Brazil - Cencosud Can Build Momentum In Brazil Despite Tough Competition20 Oct 2010 • by Natalie Aster
LONDON - Chilean retail group Cencosud has announced the acquisition of Brazilian supermarket operator Supermercado Bretas for BRL1.35bn (US$814mn). Bretas operates 62 supermarkets and three distribution centres and the acquisition will significantly expand Cencosud's Brazilian operations. This is in line with our expectations, with BMI previously suggesting that the firm was likely to focus its expansion on the fast growing markets of Brazil and Peru as it seeks to reduce its reliance on the more mature Chilean market.
In February 2010, Cencosud announced an ambitious programme of expansion for the year, with plans to invest US$600mn outside of Chile and US$100mn in its domestic market. This level of investment ties in with a long-term strategy; in February 2008, Cencosud said it would invest US$5bn over the next five years with a goal of doubling its sales.
Cencosud currently operates in Chile, Brazil, Colombia, Argentina and Peru, but with the local retail market fairly mature it is logical that the firm targets the majority of this investment outside of Chile. Given the political and economic uncertainties present in Argentina and Cencosud's small foothold in Colombia, BMI has consistently stated that Peru and Brazil in 2010 were likely to receive the bulk of the firm's investment over the medium term.
BMI believes Peru's fiscal conservatism leaves it well placed to grow strongly over our forecast period, while the low concentration of grocery retailers means that it offers tremendous growth opportunities over the longer term. In line with this view in July, Cencosud has announced it was investing US$230mn in Peru in 2010 to open 10 new supermarkets.
Meanwhile, Brazil has shown enormous resilience during the economic downturn and is proving to be one of the best performing Latin American economies, in line with our forecasts. The retail sector is more developed than that of Peru but is undeveloped in comparison to many regional neighbours, with the non-organised sector still accounting for around 42% of grocery sales. The sector is also demonstrating tremendous dynamism, thanks to one of the fastest growing consumer markets anywhere in the world. This very strong growth is supported by the rising affluence of middle-class consumers and the increasingly positive picture for Brazil's large low-income population. Government policies to help this section of society, with measures such as increases to national minimum wage, have led to a rapid reduction in extreme poverty and in turn created a larger consumer base for the food, drink and retail sectors.
Bretas represents Cencosud's largest acquisition since 2005 and will cement the firm's position as the country's fourth largest grocery retailer. While many international retailers turn their nose up at markets where they are unable to build a top two position, BMI believes that Brazil's dynamism and immaturity makes it a special case and that the firm should be able to carve out a competitive position from this starting point, despite the aggressive expansion being pursued by the current market leaders.
Relevant Infrastructure reports by Business Monitor International :
- Central America Food and Drink Report Q4 2010
- Ghana Food and Drink Report Q4 2010
- Venezuela Food and Drink Report Q4 2010
- Nigeria Food and Drink Report Q4 2010
- Indonesia Food and Drink Report Q4 2010
Each of the reports:
- features market assessments and independent 5-year forecasts for food and drink expenditure by product category, consumption, sales, imports and exports, and for the mass grocery retail sector;
- includes analyses of latest regulatory developments, the background macroeconomic outlook, and competitive landscapes comparing multinational and national companies by leading products and services, sales, investments, partners and expansion strategies.
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