Sales guys: Chile's big retailer slash prices, and margins, to grow in a hot retail market

Latin Trade, April, 2005 by Eduardo Coronado

Trimming fat. D&S and Cencosud both recognize that they must learn to survive on thinner margins. D&S is stocking its shelves with more store brands in order to lower prices. For its part, Cencosud says Jumbos policy is to have "the best quality of service and a wider range or lower prices" Even so, fierce competition between the two has not gone unchecked. In early 2004, the Chilean anti-monopoly regulator accused the companies of unfair competitive practices, including selling products at below cost.

Some say that each chain should follow whatever business strategy it wants, and that doing so is good for the consumer and for the economy. "What's important is that there is a healthy business framework that respects commitments and eliminates unilateral changes," says attorney Vasco Costa, president of the Chilean suppliers' association Asociacion Gremial de Industrias Proveedoras.

D&S and Cencosud's storming attack on the market hasn't caught supermarket chains outside the capital surprise. Combined, the two chains control more than 59% of Chile's supermarket sales, yet they set up shop in Chile's urban areas, giving family-owned regional supermarkets room to cater to rural customers. These small stores operate on less floor space and offer a more limited range of products, yet they have established alliances among each other to generate economies of scale.

"We decided to get together with eight other family-owned companies in the central south and make our own chain--Cadesur--so we could import the same products that Lider and Jumbo bring in from Asia," says Enrique Bravo, the owner of the BRYC supermarkets chain. BRYC, a Spanish acronym for "cheap, fast and convenient," (barato, rapido y conveniente) owns 27 stores and expects to ring up sales of $100 million in 2005. "We also have our own store brands, and we're building a plant in [the southern Chilean city of] Coronel to produce our own soft drinks," says Bravo.

Bravo thanks Chile's "crazy geography" for his success. "If I were alone in Santiago, I would obviously face a tremendous threat. BRYC has no more than 1.3% of the national market, but through Cadesur we're the third-largest chain in the country," he says. "In the regions where we operate, our market share is more than 50%."

SHOP SHAPE

Powerhouses D&S Cencosud dominate Chile's supermarkets.

D&S            33.9%
Cencosud       25.4%
San Francisco   3.1%
Unimarc         3.0%
Monserrat       3.0%
Rendic          2.7%
Others         28.9%

Source: Fitch Ratings

Note: Table made from pie chart.

EDUARDO CORONADO * SANTIAGO