posted on April 4, 2004 10:02:13 PM new
MEXICO CITY – In Mexico's store wars, Wal-Mart is the evil empire, muscling into the country with an unparalleled capacity to demand the best deals from suppliers around the globe.
Mexican supermarket chains appear as the ragtag rebels, striking back with a bold bid to cut costs by joining their wholesale buying forces and then compete with Wal-Mart at the check stand.
It's a good story line for a movie.
In real life, three well-off Mexican retailers are fighting for survival against America's largest company. An increasingly global retail industry is the backdrop. And Mexican consumers are in the audience, cheering as the battle leads to lower retail food prices.
So far, Wal-Mart has the lead. Gigante, Comercial Mexicana, and Soriana were dealt a blow earlier this month when the government's competition commission rejected their idea to fuse their purchasing units into a venture called Sinérgia.
The chains want to build scale and reduce their purchasing and distribution costs – savings that they say could be passed on to consumers. But three of the five competition regulators ruled on the side of food and merchandise wholesalers who argued that the fusion would leave Mexico with just two large-scale wholesale buyers.
The Mexican stores promise to negotiate changes in the proposed joint venture that will ease wholesalers' fears. Chief among the assurances, the stores say, is a promise to share only in the central buying of wholesale goods while maintaining distinct retail identities and in-store pricing plans.
"The three national chains maintain a competitive relationship," said Angelica Rendon, a spokeswoman for the three chains.
Regulators will render a final decision in June, after the stores have refiled their bid.
But even as they struggle against Wal-Mart, the Mexican supermarket chains are morphing into carbon copies of the American retailing blueprint.
Wal-Mart's success has led Mexican chains into a quickened corporate evolution. The companies are computerizing distribution systems, retooling warehouses and streamlining once-bloated middle management teams.
Inside the stores, the Mexican companies are increasingly adopting "every-day low prices" strategies or periodic sales. And, although Wal-Mart's Sam's Clubs and other American warehouse stores like Costco are not rock-bottom on the price list, as they are north of the border, their wider array of products has also pushed Mexican retailers to broaden their own selections of goods.
The Mexican retail industry's face-lift may have begun before Wal-Mart gained market supremacy, but the arrival of the U.S. behemoth certainly sped the transformation, analysts said.
Walmart has committed more than $600 million to increasing its presence in Mexico, but the country's other supermarket leaders plan on spending a combined $500 million on new outlets and distribution.
The second-largest retailer in Mexico, Controladora Comercial Mexicana, had about $3.2 billion in sales from 171 retail outlets.
Analysts credit Comercial Mexicana with the greatest changes among Mexican retailers, above all injecting automation and information technology into a new distribution system.
Grupo Gigante is the third-largest Mexican retailer, with around 270 outlets and a sharp focus on neighborhood supermarkets. Soriana has 116 markets, mostly in the "hypermarket" category – warehouse stores with up to 100,000 square feet of retail space. Each company booked around $3 billion in sales in 2003, according to industry figures.
The store wars in Mexico have been generally polite affairs. At worst, the chains simply post signs next to goods showing just how much lower their prices are compared with competitors'. And each store sends out comparison shoppers who scan prices and then report back to headquarters for retaliatory price-tag action.
In public, however, the corporate bosses barely acknowledge one another.
Wal-Mart officials declined to discuss the controversy over the proposed joint-purchasing venture of the established Mexican chains. And the three Mexican corporations refuse to cite Wal-Mart as the driving force behind their desire to fuse buying operations.
"Sinérgia is an idea that has been in the works for quite some time, but its formal organization was announced publicly last July," said Ms. Rendon, Sinérgia's spokeswoman. "The motive for the creation of Sinérgia was to strengthen the domestic market and to improve the relationship between members of the group and its suppliers, both internationally and nationally."
The chairman of Grupo Gigante stepped to the podium in New York last January to receive the prestigious International Retailer of the Year award from the world's largest trade organization.
Angel Losada Moreno, who accepted the award at the National Retail Federation's annual luncheon, ended his short acceptance speech with this note: "We have too much competition. I would ask you to stay here."
Analysts said that the Sinérgia joint venture may help the Mexican retailers, but they have much more work to do beyond combining their purchasing systems. Privately, industry experts said Mexican retailers were generally ill-prepared to face competition from American companies that retailers who thrive on volume and are unafraid of storewide discounting.
"You can't blame them for trying," said Eduardo Garcia, editor of "Sentido Común," an online business newsletter. "Wal-Mart started slowly here. It even had trouble in the early days, but the company is very focused. It adapted well and modified its approach, and it's taken off here."
Critical to the takeoff, analysts said, was Wal-Mart's buying into – and then buying outright in 1997 – the Cifra Group, one of Mexico's strongest retail operations.
Today, Wal-Mart is Mexico's largest retailer, with sales of around $11 billion a year from 633 Wal-Mart, Sam's Club, Superama and Aurera grocery and merchandize outlets, and a string of VIPS restaurants.
The company reports about 100,000 Mexican employees, and is, by some measures, the most important company listed on the Bolsa, the Mexican stock exchange, just ahead of the Telmex telecommunications conglomerate.
Wal-Mart's heft means clout in the wholesale buying market. It promises volume buying in exchange for razor-thin margins from distributors.
Wal-Mart's sales are three times higher than the combined chains that make up Sinérgia. And Wal-Mart's massive distribution facilities are nine times larger than the Mexican chains
.
"The scale, although important, is not the only factor in winning at the corporate purchasing level," said Joaquin Ley, a retail industry analyst with Banco Santander in Mexico City. "Wal-Mart also has the distribution system that's the envy of the business, and it is faster at delivering payment to suppliers. That gives Wal-Mart the advantage in Mexico."
Changing habits
Wal-Mart is so big, analysts said, that its strong sales have actually helped keep food prices from spiraling in Mexico, even as it changes the way Mexicans shop.
The collateral damage in the Mexican store wars are the small-scale vendors in the country's ubiquitous open-air mercados, where consumers would amble through crowded aisles in search of the just the right powdered mole mix, or the dried chiles whose pungent aroma were the best advertising.
"Family stores are disappearing from my neighborhood," said Guadalupe Martinez, a 57-year-old housewife shopping recently at a Wal-Mart in southern Mexico City.
"Before I would buy from several small stores near my house, but in these modern times, everyone just goes to these big stores and finds everything in the same place, at better prices."
But Mrs. Martinez did identify the one Mexican competitor not even Wal-Mart is tough enough to beat: the black market.
She, like millions of other Mexicans, still roams ad-hoc sidewalk supermarkets in Mexico City, scoring steep discounts on everything from pirated movies and music to fruit of dubious origin.
"Some estimates say as much as half of Mexico's retail sales are from the informal marketplace," said Mr. Ley, the analyst. "This shows there is room for everyone in Mexico's retail business, even with a dominant company like Wal-Mart."
~~~ • ~~~ • ~~~ • ~~~ • ~~~
If it's really "common" sense, why do so few people actually have it?
