet Retail. Among the emerging nations known as the BRICs, Brazil offers fewer barriers to business than Russia, India, and China. India bans foreign stores that sell multiple brands, and Russia limits expansion by retailers. China is attractive because of its rapid economic growth, expected to be 8% in 2010, vs. 5.8% in Brazil. However, "Brazil is more developed in terms of infrastructure and wealth creation," says Justin Scarborough, a retail analyst at Royal Bank of Scotland in London. "Consumers are used to shopping in hypermarkets, whereas retail in China is more traditional."
Already No. 1 in Mexico, Wal-Mart aims to overtake Carrefour to become No. 2 or No. 1 in Latin America's largest market. The Bentonville (Ark.) retailer plans to spend $1.2 billion this year to open 110 new stores in Brazil, on top of the 436 it now operates. It may also scout out an acquisition, says Héctor Núñez, president of Wal-Mart Brazil. "We have a very, very clear plan to win here in Brazil," he says. "We are investing heavily to start having a much more solid and persuasive presence."
Wal-Mart is opening the cash spigot at a time when Carrefour is contending with the recession in Europe, which accounts for 80% of its revenues. Annual sales growth for the Paris-based chain at home has averaged less than 1% over the last 10 years. To defend its No. 2 position in Brazil, Carrefour is planning to spend $1.4 billion over the next two years. The goal: to add 70 stores and double Brazil's share of Carrefour's overall sales to 20% by 2015. Pão de Açúcar, which is 34% owned by French supermarket chain Casino, says it will invest $2.8 billion to add 300 stores to its 1,080-store chain by 2012.
As the race for shoppers intensifies, Carrefour may have a hard time staving off Wal-Mart's assault. The U.S. company is outspending its rival in Brazil, yet its investment amounts to less than 10% of its overall capital budget. Carrefour is pouring 20% of its budget into Latin America. Predicts James Monro, an analyst at Standard & Poor's (MHP) in London: If Wal-Mart stays on track, it "will inevitably take over the region and become No. 1."