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©2010 RetailNet Group LLC www.RetailNetGroup.com
Latin America Edition
Cash & Carry: The New Hypermarket in Latin America?
For the last 15 years the largest retailers in Latin America – Walmart, Carrefour, Soriana, Pão de
Açúcar, Cencosud – relied heavily on hypermarkets as their primary growth engines to establish
a dominant presence across key markets.
As we look out at key drivers of change –saturation/concentration levels as industry drivers and
urbanization and middle class growth as societal drivers – we see growth in the next 3 to 5 years
coming from new store types & formats that are fundamentally different than what we are
accustomed to.
One of them is a segment belonging to the Warehouse Club channel – Cash & Carry – a key
format that was historically used to introduce modern retail to developing markets but in the
future will be used as a key vehicle for growth in emerging markets like Brazil.
Read on for our thoughts on this important segment and the implications for branded
manufacturers.
Aaron Chio
www.retailnetgroup.com
©2010 RetailNet Group LLC www.RetailNetGroup.com
Latin America Edition
Cash & Carry in Latin America
There are two major segments that comprise the Warehouse Club channel - one requiring
shoppers to purchase a membership fee (Membership Clubs) and another one that does not (Cash
& Carry). Major warehouse club players in Latin America include Makro, Price Smart, Costco,
SAMs Club, and City Club (Soriana). Cash & Carry operators are led primarily by Atacadao
(Carrefour), Assai (Pão de Açúcar), and Maxxi (Walmart).
When we look at the projected share of volume for these two segments as a percentage of the
total Warehouse Club channel in Latin America, we find something extremely compelling:
By 2014E Brazil’s Cash & Carry segment will be almost 1.5x larger than Mexico’s,
despite the fact that they are similar in size in 2010E. In addition, Brazil’s Cash & Carry
segment alone will account for almost 50% of all the volume in the Warehouse Club
channel in Latin America.
Put in a different way, Brazil’s Cash & Carry segment will be larger than Mexico’s and
Central America’s warehouse club channel volume combined.
Source: RetailNet Group; sales in constant 2009 USD
Unlike Mexico, where Membership Club has been the leading growth segment for the
Warehouse Club channel, Brazil’s leading segment will be Cash & Carry – a small difference on
paper but of extreme significance in terms of the implications for strategic alignment and
customer segmentation for branded manufacturers.
Why will Brazil have such a different growth profile than elsewhere in Latin America?
Carrefour, a key player driving the Cash & Carry charge in Brazil, understands that a
multi-format strategy is needed to succeed in Brazil and Atacadao is one of the key
answers here.
The Cash & Carry format has some of the lowest distribution cost ratios in retail, making
it very attractive for retailers to operate these stores and creating immediate value for
shoppers in the trading areas.
These large boxes can address upwards of 70% of Brazilian households in lower income
catchment areas, particularly in the peripheries of major metropolitan areas. The same
way hypermarkets captured higher income and aspirational shoppers Cash & Carry will
capture lower income shoppers and traders (i.e., mom & pops)
Zone Segment Sales '10EShare of Latin America '10E
Warehouse Club ChannelSales '14E
Share of Latin America '14E
Warehouse Club Channel
Cash & Carry 8,165,584 42% 13,571,096 47%
Membership Club 856,304 4% 1,163,588 4%
Membership Club 1,177,891 6% 2,015,810 7%
Cash & Carry 52,079 0% 73,040 0%
Cash & Carry 61,856 0% 64,943 0%
Membership Club 8,017,875 41% 9,888,676 34%
South America Cash & Carry 1,314,601 7% 2,200,295 8%
TOTAL 19,646,190 100% 28,977,449 100%
Brazil
Central
America/Caribbean
Mexico
©2010 RetailNet Group LLC www.RetailNetGroup.com
Latin America Edition
Brazil has one of the most promising growth curves for lower income shoppers &
consumers – the C, D, and E brackets – and Cash & Carry stores are one of the most
efficient ways of capturing their spend.
Critical Success Factors for Cash & Carry
A great example for understanding the critical success factors for the Cash & Carry format is
European retailer METRO.
As the world’s 3rd
largest retailer, METRO evolved its business over the last 14 years from being
extremely concentrated in Germany to becoming a major international player with operations in
30+ markets today. RNG forecasts that 50% of their revenues will be concentrated in their Cash
& Carry format by 2014E.
This is a great parallel to some of the major Latin American retailers who are becoming
increasingly vested in multi-continental growth.
Source: RetailNet Group; METRO presentation
METRO attributes part of their success to their ability to replicate and optimize their stores
for multiple markets but also to several critical success factors that are relevant across the
spectrum of Cash & Carry operators. These include:
First mover advantage. Cash & Carry models tend to appear early on in market
development and they can give operators an early start on key competitors.
Real estate. With a first mover advantage comes first pick on real estate, allowing
retailers to find less expensive land than followers.
Focus on driving value for shoppers. The no frills environment of Cash & Carry stores
are all about driving efficiencies through labor and supply chain management, driving
high levels of value on a limited number of fast moving SKUs.
Focus on an under-served shopper segment in emerging markets. METRO uses a
defined development cycle management concept to target individual shopper segments,
©2010 RetailNet Group LLC www.RetailNetGroup.com
Latin America Edition
beginning with small retail (traders) and later on HoReCa (hotels, restaurants, caterers) as
the market, shoppers, and stores mature.
Capital efficient model. In the case of METRO, return on capital employed (RoCE) is
very high at over 35% while other retailers are typically in the 20% to 30% range.
Product mix. In developed markets, 80% of the store is typically dedicated to food and
consumables while in developing markets this jumps to +90%. The focus on fast moving
goods while limiting inventory on higher ticket items can be an advantage. This also
shows that retailers understand the informal/traditional trade – in a market like Colombia,
for example, there are over 150,000 mom & pops alone, a key shopper segment for cash
& carry stores.
In addition these stores have a clearly defined shopping experience which is consistent on a
market by market basis:
Practical, not experiential shopping environment. Stores are targeted to the needs of
professionals who place significant value on a fast, efficient, flexible and convenient
experience.
Clearly defined shopper groups. In the case of METRO, these are small retail (traders),
HoReCa (Hotels, Restaurants, Catering), and lastly SCOs (Service Companies, Offices).
This narrow focus allows them to concentrate on what matters the most to these crucial
buying groups.
Source: METRO presentation
Merchandisability. Clearly arranged merchandise with wide aisles and a no-frills
environment for ease of navigation and shoppability. In RNG’s experience, stores in
developing markets will typically index higher on merchandisability vs. developed
markets.
Shopper first mentality. Some stores will feature large, partly roof-covered parking to
allow shoppers to load the merchandise into their cars/trucks without worrying about the
weather.
©2010 RetailNet Group LLC www.RetailNetGroup.com
Latin America Edition
Source: RetailNet Group store visit; Carrefour’s Atacadao in Sao Paulo, Brazil
2015 and Beyond: What’s Next for Cash & Carry in Latin America?
As we look out to 2015 our analysis of market dynamics tells us the landscape will
fundamentally transform as the Warehouse Club channel, and in particular the Cash & Carry
segment, is repositioned. Large retailers like Carrefour (Atacadao), Pão de Açúcar (Assai), and
even Walmart (Maxxi) will dedicate a greater share of their capital expenditures to growing these
formats across key markets like Brazil.
As markets continue to urbanize throughout Latin America, these Cash & Carry stores will be a
good fit for lower income shoppers who typically settle in the peripheries of major metropolitan
areas. Those retailers and brands that address this growing opportunity will find new pockets of
growth that today are not clearly evident.
Looking at METRO in Europe today it is clear the retailer is already undergoing a fundamental
transformation in how it targets and clusters its store base by geography, affecting both the size
of the store and its assortment which inevitably creates new complexities, challenges and
opportunities for all parties involved.
Source: METRO presentation
The implications for Latin American retailers are clear: the markets/regions where the modern
trade is more developed will see smaller, more targeted stores that very carefully mimic the
©2010 RetailNet Group LLC www.RetailNetGroup.com
Latin America Edition
socio-economic needs of the region. In more developed markets, urban variations are likely to
prevail but will inevitably follow the principles we’ve outlined to be successful.
Brand Implications
Based on our expectations for the Cash & Carry format, there are a few key questions and
considerations for brands.
Invest ahead of scale. Retailers like Carrefour Atacadao are entering new markets with
Cash & Carry formats in Latin America. These stores do not have massive scale yet but
they could be a great investment for the future.
Lack of scale means no dedicated resources. Since some of these new formats might
be too small to have fully dedicated teams, how will your organization work with these
customers when they are small to ensure you are a key partner when they gain
appropriate scale?
Customer tiring. Are customers in the Cash & Carry space more/less profitable than
other retailers across different channels? Having the ability to analyze customers and
channels in this regard will allow your organization to realign resources as needed and
invest in this growing segment.
Merchandisability. How brand friendly or hostile are these new store formats? Do they
promote manufacturer brands or are they focused mostly on building private label? These
are two different scenarios that will require different actions.
Differentiation requirements will escalate. As retailers continue to diversify their store
portfolios, they will seek differentiated approaches from FMCGs. The most important
question FMCGs can ask themselves here is not how to do this (i.e., supply chain
requirements) but rather deciding what areas need to be customized/differentiated (i.e.,
products, services, back offices, etc), for who (i.e., adequate retail partners), and the
implications (i.e., managing internally organization expectations and other customers)
As the Cash & Carry segment grows its share of the Warehouse Club channel over the next 5
years, it will be crucial for brands to understand the key success factors that will enable these
stores to succeed. Brands that place bets early on in this process and align their strategies with
their retailers stand to gain from this fundamental transition.
For more RNG research on Latin America please visit www.retailnetgroup.com/Curriculum