Competition intensifying in Brazil's grocery retail market
Online PR News – 25-February-2010 – – With a robust recovery underway, 2010 is shaping up to be another impressive year for the Brazilian economy. Indeed, we have recently upgraded its real GDP growth forecast to 5.0% this year, in large part based on the view that the Brazilian consumer will continue to drive the economy forward. Certainly some major multinational players share this view. For example, in November, The Coca-Cola Company (TCCC) announced it is to invest US$5.8bn in Brazil over the next five years. This is a 75% increase over the US$3.3bn invested between 2005 and 2009 and is driven by a desire to take advantage of steadily rising soft drink consumption, as well as the likely boost from the country hosting the 2014 FIFA World Cup and 2016 Olympics. The move underlines our forecasts for the sector, which are among the strongest for any Latin American country. TCCC has said the investment will be made through its Brazilian arm, Coca-Cola Brasil, and part of the money will go towards opening its first eco-friendly plant, in southern Brazil, which will produce a variety of products including traditional mate tea. Chief executive Muhtar Kent said Brazil 'is one of TCCC's top markets worldwide'.
The Brazilian mass grocery retail (MGR) sector is also reshaping with competition intensifying between the major players. The acquisition in December by Brazil's largest grocery retailer Companhia Brasileira de Distribuição (CBD) of a 51% stake in Casa Bahia Commercial, the country's largest retailer of durable goods, highlights how the São Paulo-based firm is keen to continue diversifying away from the fiercely competitive supermarket segment. The Brazilian market for home appliances has boomed in recent months, owing to government backing. The non-cash deal will see CBD merge its home appliance unit Globex Utilidades with Casa Bahia and take the controlling stake in the enlarged businesses, while Casa Bahia's existing shareholders will retain a 49% stake in the unit. CBD purchased a 70% stake in electronics retailer Globex Utilidades in June 2009 for BRL824.5mn (US$422mn).
With the world's two largest retailers, Wal-Mart and Carrefour, both investing heavily in their Brazilian operations, there can be no guarantee that CBD will retain its current position at the top of the tree. With CBD's resources now having to be spread between two very different units, the firm's rivals may well see its diversification into durable goods as a chance to make up ground in the grocery segment. Indeed, at the end of 2009, Wal-Mart Brazil's chief executive, Hector Nunez, revealed that the firm will invest upto BRL2.2bn (US$1.2bn) in 2010. This would represent by far the biggest ever annual investment in the country and would be more than 40% more than the BRL1.6bn (US$895mn) invested during 2009. The money will go towards opening between 100 and 110 new stores and this massive programme of expansion follows a sustained period of investment over the last five years.