Latin American Retailers: Evolving at Warp Speed

     In a region where the juxtaposition of enormous economic growth potential contrasts with complicated macroeconomic imbalances, Latin American retailers have for many generations juggled with the challenges of limited credit availability, high interest rates and the often stagnated levels of disposable consumer income. The global effects of retail consolidation have also become active in the region as retailers have entailed in very brisk M&A activity over the past 15 years. In this timespan it seems that the Walmart organization has emerged as the main retail leader in Mexico and Central America whereas in South America, Chilean group Cencosud and French retail conglomerates Carrefour and Casino have orchestrated a brilliant conquer and divide strategy that has spearheaded the opening of Grocery and Department stores in Brazil, Chile, Argentina, Colombia, Peru, Venezuela and Uruguay.  In the context of local acquisition activity, Mexico’s Soriana retail group has also expanded aggressively over the past 5 years as has the Oxxo banner in the “C” Store channel at an unprecedented rate.    Texas-based HEB has successfully positioned itself in the highly competitive trade corridor of Northeastern Mexico based on its home model of efficient supply chain operations. Not all international retail incursions into the region have been fruitful as the Carrefour and Auchan chains failed to successfully franchise Mexican and Chilean consumers and were eventually overrun by high operating costs. Likewise, the Home Depot experiment in Chile was not successful even though it had been planned to be a cost efficient operation through a local joint venture.

      Although individual economic, logistical and technological hurdles are part of the daily run, retail trade in Latin America remains undaunted and is experiencing a significant growth pattern driven by the gradual expansion of middle classes in most countries and in general terms, the availability of more affordable credit and better tailored banking products that have fueled the diversification of retail trade channels. Nonetheless, the reality is that retail trade continues to occur among the traditional or smaller formatted points of sale vs. the world of gigantic Hyper-Marts or specialized retailing units. Ultimately, each country has its own specific retail traits. Let’s look at some of the main ones among the 6 largest economies in Latin America:

       What key conclusions can we extract as takeaways? First, this analysis looked at the top 6 economies but it’s necessary to outline that other countries in the region including Guatemala, El Salvador, Costa Rica, Venezuela, Panama and Ecuador all have dynamic retail sectors as well and evolve in context of their local circumstances.  Lastly, in my view and from a regional context, they’re 6 basic trends which seem to be consistent throughout Latin America and are:

• The Retail – Real Estate love story: Like anywhere else in the world, savvy Latin American retailers have focused on consolidating Real Estate properties as a central piece of their business strategy and the foundation of future business expansions.  Retailers who can claim real estate ownership will be in a better position to compete as retail will continue to grow and evolve in Latin American regardless of retail channel or niche.
• Technological Challenges: While it’s true that many countries in Latin America are lagging significantly in the penetration of Digital and Mobile technology, it’s also true that the service providers of these essential services market them at exorbitant rates making them inaccessible to the vast majority. Latin American governments need to legislate assertively in opening up their Telecomm sectors in the interest of expanding their respective countries economic growth and granting its citizens the access to become global trade participants.
• Rethinking Credit and Banking Products: Like technology, financial services and credits and services are out of reach for millions of consumers in Latin America. Banking and Financial      institutions in the region have the urgent task to redefine affordable products and services to attract wider consumption.  Supporting this assessment is the fact that several countries in Latin America including Colombia, Chile, and Peru and to an extent Mexico have become much more resilient in the way their Macroeconomic indicators have been managed over the past 15 years.
• Urbanization: This demographic phenomenon is occurring at a rapid pace in Latin America. As the population becomes more urban, the expansion of retail is magnified directly benefitting smaller sized retail formats typically seen in C Store, Neighborhood markets and pharmacies that usually operate with higher margins and cater to a mobile Latin American shopper. These trends is also not confined to the major metropolitan areas like Mexico City, Sao Paulo or Buenos Aires and are becoming very visible in cities like Belo Horizonte, Monterrey, Medellin,  or Cordoba. 
• Convenience & Drug Retailers Expanding: Two key drivers supporting the growth of these channels include the growth of the Senior citizens group and the rapid urbanization taking place in many of the region’s countries.  An important position to watch out for will be the speculated entry of Walgreens into Mexico and the positions that regional players like Farmacias Benavides, Farmacias Del Ahorro, Drogarias Araujo or Super Farmacias de Guadalajara will assume.  In the C Store Channel, all eyes are on Oxxo’s further expansion into South America and entry to the Drug channel.
• The Promise of e-commerce: The digital commerce frontier is at its infancy in Latin America and light years away from the reach of most with the exception of countries like Argentina and Chile that have made major advancements in its development. The growth of e-commerce in the region will depend to a large degree on how successful the Telecommunications and Banking sectors can franchise lower income households in the region.

 DISCLAIMER:  The views and positions stated in this article are only the author’s and do not necessarily reflect the positions and the opinions of Vilore Foods Company.