BOSTON — Three of Mexico’s largest retailers plan to pool knowledge and resources in an attempt to combat the growing market share of Wal-Mart Stores’ Mexican subsidiary, Walmex.
This story first appeared in the July 10, 2003 issue of WWD. Subscribe Today.
The companies — Controladora Comercial Mexicana, Grupo Gigante and Organizacion Soriana — have seen Walmex steadily grow its market share in the decade since the Bentonville, Ark.-based company acquired Mexico’s largest retailer, Cifra.
“They’ve taken the decision, hoping that synergies will help increase their scale and get more competitive conditions in the marketplace,” said a spokesman representing the three Mexican retailers. “These retailers face competition in Mexico that has global sourcing and significant economies of scale.”
Together, the Mexican trio own roughly 800 general merchandise stores, supermarkets and restaurants, as compared with the 600-plus stores Walmex operates. Last year, Walmex grew operating income 17 percent, generating roughly $10 billion in sales and outstripping its nearest competitor, the $3 billion Gigante.
Responding to the news of the alliance, a Wal-Mart spokesman noted, “In general, competition is good for the customer. If this results in lower prices for consumers in Mexico then that’s a positive thing.” He said certain grocery store operators in the U.S. have struck alliances to wield greater purchasing power. A similar agreement exists in the U.S. among HEB, Wegmans and Meijer, which operate in different markets here.
The Mexican retailers’ spokesman said top-level executives have been meeting for a few months to hash out partnership strategies, which they will begin testing “fairly soon.” Sharing warehouse spaces, distribution routes or software systems are possibilities, he said, declining to be more specific.
Both Comercial Mexicana and Gigante have strongholds in Mexico City and throughout central Mexico, while Soriana has its home territory in northern Mexico. It’s possible the companies may combine geographic strengths in order to bolster weaker parts of each other’s supply chains.
Walmex, which is 63 percent owned by Wal-Mart and trades on Mexico’s stock exchange, operates a local purchasing department. However, many of the company’s key relationships are global, with such heavy-hitters as Colgate-Palmolive, Coca-Cola and others working hand-in-glove with Wal-Mart from dedicated offices in Bentonville, Ark.
Wal-Mart is also looking for better, more direct purchasing, touting its new direct-import offices in Asia and its joint purchasing for Sam’s Club and Wal-Mart at its annual meeting in June.
Wal-Mart’s spokesman said perceptions that volume discounts from suppliers drive the company’s success are an oversimplification.
“We keep inventory low, packaging costs low, shipping costs low,” he said. “We use every opportunity to reduce costs so prices can be kept down.”
In Mexico, Wal-Mart operates its broadest range of formats globally, including Sam’s Clubs, general merchandise Bodegas, Superamas, and a youth-focused apparel chain called Suburbia. They also operate more than 200 Vips coffee shops, a chain of Italian restaurants called Racci and a Mexican chain called El Porton. By first quarter 2004, according to a company spokeswoman in Mexico City, they will have added 61 units to their 600-plus store base.
Gigante, which has around 480 stores, recently announced it will open three stores in Los Angeles to capitalize on the U.S. Latino population.