Aim low: Colombian supermarket Carulla Vivero looks to Bogota's humblest shoppers in its bid to outlast competitors

Latin Trade, July, 2005 by Darcy A. Crowe

In this corner, Almacenes Exito, the heavyweight among big supermarket chains in Colombia. In the other, Carulla Vivero, a company that opened its doors in 1905 in the city of Barranquilla, on Colombia's Atlantic Coast. In the middle of the ring stands France's Carrefour, which would like to topple No. 2 Carulla. In this three-way fight, the most interesting factor is that while the other companies are faithfully following their business plans, Carulla has taken a turn away from its normal strategy. The chain is hoping to grow by betting on the country's lowest-income shoppers, an unheard-of approach for a large food-retailer in Colombia.

The traditional rules of the supermarket business dictate that the big chains fight to secure a slice of the highest-income shoppers in the country. The ideal shoppers are middle class or higher. That's been the case for Carrefour and Almacenes Exito. Carulla, only a short time ago, did the same. In 2004, however, it changed the rules of the game and is now betting a large portion of its chips on lower-income food buyers. The idea is to protect itself from Carrefour's assault. The French hypermarket chain is building enormous stores in areas traditionally split between Carulla and Exito.

Carrefour has been the chain that most increased sales during the past year, rising to US$559.4 million in 2004 from $367.6 million the year before. Almacenes Exito has stayed in the lead at $1.32 billion in 2004 sales, putting Carulla in second place at $654.3 million.

"The key for us is coverage," says Samuel Azout, Carulla's president. That hasn't slowed his critics. In a country where the capacity to consume varies drastically from one class to the next, retail experts predict that it will be hard for a supermarket chain to make much of such low incomes. "That's precisely what we're going to do," says Azout. "We have stores and products that are different for each kind of consumer:'

The challenge means a change in Carulla's business plan. The company began at the beginning of the last century, founded by Jose Carulla Vidal, a Catalan trader who landed in Barranquilla to sell Colombian products to Europe and to import into Colombia. The company adapted to new times and its stores became supermarkets. The tradition and strengths of the business are concentrated on quality control and a high selection of goods. But all this has little to do with what it takes to succeed among the lowest-income customers: selling cheap and in high volumes. "It's very hard for the same store that attracts residents of the richest neighborhoods of Bogota to conquer as well its poorest neighborhoods," says Leonidas Oyaga of retailing consultancy The Partnering Group.

To solve this problem, Carulla has diversified its portfolio and purchased Surtimax, a chain that has roots in the unexplored territory of low-income consumers, for an undisclosed sum last year. Surtimax operates 20 establishments in the more populated areas of Colombia's largest cities. This year, Carulla hopes to open seven more stores operating under the Surtimax brand, to further reach that market.

The purchase, however, is only a stepping stone toward expanding in step with the other large supermarket chains in the country. "The competition just keeps on getting tougher," says Gonzalo Restrepo, president of Almacenes Exito. (Restrepo declined to comment on Carulla's initiative.) What is clear is that his company's leadership position is assured. "Investments during recent years have begun to bear fruit," Restrepo says.

Hostilities. Nevertheless, the arrival of Carrefour has rekindled hostilities between the companies in the sector, and the only solution has been to build up an arsenal of more and better stores, leaving a string of challenging financial statements in their wake. Carulla's debt has shot up by 65.3% over the last four years to $297 million, a consequence of accelerated expansion. Up against it with Carrefour, Carulla has also invested to modernize its facilities and has cut marketing expenditures.

But Carulla's future now will depend largely on its businesses in low-income sectors. "In five years, half of the company's growth will come from there," says Pedro Pablo Cuevas, vice president at Carulla. It's a brave stand. After all, Carulla is no longer a family company and must answer to many owners now that the company is listed on the Colombian and U.S. stock exchanges. Newbridge Andean Partners, which owns 34.3% of the company, has said that it plans to divest that stake in the coming years. Through it all, Carulla will have even more reason to shield itself well from Carrefour's onslaught.

DARCY A. CROWE, BOGOTA