Walmart and Carrefour expanding in South America

Walmart announced plans to buy one of Chile's largest grocery chains:

Wal-Mart spokesman Kevin Gardner said from the company's headquarters at Bentonville, Ark., that D&S operates 185 stores in Chile and is a "significant" player in the country's grocery-retail sector.

Walmart is currently operating in Argentina, Brazil, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Puerto Rico.

Carrefour, meanwhile, is planning to expand in Brazil, with expectations that Brazil will become their second-biggest market (it's currently third, behind France and Spain).

Carrefour SA, Europe’s biggest retailer, plans to open a many as four new stores in Brazil in the first quarter even as growth slows in Latin America’s biggest economy.

Carrefour sees growth opportunities in the southern part of Brazil and is interested in buying other companies, said Pedro Daniel Magalhaes, chief financial officer of Grupo Carrefour Brasil, in an interview with Bloomberg Television in Sao Paulo.

Carrefour fires the boss

The CEO of the world's #2 retailer got the ax today. Carrefour announced that Jose Luis Duran would be replaced January 1 by Lars Oloffson, a top exec at Nestle. Things had not been going well at Carrefour even before the current downturn:

The company has consistently missed market expectations for its results in recent years, and the onset of the global economic crisis has further hurt its business, as French consumers increasingly seek out discount stores.

The company's stock is down 44% this year. Carrefour has been very active internationally in recent years, especially in China and Brazil, but it hasn't been enough to offset poor performance in France.

Tuesday Quick Notes

Dollar General was bought by private equity firm KKR. Seems to be a lot of private equity action in retail; my knowledge of finance is minimal (or less), so I won't bother to speculate on why, I just note the fact. The price is $6.9bil.

Carrefour's chairman resigned in an apparent rift with the company's leading family. Coincidentally or not, at the same time it was announced that a private equity firm (is there a pattern here?) had also bought a large stake.

Payless Shoesource bought one of their private-label suppliers, "Collective Licensing International, which owns the Airwalk brand of shoes sold exclusively in Payless stores since 2003."

International quick notes

Canada: Wal-Mart's new Canadian superstore format has impressed at least one analyst who has seen it, according to Morningstar:

"The first supercenter is a serious, impressive effort by Wal-Mart, unlike anything it has attempted (except experimentally) in the U.S.," Caicco wrote in a research report. "It is working hard to develop a hybrid discount shopping experience that will match up well with the needs of Canadians, and is also introducing products to support its position."

He believes that Wal-Mart Canada will adopt a regional (as opposed to national) pricing strategy, matching discount stores on at least 200-400 core items, while making aggressive pricing "statements" on a few important categories. All other items should be priced at least 10% below conventional players, he added.

The analyst thinks Loblaw's, Canada's leading supermarket chain, will be hurt:

... a key difference between the two companies is that, as Wal-Mart has pushed its core general merchandise business forward while methodically expanding into food, Loblaw has let its core food business "stagnate" in its effort to broaden its general merchandise assortment ...

India: Forbes reports more on the battle among Tesco, Wal-Mart, and Carrefour to partner with Bharti in India. We reported on it here last week.

In addition, the International Herald-Tribune reports on the effect of the coming superstore invasion on the 12,000,000 mom & pop stores who currently hold 95% of the Indian grocery market.

I was fascinated by the fact that 40% of Indian produce currently goes to waste and never reaches the consumer, because of the inefficiency of the supply chain. What could lowering that percentage significantly mean in terms of alleviating hunger, and lowering prices to India's poor?

Small shops are chronically wasteful, lifting prices 20 percent higher than they are in big stores. They buy in small quantities. They have no expertise in inventory control and category management, so they fail to buy the most profitable mix of products: At Nutan Stores on Carmichael Road in Mumbai, a typical operation, the offerings include such slow-moving items as dipping ink, birthday candles and oil pastels.

Of course, those millions of mom & pops are going to feel some pain.

Devraj Damji Pasad, a 63-year-old co- owner of the store, said the arrival of a single supermarket a few miles away had cut his store's sales by 60 percent, forcing the dismissal of 7 out of 11 workers. He used to sell 36 bottles of ketchup a month, he now sells fewer than six.

It will be a period of tremendous gain and pain:

But small stores are still indispensable to Indians. They provide credit. They deliver 20 cents worth of medicine to a home at midnight.

So a war is gathering between the efficient but sterile supermarket and the neighborly but wasteful mom-and-pop store.

Australia: Coles Meyer has turned down another takeover offer, and this time it appears to be final.

Australia's second-largest retailer knocked back a revised takeover bid from the syndicate headed by Kohlberg Kravis Roberts (KKR), saying the $18.2 billion offer still substantially undervalued the business.

The group, which had been chopped down to five members from the original nine, gave the board a deadline of 9am on Monday to decide on the $15.25 a share offer.

However, after again being rejected by the Coles Myer board, the KKR-led syndicate announced after the market closed on Thursday that it had withdrawn its proposal.

Last month, we reported on rumors that Wal-Mart and Tesco might be interested in buying CM.

Corruption at Carrefour China

Carrefour is trying to root out corruption among its buyers in China, some of whom apparently are taking bribes from suppliers, according to People's Daily.

Rapid expansion in China by the France-based retail giant has generated huge profits but also caused problems such as bribes and corruption in stores. The company's Shanghai headquarters yesterday sent a memo to its South China Office urging it to crack down on corruption in its purchasing process.

Market analysts said corruption has taken root in the retail sector, particularly in supermarkets. There are too many suppliers like food companies trying to sell their products to supermarkets, but only a few of them will be lucky.

I wonder if the bribes are less than slotting fees.

Korea fines Carrefour

The Korean Fair Trade Commission has fined Carrefour for pushing suppliers around.

The nation's No. 4 discounter was cited by the Fair Trade Commission (FTC) for unilaterally forcing manufacturers to cut prices on products they sell to Carrefour stores, returning products without due cause and intentionally delaying the signing of contracts with suppliers.

Carrefour Korea was recently sold to Eland, a Korean clothing manufacturer. I wonder if Eland was one of the suppliers Carrefour demanded special terms from?

China to regulate big-store expansion

The Chinese government is expected to issue rules limiting the expansion of large retailers. Although the rule will officially be directed at all retailers, clearly it will more strongly affect foreign firms.

Many local retailers have expressed concern over the growing influence of foreign store chains like Wal-Mart and Carrefour, which have made significant inroads into the Chinese market in recent years.

Chinese retail boom to continue

China's retail sector grew 12.9% last year, and the government, which has begun to push for more domestic consumption, is predicting the growth to continue at an 11% annual rate through 2010.

As might be anticipated, the giants are grabbing the lion's share, with the top thirty retailers averaging an amazing 31% growth last year, according to government figures.

Although foreigners are, understandably, trying to grab as much of this growing pie as possible, they are not likely to get it all.

So far, however, Chinese retailers are holding their own. Domestic companies continue to dominate the Commerce Ministry's list of China's top 30 retailers - whose sales, the ministry reports, rose by 31% in 2005 to $61 billion.

Shanghai Brilliance sits at the top of the heap, recording sales of $9 billion last year. The closest foreign competition at this point is the French giant Carrefour, whose 25% rise in sales last year boosted it to ninth place on the ministry's list, with sales of $2.2 billion. Carrefour, the world's second largest retailer, now has 78 stores in China and plans for many more.

Wal-Mart is not doing all that well, which is true in most of the world outside North America. Suppliers in China tell me that Wal-Mart China is not an impressive operation.

Tuesday quick notes

Pfizer's plan to sell their consumer brands all to one buyer may create a behemoth. The question is who's the buyer -- betting centers on Colgate and Glaxo. Listerine is the big prize, totaaly dominant in its category.

Wal-Mart has apparently liqidated its Hungarian operation, according to this short item in the Budapest Business Journal, quoting a Magyar-language source. They had been reported to be interested in acquiring a Central European operation.

Carrefour is looking for a local partner to aid expansion in Thailand. "We are open to any local retailers that are interested in expanding their hypermarket stores in the Kingdom." Carrefour wants to open smaller hypermarkets (isn't that like "jumbo shrimp"?) in provincial areas.

Wednesday quick notes

Wal-Mart and Tesco are both considering buying Carrefour's South Korean operation. "Analysts believe that the French group is committed to selling its 31 stores in South Korea because of their relative underperformance against domestic rivals and after its withdrawal from Japan last year."

P&G has filed another suit against private-label copycats -- their third in the past several months. "P&G claimed First Quality ... was manufacturing and distributing products that copied Tampax Pearl packaging..." A previous post on this subject is here.

CVS announced that a couple top execs, treasurer and controller, had resigned and that the SEC is investigating the company over a 2000 inventory transaction. "An internal review launched in December found that various aspects of the company's accounting for the transaction were incorrect, CVS said, though no adjustments to its financial statements are needed."

Thursday's quick notes

Lianhua, Wal-Mart, and Carrefour are all reportedly bidding to buy Trust-Mart, a Chinese chain of 100 stores in 20 cities. Lianhua is China's largest supermarket chain and is "indirectly controlled" by the Shanghai city government.

Carrefour's net income dropped 16% last year, but they are planning to spend aggressively (see the China note above). "The company said it plans to open 100 new "hypermarkets," huge stores that combine elements of grocery and department stores, in 2006, or more than twice the average number of openings between 2000 and 2004."

Network TV spending was down slightly in 2005. "The tallies are in line with last May’s upfront, when advertiser commitments fell to $9.1 billion from $9.3 billion the prior year. That drop-off is logical, because the comparison is to 2004, an Olympics and election year. Still, the final tally is surprising to industry-watchers. Veronis Suhler Stevenson and PriceWaterhouseCoopers projected a 2% increase in ad revenue for network TV for 2005 even after factoring in the loss of the Olympics."

Britain's supermarkets now sell as much non-food items department stores, according to the BBC. "According to Verdict Research, supermarkets generated non-food sales of £13.5bn in 2004 - just £1bn behind that of department stores. That fact marks the relentless rise of the supermarket, so much so that almost half of the people reading this will have bought an item of clothing from a supermarket this year."