Wal-Mart makes robust strides in Brazil

Discount Store News, Jan 20, 1997 by James Mammarella, Pete Hisey

SAO PAULO, BRAZIL - Wal-Mart is using its aggressively friendly service standards and a flair for experimenting with the product mix to make rapid inroads in Brazil. The chain operates two supercenters and three Sam's Clubs, and will add four more supercenters in 1997.

Brazil, with the world's ninth largest economy, features a strong, entrenched retail scene dominated by the native Pao de Acucer chain, international giants Carrefour and Makro, and variety store operator Lojas Americanas, Wal-Mart's financial partner in the market.

Where Argentina generally looks to Europe for its social cues, Brazil looks to the United States. McDonald's, Wendy's, Dunkin' Donuts, The Ramones, Shell Oil and MTV are all at least as popular here than in the States, and a walk through Sao Paulo is not unlike a stroll through Manhattan. What's more, a stroll through most of Brazil's leading retail stores, particularly Extra (the hypermarket division of Pao de Acucer) and Carrefour, is not unlike a visit to a leading American retailer.

But there are many significant differences, and Wal-Mart finds itself with some solid advantages. Its customer service culture may be paramount among them.

This is particularly important in South America because unlike in the United States Wal-Mart has no built-in price advantage. Its competitors enjoy long histories with local vendors and are as modem and streamlined as Wal-mart. Further, the government in Brazil (and Argentina to a lesser extent) often sets prices on certain consumables, such as rice, breads, oils and beans. Retailers can still beat those government-mandated prices, but since there is already little or no profit in them, it doesn't make a lot of sense.

While small shops in Argentina and Brazil have a strong customer service component, larger stores, in general, do not. Most larger stores, including Carrefour, have adopted the European ethic that the customer is fortunate enough to have them available, and if they're unhappy about something, they're welcome to go next door. To Wal-Mart's benefit, a lot of shoppers seem to have taken up the competition on that attitude.

Wal-mart's parking lot in Osasco was notably fuller than was Carrefour's next door. Shoppers within the store seemed to be lingering longer and shopping the whole store. At Carrefour, almost all shoppers appeared to be grocery-only. In all probability, the greater cross-shopping at Wal-Mart strengthens its long-term market position as a one-stop-shopping destination, and its greater percentage of general merchandise sales might insulate it somewhat from future price wars.

One factor driving Wal-Mart's improvement of customer service is its open door policy for hiring and promotion. With college education widely available at nominal or no cost, Brazil has more skilled workers than high-skill jobs. The willingness of Wal-Mart to give decision-making power to young, entry-level associates goes down well with South Americans, many of whom might have had to serve coffee to their elders for years before being given a more responsible role.

On the Brazilian sales floor, Wal-Mart has clear advantages in merchandising selection, depth and presentation, and much has been invented on the spot, rather than imported from the United States.

Food is the raison d'etre for the South America-r supercenter, and Wal-Mart has already made a name for itself by offering expanded product selections, a raft of unique services and often deft merchandising.

The competition is centered around food. Carrefour, for instance, does more than two-thirds of its business in the category, and Extra's food sales also total about 70%. Food is considerably more profitable in Brazil than in the United States, with net profits in the category typically in the 5% of sales range.

Wal-Mart's offering is livelier. The seafood department includes an on-site sushi chef and a kimono-clad demonstrator offering bite-size samples. There are more than 1 million Brazilians of Japanese ancestry, and many Brazilians have developed a taste for traditional Japanese dishes.

A fresh-squeezed juice kiosk, where customers can have juice extracted to order, is a first for any major retailer in Brazil. "We started with orange juice, and the customer kept asking for more," assistant store manager Marcelo Vienna said. "We expanded into carrot, apple, kiwi, mango and sugar cane, and they're still asking for more."

Wal-Mart has also introduced Brazilians to innovations in other merchandise areas. These include a consultant in cosmetics who will do an instant makeover for customers and explain new products, including Brazil's prestige line, Veado de Ouro. Wal-Mart has become the first retailer outside the manufacturer's own stores to sell the line. Other firsts for Brazil: a book and magazine department; checkout lane merchandise stands; and some products that have' come as complete surprises, like laundry baskets.

"For whatever reason, the two-bushel laundry basket just doesn't exist here," said housewares buyer Fernanda Lucarelli, a native Brazilian who interned with Wal-Mart while attending college in the United States. "People have even adapted other products, like a box used to return 24 deposit bottles, for the purpose. But they've seen them on TV and in the movies, and when we opened they reasoned that since we're American we must carry them. We had to do a real rush job."