Super Selectos: Winning the war against multinationals?
Lead Author
Esteban R. Brenes.
INCAE Business School
P.O Box 960-4050, Alajuela, Costa Rica
esteban.brenes@incae.edu
Telephone (506) 2437 2100
Fax (506) 2433 9101
Coauthor
Daniel Montoya C.
INCAE Business School
PO Box 960-4050, Alajuela, Costa Rica
daniel.montoya@incae.edu
Telephone (506) 2437 2100
Fax (506) 2433 9101
Contact author. Daniel Montoya
1
Abstract
This case describes how Super Selectos a domestic Salvadorian food retail chain owns by
Grupo Calleja S.A, is competing against Wal-Mart the number one food retailer in the world.
This case is very interesting given that El Salvador is apparently the only country in which
Wal–Mart Central America has not been able to win. The case study has been structured to
show enough information for the reader to formulate alternatives for the company to develop
a strategy to compete in the El Salvador food retail arena. The goal of the case is to learn
about proper manners to formulate and execute business strategy. It will also be useful to
discuss alternative strategies to successfully compete against MNCs in emerging economies.
Key words: Super Selectos, Wal-Mart business strategy, emerging economies, domestic
companies , MNCs
2
Super Selectos: Winning the war against multinationals?
The morning of March 3, 2011, after listening to a radio announcement promoting the Super
Selectos stores, Carlos Calleja, Vice-president of this Salvadorian supermarket chain, met
with his management team to discuss a latent threat: Wal-Mart Central America. Wal-Mart
Central America was a division of the world’s largest retailer, and it had announced plans to
implement its global strategy in the region: to brand its stores as Wal-Mart, offering low
prices everyday to its clients. Its plan was to restructure operations and develop management
efficiency in order to improve its performance. Different to other countries in Central
America, in El Salvador Wal-Mart did not control a majority of the market. Therefore, Carlos
and his management team knew that Wal-Mart would act aggressively to win greater market
share. Despite the fact that Super Selectos owned 84 retail stores, 51% of the market and close
to US $600 million in annual income, continuing as El Salvador’s number one supermarket
would be a challenge. After analyzing the situation, Carlos and his team asked themselves
what measures they should take to continue winning the battle against the world’s largest
retail chain in the local market, as they had done up until that point.
Economic, Political and Social Situation
The fluctuation of global economic growth from 2005 to 2010 added uncertainty to the
world’s economic panorama. Though most countries experienced decelerated growth, and
even negative growth in some cases in 2008-2009, the global economy grew by 4.2% in 2010.
However, experts remained cautious in their projections. Despite low growth figures in 20082009, the Latin American and Caribbean region endured the global economic recession,
showing a growth rate of 6.2% in 2010. This growth was mainly attributed to countries, such
as Chile and Brazil, which had established trade relations with China. Those countries mostly
exported commodities to China, which helped their economies grow more than 7% that year.
In the same region, the economies of Mexico, Panama, Costa Rica and El Salvador
experienced growth rates of 5.3%, 4.8%, 4.2% and 1.4%, respectively; however, insecurity
and non-implementation of appropriate tax policies put their economic growth and
competitiveness at risk.1
In 2010 El Salvador’s GDP reached US $21.214 billion, approximately US $3,400 per
inhabitant. This positioned El Salvador as the fourth largest economy in the Central American
region, after Guatemala, Costa Rica and Panama. El Salvador’s Central Bank indicated that
one of the country’s main sources of income was family remittances. Between January and
December 2010, remittances surpassed US $3.539 billion, showing an annual growth rate of
2.2% when compared with 2009. Some US $295 million are sent each month. However,
unemployment in the United States was a factor that influenced the amount of remittances
sent; remittances were directly dependent upon the United States’ economic situation.2
1
World Economic Forum. The Global Competitiveness Report 2009-2010
Banco Central de Reserva de El Salvador. El Salvador recibió US$3,539.4 millones en remesas familiares
durante 2010 http://www.bcr.gob.sv/?art=1202&lang=es
2
3
As documented by the Economic Commission for Latin America and the Caribbean
(ECLAC), after two straight years of drops in Foreign Direct Investment (FDI) globally
because of the 2008 and 2009 economic crisis, countries experienced a small increase.
Preliminary figures showed that for 2010 global trends reached US $1.12 trillion in FDI,
which meant a 1% increase from 2009. In general, for Latin America and the Caribbean, FDI
grew 40% and reached US $112.6 billion. Mexico received US $17.7 billion in 2010, 17%
more than 2009. Central America received US $5.8 billion, which equaled a growth rate of
16% when compared to the previous year. Panama and Costa Rica were the main recipients of
FDI, with 40% and 24% growth rates, respectively. Honduras, Guatemala and Nicaragua
registered growth rates of 52%, 18% and 17%, respectively, while El Salvador’s FDI fell by
79%.
In 2010, Latin America’s inflation rate (measured by the Consumer Price Index) was 6.5%.
Most countries faced increased inflation from 2009, with the exception of Ecuador, due in
large part, to an increase in food and beverage prices in almost all Latin American countries.
El Salvador’s inflation equaled 2.1%, one of the lowest rates in the region. However,
consumers had to deal with an almost 7.9% increase in the price of food (corn and beans) and
a 3.4% increase in the cost of transportation, due to higher international fuel prices. 3 El
Salvador had experienced lower inflation rates than other Central American countries since
2001 when the country adopted the United States dollar as its official currency.
World Bank statistics showed that in 2010 the world’s population equaled more than 6.8
billion; from 2006 to 2010 the global population grew by 0.9%. Latin America represented
8.6% of the total population, with a similar growth rate. Mexico had 113.4 million people,
while Central America had 38.6 million; with Panama, Central America’s population totaled
42.1 million. Experts estimated that by 2015, Mexico and Central America (without Panama)
would have a total population of 180 million people, with an increase of 25 million people
between the ages of 21 and 60.4 El Salvador was Central America’s mostly densely populated
country, with 6.2 million inhabitants in 21,040 km2. From 2006 to 2010 the country’s
population grew by 0.4%. Approximately 47.9% of the population lived in poverty, of which
half lived in extreme poverty. El Salvador had a workforce of 2.5 million and an
unemployment rate of 7%.
Improvements in the country’s economic and social areas were backed by an anti-crisis plan
proposed by Mauricio Funes, who had assumed the presidency in 2009. In the government’s
plan, Funes had announced he would create 100,000 jobs by 2011. In 2010 he proposed a law
to increase public employee salaries and pensions: pensions would increase from US $143 to
US $208; minimum salaries for public employees would increase from US $208 to US $300;
salaries for public sector employees making between US $300 and US $600 would increase
3
http://www.laprensagrafica.com/economia/nacional/164503-el-salvador-cerro-2010-con-213-deinflacion.html, Viewed January 2012.
4
Scot Rank and Eduardo Solorzano . “Séptima reunión con analistas” Powerpoint presentation to shareholders.
February 2011. Wal-Mart Mexico and Central America.
4
by 10%; and salaries for those making between US $600 and US $1,000 would increase 6%.
In addition, he established the National Consumer Protection Policy to be enacted by the
National Consumer Protection System, which, among other objectives, enforced warranties
for purchased products and the right to be reimbursed in cash when a product was defective.
In terms of international policies, Funes had followed models proposed by Presidents Luiz
Inácio Lula da Silva and Barack Obama, while he distanced himself from countries governed
by leftists, such as Nicaragua and Venezuela, and rejected the country’s inclusion in the
Alternativa Bolivariana de las Américas (ALBA) and adherence to 21st century socialist
models proposed by Hugo Chávez.5
In addition, anyone interested in establishing a company in Latin America had to realize that
the process required an average of nine steps that took about 54 days and cost approximately
37.3% of per capita GDP, which equaled US$ 7,890 in 2010 in the region. In El Salvador, and
since 2005, the government had implemented a system to eliminate bottlenecks in the
commercial licensing process by creating a single window at the Commercial Registry Office.
Results were promising. Start-ups only had to take eight steps in an estimated 17 days (before
it took 115 days); costs were estimated at 45.1% of per capita GDP. By improving the system,
the government hoped to reduce the percentage (38%) of businesspeople who operated
informal businesses.
Industry
Starting in the 90s, retail business, comprised mostly of retailers, suppliers and clients, began
to experience rapid change. One such change was an increase in the size of commercial
establishments, which allowed businesses to offer a greater variety of products in larger
volumes. 6 Another change was technological progress made in computing and
telecommunications that allowed businesses to optimize their inventory management, a key
issue in the retail industry. They were able to cut the time that merchandise was in stock and
the time between taking inventory and the sale of new orders. 7 This optimization reduced
operating costs. Those businesses that incorporated state-of-the-art information technology
into their systems early on, were able to offer their products at a lower cost than competitors,
which increased their productivity and that of the sector, in general.8
The increase in the size of retail stores led to new layouts, known as hypermarkets. This new
format became popular as they offered food and traditional products, as well as other
categories, such as appliances, electronics, books, garden products, clothing, shoes, toys and
5
Diego Mendez. “Salvador: Funes críticas y elogios a su primer año de gobierno” La voz. May 2010.
http://www.lavozarizona.com/spanish/latin-america/articles/latin-america_255546.html, Viewed February
2012.
6
Paul W. Dobson and Michael Waterson. "Countervailing Power and Consumer Prices”. The Economic Journal ,
Vol. 107, No. 441 (Mar., 1997), pp. 418-430 Published by: Blackwell Publishing for the Royal Economic Society
via http://www.jstor.org/stable/2957952 May 2011.
7
Thomas Holmes. “Bar Codes Lead to Frequent Deliveries and Superstores”. Rand Journal of Economics,
Vol. 32, N° 4 (Winter 2001), pp. 708-725.
8
Foster, L., J. Haltiwanger and C. J. Krizan: “The Link between Aggregate and Microproductivity
Growth: Evidence from Retail Trade”. National Bureau of Economic Research, Working
Paper N° 9120 (2002).
5
decorations. At least 35% of the space was used for non-food items, and floor space totaled
more than 2,500 m2. At the same time, these hypermarkets maintained traditional
supermarkets, where at least 70% of products offered were food items or everyday products.
This floor space equaled anywhere from 400 m2 to 2,500 m2. In addition, the concept of
convenience stores also became more popular. These stores included neighborhood stores that
offered little variety but great accessibility due to their locations nears consumers. They also
had extended hours. Specialty stores also became more commonplace; they offered specific
products sold in certain ways and at certain times.
In 2009 around the world, hypermarkets and supermarkets had become more lucrative, with a
total of 46.4% of the market, followed by convenience stores with 30.7%; specialized food
and beverage stores with 15.1%; pharmacies and beauty stores with 1.7%; and wholesale
stores with membership clubs with 1.6%. Other types of stores represented 4.5%. 9 Some
consumers wanted to reduce the time spent shopping and their costs, being able to buy most
items at the same time and same place – known as “one-stop shopping.” (Exhibit 1.)
Therefore, retailers focused on offering a variety of complementary (chicken and rice),
substitute (chicken and beef) and independent products (chicken and socks). Goods could be
substitutes or independent in consumption, but complementary in purchase.10 However, other
clients only needed some products and shopped quickly – known as “on-the-run.” They did
not see large supermarkets as the best place to make their purchases.
In 2010 in the United States, the average income generated per client was US $26.80.
Although it was a relatively small amount, collectively it was quite important to retailers.
Therefore, it was risky to not offer good customer service and treat customers well. The cost
of changing supermarkets was quite low, to non-existent, to clients, and the similarity of
service, products and prices increased rivalry among retail chains. Consumers were attracted
to good customer service and a wide variety of products; however, paying less for a product
was one of the most attractive and alluring factors. In order to satisfy clients, retailers had
used a variety of commercial strategies. Some offered sales, decreasing prices of certain
products during a determined period of time – known as Hi-Low – while others offered low
prices every day – known as EDLP, or Every Day Low Prices. By using an EDLP strategy,
retailers charged a constant low price every day and did not use promotions with temporary
discounts. This created a consistency in prices, which eliminated uncertainty for the client
when planning his or her purchases. The Hi-Low strategy, on the other hand, fixed daily
prices somewhat higher, on average, but offered frequent sales on several products, reducing
the price temporarily to levels used by retailers following an EDLP strategy.11
Suppliers
Other issues that influenced whether retailers could offer lower prices to clients were a result
of changes in relationships with suppliers. For years, this relationship had been created
through contractual negotiations, known as vertical restrictions, in which suppliers demanded
a minimum sale price to the public from the retailer, a minimum number of unit sales and that
9
Global Food Retail. Datamonitor. www.datamonitor.com, Viewed June 2011.
Roger Betancourt and David Gautschi. “Demand, Complementarities, Households Production and Retail
Assortments”. Marketing Science, Vol. 9, N° 2, Spring 1990, pp. 146-161.
11
Stephen J. Hoch, Xavier Drèze and Mary E. Purk . “EDLP, Hi-Lo, and Margin Arithmetic” The Journal of
Marketing Vol. 58, No. 4 (Oct., 1994), pp. 16-27 Published by: American Marketing Association via
http://www.jstor.org/stable/1251913
10
6
the competition’s products not be sold.12 However, the growth of certain retail chains, both in
number and size, had led to a larger concentration of supplier clients in fewer stores. This
change had created an advantage for retailers when it came time to negotiate. Generally, this
advantage partially translated into benefits for final consumers, allowing the retailer to offer
more competitive prices. It was to the suppliers’ benefit to establish good relationships,
especially with the main retailers, even though this meant they had to deal with high demands
for discounts, pay for sales and comply with strict delivery times. Because these retailers were
the main way for suppliers to increase their market participation, they met those demands.
In order to maintain stability and try to avoid stocking problems, whether due to scarcity or
price fluctuations, large retailers generally established relationships with many suppliers. This
allowed the retailers to minimize their risks and strengthen their negotiating position. When
possible, the retailers avoided vertical restrictions to ensure that they could decrease costs
associated with changing suppliers. Small retailers, such as specialty or organic shops,
concentrated in market niches. Neighborhood stores did not have the same negotiation power
since their number of suppliers was much smaller. In general, suppliers who were able to
differentiate their product had moderate power over the retailers, as long as their products
were demanded by final consumers.13 However, brand recognition did not always translated
into client loyalty.
Internally, many retailers had strengthened their negotiating position by establishing their own
brands that allowed them to substitute certain suppliers or radically change their relationship
with others.14 The retailer’s main objective, in owning its own brand, was to always sell their
products for a lower price than traditional brands in order to offer a cheaper alternative to
consumers. This increased the business’ profitability with a strong and direct source of
income.15 However, the possibility of manufacturing high quality products was an opportunity
that had still not been explored by everyone; this provided retailers with a chance to satisfy
the needs of different client segments.
Consumers
Globally, consumer behavior had also changed. Consumers were better informed, and their
purchasing had matured. They were better able to understand the relationship between quality
and price, so they were more open to trying new products and brands. This made for perfect
conditions to introduce generic brands belonging to retailers (their own brands).16 Globally,
other changes had led to a trend that consumers no longer felt pride by buying expensive
12
Carlton, D. and J. Perloff: Modern Industrial Organization. Addison Wesley Longman,
3rd Edition, 2000.
13
Global Food Retail. Datamonitor. www.datamonitor.com, Viewed June 2011.
14
Global Food Retail. Datamonitor. www.datamonitor.com, Viewed June 2011.
15
Loreto Lira. “Cambios en la industria de los supermercados concentración, hipermercados, relaciones con
proveedores y marcas propias”. Universidad de los Andes, Santiago. Published Studies, 97 (Summer 2005), via
http://www.cepchile.cl/dms/lang_1/doc_3472.html.
16
Fiske, N. and M. Silverstein: “Trading Up: The New Luxury and Why We Need It”. The Boston
Consulting Group, 2003. www.bcg.com.
7
products; rather, they felt proud of themselves and satisfied when they bought products that
allowed them to save money.17 Consumer behaviors around the use of products and frequency
of shopping tended to be the result of differences in family size, income, education and
employment.18
In El Salvador the Consumer Protection Office grouped consumers into three levels. The first
level corresponded to “low-income markets” and included the municipalities (100) with
extreme poverty rates of 40.2% and household income close to US $201. The second group
was “moderate-income markets,” including municipalities (146) with extreme poverty rates of
19.4% and household income of approximately US $308.25. The final level of “high-income
markets” included municipalities (16) with extreme poverty rates of 7.6% and an average
household income of US $534.45. This geo-social-demographic group included almost the
entire segment of “global” consumers, who appreciated quality and were willing to pay for
most of the global products they consumed. This level was considered the most diverse and
unequal, in which the highest-income households were concentrated; demand here was much
more sophisticated, and distribution structures were more modern and “cosmopolitan.”19
Experts at El Salvador’s Consumer Protection Office had determined using a survey that
people had different consumption behaviors based on their area of residence. In urban areas,
63.6% of the population bought fresh and processed food, while 35.7% only bought fresh
food and a small proportion (0.7%) only bought processed food. In rural areas, around 55.4%
of the population bought both types, while more bought only fresh (44.3%), and fewer bought
only processed (0.4%).
The Office had also determined that for Salvadorians, proximity was the primary factor
considered when selecting where to go shopping. This characteristic was followed by quality,
the variety of products and price. Once in the store, they made different decisions about what
to buy based on the type of product. For fresh food appearance (color, texture, and smell) was
most important, followed by price. For processed food consumers mainly looked for low
prices, sales and promotions, and did not care as much about packaging or design. For nonfood item these behaviors were different; for medicine and appliances the most influential
factor was price.
In terms of food items, Salvadorians expressed satisfaction with the information they had
about products and competition in the market. In the past few years, and especially in the last
two or three, consumers had been bombarded with sales and discount promotions by most
industry players. Wal-Mart and Selectos had used these promotions the most, although
Selectos had always used promotions and discounts.
Consumers expressed greatest dissatisfaction with the price/quality relationship. The most
unsatisfied group was the low-income market; while the high-income market expressed the
most satisfaction. This mostly had to do with access to a greater number of places where
consumers could shop and less importance placed on higher prices – issues that created
greater satisfaction with quality.
17
Dhruv Grewal et al. Retail Value-Based Pricing Strategies: New Times, New Technologies, New Consumer.
Journal of Retail.88, No. 1 (March 2012): 1–6.
18
Dhruv Grewal et al. Retail Value-Based Pricing Strategies: New Times, New Technologies, New Consumer.
Journal of Retail.88, No. 1 (March 2012): 1–6.
19
Defensoría del consumidor. “Perfil del consumidor salvadoreño en el siglo XXI”. PENUD 2008.
8
Improvements in retail operations, changes in spacing and relationships between retailers and
suppliers and changes in consumer tastes and needs had made the global retail industry worth
US $3.326 trillion in 2005. With an annual growth rate of 6.9%, by 2009 it was worth US
$4.349 trillion (Exhibit 2). The continent with the greatest market participation was Europe
(38.2%), followed by the Americas (34.6%) and Asia-Pacific (27.1%). It was speculated that
by 2014 the industry would be worth US $6 trillion.20 The retail industry was characterized by
its high concentration of players, since the largest 15 retailers accounted for 30% of sales
(Exhibit 3).21
Central America’s retail market was worth $44 billion. Several multinational supermarket
chains competed against local chains in the formal market, which included traditional
supermarkets, hypermarkets and convenience stores. The market also had a large number of
informal neighborhood stores and municipal farmers markets that represented 40-60% of the
total market, depending on the country.22
Neighborhood stores usually offered services from behind a counter; however, some were
more like mini-supermarkets or small self-service stores. They tended to satisfy the needs of
low- and middle-income clients who lived far from a supermarket. These stores usually
offered small packages at a higher price than formal supermarkets. In addition, they offered
personalized service because the owners or managers usually belonged to the same
community where the establishments were located. In addition to consumer products or
articles, they also sold merchandise by providing no-interest loans, controlled in an
accounting book or notebook. When they used this service, clients bought merchandise daily
or weekly using credit and noting it in the book, or paying as much as possible and noting the
remaining balance in the book to pay later. Clients paid when due, usually on a day that
corresponded with payday.
Studies done by the United States Department of Agriculture (USDA) estimated that
Guatemala had around 100,000 neighborhood stores, with an average space of 3 m2, which
managed an average of US $500 in inventory. El Salvador had approximately 70,000 stores,
and only 14% managed inventory over US $500. Nicaragua had around 85,000 of these
stores.23 The studies also mentioned the presence of “farmer markets” or “city markets” in
which farmers or local intermediaries offered fresh produce from farms, such as fruits and
vegetables, basic grains, beef, pork, poultry, eggs and fish. With locales measuring 3x3
meters, these markets opened seven days a week, or just on fair days and weekends. Honduras
had the most markets. In Tegucigalpa there were 16 markets, while San Pedro Sula had 17. In
20
Global Food Retail. Datamonitor. www.datamonitor.com, Viewed June 2011.
USDA. “Global Food Markets: Global Food Industry Structure”. Economic Research Service.
http://www.ers.usda.gov/Briefing/GlobalFoodMarkets/Industry.htm, Viewed June 2010.
22
CBS News. ”Goal is to increase Growth rate”. March 21, 2011.
http://findarticles.com/p/articles/mi_hb3235/is_6_28/ai_n57259340/ Viewed April 2011.
23
Carlos Salinas “Comprar al fiado en las pulperías”. El País. December 14,2008.
http://elpais.com/diario/2008/12/14/negocio/1229262746_850215.html Viewed February 2012.
21
9
El Salvador, it was estimated that San Salvador had around seven markets, or at least one in
each town.
On the formal side of this industry, each country had local companies that tried to compete for
a portion of the market. In addition, all of the Central American countries except Panama had
Wal-Mart Central America. For example, Guatemala had the Unisuper chain, which had
resulted from a merger between the La Torre and EconoSuper companies. It had 44 stores that
operated as supermarkets and one discount warehouse. Wal-Mart represented 75% of the
market and had seven hypermarkets under the name Hyperpaiz, 30 Paiz supermarkets, 116
Despensas Familiares, 20 Maxi
Bodegas and two Club Co; the last two operated on a
membership basis. The country also had a PriceSmart, which had three stores with
membership clubs. There were over 70 convenience stores that were mostly located at gas
stations and were owned by alliances between local companies and those from the United
States or were part of the local brand “Super 24”, which had more than 25 locales in
Guatemala City.
Honduras also had a range of companies. The main competitor was Wal-Mart with a total of
56 stores under the names Hiperpaiz (7 stores) and Despensas Familiares. The next largest
retailer was the La Colonia supermarket chain that had 17 stores in the most populated areas,
including Tegucigalpa, Choluteca and Comayagua. San Pedro Sula had local supermarkets:
Junior, Comisariato Los Andes, Colonial and Económica, while Tegucigalpa had YIP S and
Stock Whole Sale Store; Roatan had an ELDON´s supermarket. PriceSmart, with its
membership club, had two stores. There were also approximately 400 convenience stores,
mostly located at gas stations.
Different to the rest of Central America, El Salvador’s largest retail chain belonged to Grupo
Calleja, which had 84 supermarkets under the Selectos and Selectos Market names. It
competed face-to-face with the multinational, Wal-Mart. Wal-Mart owned 78 stores under the
name Despensa Familiar (53) and Despensa de Don Juan (25), as well as two hypermarkets
called Hiper Paiz. The third largest supermarket chain belonged to Saca Group and had four
supermarkets under the name Europa and one hypermarket with the same name; Saca Group
had 4% of the market. PriceSmart also had two stores with membership clubs and 8% of the
market. Finally, there were about 140 convenience stores, mostly located at gas stations.
In Nicaragua Wal-Mart owned seven stores under the name La Union for the market segment
with the greatest purchasing power, as well as 53 stores under the name Pali. Other chains
included La Colonia (not the same as the Honduran chain), which had 15 supermarkets,
discount warehouses and one hypermarket. The chain was founded in 1956 when brothers
Carlos and Felipe Mantica opened their first store under the name Colonia Mantica. In
addition, PriceSmart had one store, and many convenience stores also operated in the country.
10
Costa Rica had 333 supermarkets in 2010. Wal-Mart accounted for 70% of the market with
180 stores under the names Mas x Menos, Maxi Bodega, Pali and Hipermas; the latter was a
hypermarket. Corporacion Megasuper owned 82 stores, while Grupo Gessa had 59, owning
Diboyco, Division Montelimar, Jumbo, Perimercados and Super Compro. This Group had
acquired small locales or chains in rural parts of the country since 2004 as part of its
expansion strategy. Automercado competed with 12 stores and was managed by Guillermo
Alonso, who focused on the middle and upper classes to maintain the chain’s growth.
PriceSmart had five stores with membership clubs. There were convenience stores located at
gas stations, and the company AM-PM also had 20 stores under the same name and nine
convenience stores under the name Fresh Market.
In Panama the chain Super 99 had 33 stores. It had been founded at the end of the 19th century
and belonged to the Wong Chang family. Later, it was operated by Ricardo Martinelli before
he was elected President of the country. The other chain with large market participation,
Supermercados el Rey, belonged to Grupo Rey. It started as a small store in the city of Colon
in 1911. In 1958 it began expanding to other provinces in the country, reaching a total of 18
supermarkets by 2010. PriceSmart had four stores with membership clubs. Most convenience
stores were opened at gas stations. For example, of the 45 Esso gas stations, 17 had
convenience stores. Esso’s management planned to continue opening other stores. Shell had a
total of nine stores under the name Select, and Texaco had 15 years of experience managing
the StarMart convenience stores.
SUCAP
The presence of Wal-Mart in most of Central America, as well as its capacity for investment
and management, terrorized local chains who fought to retain a portion of the Central
American market, which included more than 30 million clients. With close to US $3 billion of
sales in 2008, Wal-Mart clearly overshadowed local retail chains. However, that same year,
businessmen Francisco Calleja (El Salvador), Jonathan Poll and Ricardo Martinelli (Panamá),
Guillermo Alonso and Víctor Mesalles (Costa Rica), Felipe Mantica (Nicaragua), Leonel
Giannini (Honduras) and Freddy Gereda (Guatemala) formed a strategic alliance that, on the
one hand, made the market less appealing to the multinational chain, and on the other,
fostered local retail chains.
The alliance resulted in the conglomerate called Supermercados de Centroamérica y Panamá
(SUCAP), which included nine Central American and Panamanian companies, owning 16
supermarket chains. In 2008 they owned 278 supermarkets in the region’s six countries with
more than US $2.2 billion in annual sales and close to 24,000 employees. The alliance
fostered synergies, information exchanges, improved retail operations, technical exchanges
for training and the implementation of world class standards. In addition, it provided each
11
country’s suppliers, particularly small and medium businesses, with the chance to present
their products and services to every supermarket in Central America and Panama.24
Grupo Calleja
Before 1950 Salvadorians usually bought products from behind a counter, in public plazas or
at city markets, which usually did not have appropriate sanitation. In addition to a lack of food
storage options, Salvadorians preferred to buy live animals and butcher them at home or at the
place of purchase to guarantee freshness. Agustin Alfaro was the one who changed the system
and introduced the model of self-service retail stores with El Salvador’s first store called
Sumesa.
In 1951 Daniel Calleja joined Sumesa. Together with Agustin Alfaro, they implemented a
refrigeration system that allowed them to offer fruits and perishable foods. In addition, they
began to work with imported products. The need to offer more products greatly contributed to
the development of the country’s food industry. The concept of Sumesa grew in popularity
and after a few years, two more stores joined the market with eleven partners meeting the
needs of their clients. Motivated by his son, Francisco Calleja, who had recently graduated
from college, and using a loan, Daniel made the decision to buy the supermarket chain. In
1963, after the acquisition, he founded the Calleja S.A. company, which created the Super
Selectos supermarket brand. The company’s first store was located – and still is – in the
Caribe building on the Paseo General Escalon, on one side of the Plaza Las Americas.
In 1969 Grupo Calleja revolutionized the market again with the opening of a store measuring
1,600 m², called Gigante. The success of that store led them to begin developing and
expanding nationally, inaugurating supermarkets in the departments of Sonsonate, San Miguel
and Santa Ana. 25 In 1978 they acquired the Todos supermarkets, which increased their
number of stores. They continued to offer quality service to their clients. In the 90s they
experienced considerable expansion with the acquisition of three supermarkets: El Sol (four
stores), Multimart (one store) and La Tapachulteca (13 stores).
In 2000 Grupo Calleja announced the opening of 13 new stores called De Todo after the
acquisition of the Todo por Menos retail chain resulting from negotiations with Grupo
Comisal. With De Todo the Calleja family focused on serving municipalities and cities
outside of San Salvador. With an average area of 600 m² per locale, these stores offered
consumers refrigerated and perishable products, such as meat, fruit and vegetables, dairy
products, juices and other food products, as well as clothes, cosmetics, toys and some
appliances.
Francisco “Paco” Calleja said:
24
Karen Retan. “Supermercados centroamericanos retan a Wal-Mart”. La Republica, February 8, 2008.
http://www.larepublica.net/app/cms/cms_periodico_showpdf.php?id_menu=50&pk_articulo=10760&codigo_l
ocale=es-CR, Viewed May 2011.
25
Mario Soriano “Logística y cadena de abastecimiento” PowerPoint presentation. May 2011
http://katiadianaanakeren.files.wordpress.com/2011/05/grupo-callejas.pdf.
12
“The idea behind De Todo was to get closer to customers, especially those that had a hard
time getting to larger cities to make purchases to satisfy their basic needs. The idea we had
was for us to go to the client, not make the client come to us. Our mission is to serve clients
where they live.”26
By 2000 Grupo Calleja had 69 stores throughout most of the country. They were only missing
from the departments of Chalatenango and Morazan; however, they estimated that in the next
two years, they would open stores there, too. With 44 Super Selectos, 13 La Tapa
supermarkets, 12 De Todo supermarkets and more than 5,000 employees, they were
positioned as the country’s leading supermarket chain.
Despite being El Salvador’s largest retailer, Wal-Mart’s intentions to enter the market and
their interest in buying the Group in 2003 put the Super Selectos management team on alert. It
also showed them their own strengths and weaknesses. They realized that in order to compete
and serve their clients better, in addition to continuing their expansion, they had to focus on
remodeling and providing maintenance to all of their stores. They knew that in order to say
they were better than the competition, they had to prove it. Thus, in 2004, they invested US
$2 million in store number 70. This store had functional and modern facilities based on the
Multiplaza mall’s design and requirements. From then on, the Group focused on modernizing
its stores, no matter where they were located.27
The investment in infrastructure was not enough. They still had logistics problems, such as
theft of merchandise at their warehouses by drivers and at their stores. These losses accounted
for 15% of sales. They also had inappropriate inventory controls, launched sales that did not
satisfy the needs of consumers and did not know which products were most demanded at each
store. In addition to those problems, they did not have appropriate shifts scheduled for their
check-out lines, which meant that at peak hours they could not provide good customer
service. This was an even greater problem during high sales seasons when the number of
transactions reached seven million. As a solution, they had invested US $3 million in
technology for scheduling and in order to know in real time the type and amount of
merchandise they were selling. They began using an Integrated Business Management System
(IBMS)2829 and a Point of Sale (POS) Information System. 30 In 2006, one year after WalMart’s official entrance in the market, all of their stores had these systems, which allowed
them to plan operations better.
At the beginning of 2006 the company opened store number 71 with 1,300 m². It was the
second store in Lourdes Colon, where several urban development projects and industrial parks
26
Cristian Menjívar “Calleja, S.A. va a la caza del consumidor del interior del país”. El Diario de Hoy August 11,
2011
http://www.elsalvador.com/noticias/EDICIONESANTERIORES/2000/AGOSTO/agosto11/NEGOCIOS/negoc3.htm
l.
27
José Barrera. “Selectos Ancla de Multiplaza” El Diario de hoy. December 10, 2004
http://www.elsalvador.com/noticias/2004/12/10/negocios/neg12.asp.
28
Control Logistic System S.A. “Super selectos”. Control Logistic System S.A website. December 2006
http://www.cls.es/Prensa/Noticias%20antiguas/Noticia2006_1.htm.
2929
Control Logistic System S.A. “SIGES”. Control Logistic System S.A website
http://www.cls.es/frame_gen(a).htm, Viewed April 2011.
30
ALFASA. “Sistema de Información de Punto de Venta (P.O.S.)” ALFASA website.
http://www.alfasa.com/punto.htm, Viewed April 2011.
13
were located. With a total investment of US $9 million, they closed the year with 76 stores
and over 55% of the market. 31 In February 2009 they announced the opening of five new
stores despite the fact they had experienced a 7% reduction in sales that month, with respect
to the previous year (in February 2008 sales had grown 11%, while in 2009, 4%). Carlos
Calleja believed they had to continue investing, and he also said that part of their sales
strategy was to reduce the price of 400 basic need products. 32
In 2010 the Group maintained its sales strategy, offering a wide variety of products at much
more competitive prices than before, representing savings for customers during the economic
crisis. “We did that even though it meant a temporary drop in our profit margin. We’re a
Salvadorian supermarket, so we had to respond to their needs,” stated Carlos Calleja. At that
time they had 82 stores and had restructured spaces taking advantage of their specialization in
supermarkets; they also decided to change the name of their stores to Super Selectos (67) and
create a new space called Selectos Market (15).33 They differentiated the spaces based on the
market served. Super Selectos was focused on urban populations: 20% of their stores served
upper and upper-middle classes (AB), 40% the middle-class (C), and the other 40% the
middle and lower classes (CD) (Exhibit 4). Selectos Market served smaller towns with low- to
middle-income; prices were 5 to 7% lower than at Super Selectos (Exhibit 5).
The selection at Super Selectos was much better (35,000 SKU) than Selectos Market (15,000
SKU). Selectos Market offered only leading brands and the company’s own brand and did not
have as much of a selection in perishable foods, such as fruits, vegetables and meats, among
others. The stores also differed in size. Super Selectos averaged 1,250 m², while Selectos
Market averaged 600 m2. However, their personalized customer service was similar, both had
air conditioning, both provided grocery bags and advertised more than 800 promotions per
month (Exhibit 6). These similarities made clients perceive both types of stores as “Selectos.”
This perception had allowed the company to win over new clients quickly when they had
entered in informal markets (in other words, where no other supermarkets already existed)
and those that had been recently formalized by the competition, especially in small cities. The
Selectos brand was considered the number one supermarket by 63% of the population, while
Despensa de Don Juan and Despensa Familiar were considered number one by 17% and 13%
of people, respectively.
At the beginning of 2011 the company continued to offer competitive prices and a large
number of promotions and sales and opened two more Super Selectos. They had a total of 84
stores and close to 52% of the market. In general, their prices were lower than Despensa de
Don Juan, but Despensa Familiar was even cheaper, offering prices 8 to 10% less than those
of Super Selectos. Despite this difference, between 2004 and 2010 sales had grown 8% to
reach US $551 million. Most of this growth was a result of larger purchases by captive
customers, new clients and an increase in remittances. They estimated that on average,
Salvadorians spent US $120 per month (Exhibit 7). Their operational cash flow (EBITDA)
was above average for Central America, or around 6% sales ratio. The best companies in the
region had an EBITDA to sales ratio between 8.5 and 10%. As a reference, the New York
31
Jose A. Barrera. “Selectos invertirá $9 millones en cinco salas” El Diario de Hoy. March 22, 2006
”http://www.elsalvador.com/noticias/2006/03/22/negocios/neg9.asp Viewed April 2011.
32
El Diario de Hoy. “Selectos abrirá cinco salas en 2009” El Diario de Hoy. March 2, 2009
http://www.elsalvador.com/mwedh/nota/nota_completa.asp?idCat=6374&idArt=3404132, Viewed April 2011.
33
El Diario de Hoy. “Grupo Callejas abrirá dos supermercados más en El Salvador” Revista Summa April 14,
2010 http://www.revistasumma.com/negocios/2740-grupo-callejas-abrira-dos-supermercados-mas-en-elsalvador.html, Viewed April 2011.
14
Stock Exchange’s EBITDA for US supermarkets, Whole Foods and Kroger, showed 8% and
3%, respectively.
Selectos wanted to maintain and even increase its market presence, so the company decided to
invest more than US $40 million in two large projects: the first was to build a center to
manufacture food products and manage logistics for perishable products; and the second was
to open 12 new stores.34 They set aside US $13 million to build an agroindustrial meat and
poultry processing plant, fruit and vegetable packaging plant and bakery. This investment
would allow them to strengthen their own brands, such as La Rioja cold meats, Dany
(groceries), Brisa (toilet paper, paper towels and napkins) and Casablanca (cleaning products).
These brands included more than 120 products that had represented between 3% and 4% of
sales in 2010. Carlos Calleja stated:
"Our brand plays an important role in the country’s economy, since we offer
clients an excellent quality product at a competitive price."35
They projected that in the area of meat processing, productivity would increase by 15%, while
in baked goods, they would be able to bake for the entire chain with in-store bakeries. In
addition, they would centralize close to 20 fruit and vegetable suppliers and another 20 meat
suppliers. Little by little, this would allow them to work with new suppliers, as long as they
complied with the company’s quality standards and delivery conditions. 36 Selectos had
followed this strategy in 2010 with producers from the northern part of the country. The
company bought their products directly, substituting a large part of the US $24 million that
they imported in fruit and vegetables with 100% Salvadorian products, while simultaneously
contributing to the development of that part of the country.37 Ricardo Velásquez commented:
“Different from other supermarket chains, in Selectos we concern ourselves with
building a relationship that also benefits suppliers, even if that relationship temporarily
affects our company’s profit margin.”
Organizational Structure
In addition to investments in infrastructure and technology, in 2011 the company finished its
organizational strengthening process that it had begun implementing five years earlier. This
process consisted of restructuring personnel in central offices and at the supermarkets.
Francisco “Paco” Calleja remained as President. He delegated the administrative and
operational management to a Management Committee that was informally staffed by the
Vice-president (Carlos Calleja), CEO (Herbert Tobar) and Deputy CEO (Ricardo Velásquez).
These men were in charge of evaluating different decision-making issues and defining
guidelines for implementation. The President authorized this Committee to approve and
34
Keny Lopez. “Grupo Calleja invertirá $13 mil en centro de acopio” La Prensa Gráfica, September 16, 2011
http://www.laprensagrafica.com/economia/nacional/218052-grupo-calleja-invertira-13-mill-en-centro-deacopio.html.
35
Morena Azucena. “Marcas Propias Cobran Auge”. El Salvador. Com. July 6, 2009
http://www.elsalvador.com/mwedh/nota/nota_completa.asp?idCat=6374&idArt=3799888.
36
Keny Lopez. “Grupo Calleja invertirá $13 mil en centro de acopio” La Prensa Gráfica, September 16, 2011
http://www.laprensagrafica.com/economia/nacional/218052-grupo-calleja-invertira-13-mill-en-centro-deacopio.html.
37
Daniel Choto. “Súper selectos firma alianza estratégica con los productores”. El Salvador.com. September 28,
2010. http://www.elsalvador.com/mwedh/nota/nota_completa.asp?idCat=6374&idArt=5182963 Viewed April
2011.
15
finalize investments and define the Group’s strategy. However, Paco continued to be involved
in the company. His vast experience was useful, providing advice to the Committee when he
thought fit, especially when they were making large investments or major strategic decisions.
The Deputy CEO, Purchasing Director, Sales Director, Maintenance and Project Director,
Manufacturing Director and Cafeteria and Bakery Director all reported directly to the CEO.
The Deputy CEO had support from the Financial Director, Logistics and Inventory Director,
Systems Director and Risk Prevention Director. The Internal Auditor reported to the
President. The administrative area reported to the Deputy CEO. The Sales Director was in
charge of marketing, communications, customer service and business operations. The
Marketing Director, Operations Director, Quality Director and Human Resources Director all
reported to the Sales Director (Exhibit 8).
Operations managed 75% of payroll, controlled store operations and was responsible for
seven area managers who provided information about daily operations in stores in each
geographic area. Each store had a Manager. Depending on the size of the store, it could also
sometimes have a Deputy Manager and Junior Deputy Manager. Each department had a Chief
Operating Officer who coordinated operations in the respective area, for example, meats,
fruits and vegetables, check-out and bakery, among others.
In addition to the Management Committee, they had also created an Executive Committee
that included the Vice-president, CEO and Deputy CEO, Sales Director, Purchasing Director,
Financial Director and Systems Director. This Committee held weekly meetings and analyzed
each department’s work and performance. Each department was assigned clearly defined and
specific tasks at the end of each meeting. This model took the place of monthly meetings with
Directors from different departments in which they only commented what they were doing
and provided information without assigning future actions. Despite the Committees and
organizational restructuring, the company still lacked a formal Board of Directors; they had a
board, but it operated informally. The company generally discussed its strategy and long-term
vision with the Executive Committee and in the presence of President Francisco Calleja.
Carlos commented:
“Everyone in the organization was clear that each action we took should help
Selectos provide better service, better selection and better quality, while
representing savings for our clients.”
The CEO echoed Carlos’ comment, stating:
“In order to implement the company’s strategy, we employed a day-to-day sales strategy,
making tactical decisions quickly and at the right time after rapid analysis. That had
allowed us to retain a certain competitive advantage over our main competitors who many
times had to wait for approval from their headquarters in order to make a decision and
implement it.”
Wal-Mart and Wal-Mart Mexico and Central America
Wal-Mart was founded in 1962 in Rogers, Arkansas, by Sam Walton, who, under the
philosophy of “buy it low, stack it high and sell it cheap,” had started an adventure into the
world of retail. By 1970 he had 18 retail stores. Even though Walton had to step back from
the company’s management because of health problems, he never completely withdrew until
the day of his death. He was succeeded by David Glass, who was CEO from 1988 to 2000. He
16
was able to increase annual profits from US $20 billion to US $200 billion. After Glass, Lee
Scott became Director through 2009. He played an important role in Wal-Mart’s distribution
network, one of the fundamental reasons the company became the largest retailer in the
United States. Before retiring Lee said:
"It has been an honor to serve as the CEO of Wal-Mart and to work with our dedicated
Wal-Mart and Sam’s Club associates around the world, and it has been a privilege to lead
the company Sam Walton created, a company that continues to live the mission and culture
he established.”38
Beginning February 1, 2009, Mike Duke, a well-respected manager both in the United States
and internationally, with vast experience in the company, having managed Wal-Mart’s
Logistics Division, Operations in the US and International Operations, was named CEO.
Even though the company had experienced key changes in leadership, as Lee mentioned, it
was able to maintain Walton’s business culture and legacy (Exhibit 9). The company had a
culture based on dedication, innovation and a constant search for operational efficiency in
order to meet client needs and expectations. This culture had also served as the basis to create
one of the world’s largest corporations, which completely revolutionized the retail industry.
Offering low prices everyday was not an easy task. Wal-Mart did this by significantly
reducing its operating costs when compared to its competitors. One way the company
achieved this was when Wal-Mart went public in 1962; it earned US $3.3 million and was
able to use the money to build its first distribution center. The fact that the company had its
own distribution centers allowed it to buy at attractive prices and store merchandise until
distribution was necessary. The distribution center was strategically located so that it would
not be any further than one day’s travel from different stores. At the end of 2010, Wal-Mart’s
distribution network in the United States included 129 centers, or an average of 2.6 per state.39
Wal-Mart planned to use this model in other countries where it was investing.
The company’s distribution centers averaged 90,000 m² and operated 24/7, keeping its fleet of
trucks and trailers busy. Each center had more than 5,000 kilometers of conveyor belts that
moved more than 9,000 product lines. Each distribution center also provided its services to
between 75 and 100 stores within a 400 kilometer radius.40 Distribution costs represented 23% of Wal-Mart’s income, in comparison to the 4-5% that other competitors were paying.
Stores were located in a ring shape around these distribution centers. Generally, Wal-Mart
located its stores in small towns where the company could be the only large retailer.
38
Wal-Mart. “Eligen a Mike Duke como nuevo director ejecutivo de Walmart” Wal-Mart website.
http://walmartstores.com/pressroom/news/8815.aspx?l=es, Viewed February 2012.
39
StateMaster. “Walmart Stores. Number of distribution centers (most recent) by state” State Master.com
http://www.statemaster.com/graph/lif_wal_sto_num_of_dis_cen-walmart-stores-number-distribution-centers
40
Wal-Mart. “About Us: Logistic”. Wal-Mart website http://walmartstores.com/AboutUs/7794.aspx.
17
Another factor that contributed to the company’s reduction in operating costs was the use of
state-of-the-art information technology. This allowed the company to manage its sales and
inventory information on a monthly basis in the 60s, a weekly basis in the 70s and in real time
by the end of the 90s. The implementation of an internal Electronic Data Interchange (EDI)
system helped the company plan, stock and deliver products. At the end of the 90s, Wal-Mart
created the Central Retail Link, a platform that allowed suppliers to access point of sales data,
sales trends in previous years and inventories of their product by store. It was estimated that
the cost of the center was approximately US $4 billion. Suppliers also had to invest in
equipment and trained personnel who could manage and analyze the information provided. In
2002 the company’s technology allowed it to gather precise information on supply and
demand, enabling Wal-Mart to reduce inventory surpluses and shortages.
Technological advances allowed Wal-Mart to manage a range of products considering
detailed sales information and other qualitative data, such as exclusivity, impulse/destination
purchases, the store’s ability to exhibit and store products, etc. With initiatives like its
“Volume Producing Item” contest, in which senior managers had to look for and promote
items that had the potential to increase income, managers were motivated to analyze and
improve their decision-making constantly. The optimization of product selection by store was
formalized at each store when Wal-Mart began to adjust its product lines by local
demographic characteristics. This change, plus the company’s use of technologies, such as its
modular Category Management Planning system and the Retail Link network, allowed WalMart to vary the size and mix of merchandise based on each store’s needs.
The fact that Wal-Mart sold products based the particular needs of each store allowed the
company to offer a greater variety than its competitors and even permitted greater control
over inventory shortages, offering products based on consumer tastes and needs. Other
retailers, such as Target, made product adjustments by region. Wal-Mart’s management
estimated that 10% of clients left the store without making a purchase, which represented in
2003, a loss in sales of close to US $9 billion in the United States. By improving operational
efficiency and offering a wide range of merchandise at everyday low prices in cheap, but nice
stores, the company achieved very high sales per square meter.
In terms of the company’s suppliers, Wal-Mart began to move little-by-little up the supply
chain and negotiate directly with the manufacturer. By the 90s, Wal-Mart went around
manufacturer representatives, saving between 3-4% of the cost of the goods, which had
previously been bought from those representatives. In addition, by expanding its own brand, it
began working more with generic suppliers and getting more involved in marketing and plant
supervision roles. In the United States the company’s private brand had represented 20% of
sales in 2003; by 2010 it hovered around 40%. In Central America the company’s brand
represented more than 10% of sales with a portfolio of 900 products. Wal-Mart brand
products had lower prices than national or other company brands. For example, the price of
Sam’s American Choice detergent was 50% lower than Procter and Gamble’s Tide.
18
In 2002 the company hired employees to make direct purchases. Suppliers were limited to
accepting conditions and prices that Wal-Mart offered. Different from other retailers, the price
negotiated with Wal-Mart included additional costs for suppliers, such as commissions to
manage returns, publicity and promotional expenses. Despite being a hard negotiator, WalMart used companies to increase its portfolio of suppliers, with whom it shared its
information electronically. Suppliers assumed the cost of merchandizing products in the
stores, which included people to demonstrate the product and give samples, among other
promotions. This merchandizing represented between 5% and 15% of the value of the
products.
Wal-Mart became the largest importer of products from China in the 90s. It was estimated
that in 2003 direct purchases of Chinese imports represented US $7.5 billion, and by 2006,
they had reached US $27 billion. Many goods provided by suppliers came from China and
were resold to Wal-Mart. In 2006 global purchases reduced costs between 10% and 20%. In
addition, Wal-Mart coordinated its global purchases for Sams Club, its stores in the United
States and non-US stores. Despite having strict standards with its suppliers in terms of child
labor and on-the-job safety, in 2003- 2010, Wal-Mart was accused of being a retailer that
exploited human rights, since more than half of its suppliers violated Wal-Mart’s standards
and local laws.
For Walton his “partners” or associates were the most important ingredient in achieving and
maintaining success. Therefore, most of his policies and practices were institutionalized over
time. These included sharing performance information with personnel, asking for employee
ideas, offering incentives and participation in stock options and maintaining an open-door
policy. Wal-Mart emphasized that it offered more training than any other retailer and that
two-thirds of its managers had been promoted among stores, offering positive working
conditions.
However, all initiatives were conditioned in order to maintain a strict limit on payroll
expenses, which at one time represented half of total operating expenses. Employee salaries
were generally minimum wage plus a bonus that varied depending on the goals accomplished
with respect to profit and losses. Store managers received a lower salary than their colleagues
at competitors’ stores; however, they also received a bonus as long as they kept payroll
expenses under a fixed amount for each store. The limit was set by headquarters, which also
evaluated store managers based on sales growth and percentages of product inventory and
damages. Senior managers were mostly compensated through bonuses, which totaled US $
335 million, US $302 million and US $276 million in 2010, 2009 and 2008, respectively.
The sum of all of these elements allowed Wal-Mart to have very low production and
operating costs; therefore, the company had great flexibility to offer products with relatively
low shelf prices. However, in addition to its low prices, in the United States the retailer began
to offer promotions on products. In 2002 promotional sales had reached US $1 billion. They
designed a program called Rollback that applied a 10% additional discount to at least three
19
key products per category for at least 75 days. Suppliers absorbed the cost of a Rollback, but
benefited from increased volumes of up to several percentage points and future preference
from Wal-Mart.
Wal-Mart’s internationalization began in 1991 when the company entered Mexico and opened
a Sams Club in partnership with a local Mexican retailer, CIFRA, which Wal-Mart later
acquired. In 1994 Wal-Mart expanded to Canada and then the large emerging markets in
South America and Asia. In 1997 Wal-Mart expanded to developed markets after acquiring
two hypermarket chains in Germany, Europe’s largest retail market. However, the challenges
of integrating the stores, the apparent preference of Germans for smaller neighborhood shops,
legal restrictions on hours of operation, and price reductions produced enormous losses in
2003. Nonetheless, the company’s acquisition of the successful ASDA retail chain in Great
Britain in 1999, which had 229 stores and income of US $14 billion, improved Wal-Mart’s
European panorama. In 2010 Wal-Mart promoted itself as “Britain’s Lowest Priced
Supermarket” and had 500 retail stores with profits of about US $830 million.
In 1999 the President of Wal-Mart’s Sales Division was replaced by Chief Financial Officer
John Menzer. Under his management, the company reduced by 50% its international
operations staff in Bentonville, and he gave each country leader more authority to make
decisions, especially in the areas of operations and sales. Before 2008, he led many of the
company’s acquisitions, including ASDA in Great Britain and other businesses in Mexico,
Brazil, Central America and Japan. He had been a member of the Board of Directors and
President of Wal-Mart’s Executive Committee in Mexico, as well as a Member of the Seiyu
Ltd. Board (Japan). Under his leadership, international sales grew from US $20 billion to US
$60 billion.41 At the end of 2010 Wal-Mart International registered sales of US $100 billion,
had 4,800 stores measuring a total of 25 million m² and was being led by Doug McMillon,
who acted as President and CEO.
Wal-Mart’s entrance in Central America occurred under the leadership of Menzer. In
September 2005 Wal-Mart acquired one-third of the Central American Retail Holding
Company (CARHCO). CARHCO had been created as a commercial alliance among Grupo
La Fragua (Guatemala) with Royal Ahold (Holland) and Corporación Supermercados Unidos
(Costa Rica), in which La Fragua-Ahold owned two-thirds and Corporación Supermercados
Unidos (CSU) the other third. At that time CARHCO owned 254 stores in the five countries
in Central America, of which 55 were supermarkets, seven were hypermarkets, one was a
membership club store and 191 were discount stores. It was estimated that this alliance would
generate sales upward of US $3 billion throughout the Central American region. 42
In 2003 with the goal of having greater participation in El Salvador, La Fragua acquired
Despensa de Don Juan, which had 27 stores throughout the country. La Fragua also opened
41
Wal-Mart.“John Menzer to Retire as Wal-Mart Vice Chairman” Wal-Mart website
http://walmartstores.com/pressroom/news/7876.aspx, Viewed February 2012.
42
El Diario de Hoy. “Grupo Paiz busca alianzas en el país” El Diario de Hoy. November 7, 2011
http://www.elsalvador.com/noticias/2001/11/7/NEGOCIOS/negoc2.html Viewed February 2012.
20
Maxi Bodega and Super Sencillo stores in Guatemala and had converted the Paico and Palí
stores (that used to belong to CSU) into Despensa Familiar stores in Honduras. In 2005 La
Fragua had a range of 220 stores in Guatemala, El Salvador and Honduras, and Corporación
de Supermercados Unidos had 164 in Costa Rica and Nicaragua.
In 2005 Wal-Mart Stores Inc. substituted Royal Ahold as partner and one year later became
the owner of 51 % of the alliance. The company changed the name from CARHCO to WalMart Centroamerica. In January 2010 Wal-Mart Mexico announced its merger with Wal-Mart
Central America, for a total of 519 stores, in different formats, but all of which were market
leaders in their socio-economic segment; 11 distribution centers; and agroindustrial operations
that provided its stores in the region with perishable goods. Sales for the previous 12 months
through September 2009 had reached US $3.325 billion. The name after the merger became
Wal-Mart Mexico y Centroamerica. The cost of this transaction to acquire Wal-Mart Central
America was US $2.7 billion for Wal-Mart Mexico (Exhibit 10). Eduardo Solorzano,
President of the Board of Directors of Wal-Mart Mexico and Central America and General
Manager of Wal-Mart Latin America said:
"I am pleased to end this year with a historic operation. The acquisition of Wal-Mart
Central America makes Wal-Mart Mexico an international company, with 1,929 stores
operating in six countries, generating annual sales of more than US $25 billion. It also
gives our shareholders additional opportunities for growth in five countries, in addition to
the opportunities that exist here in our country.”43
At the end of 2010 profits from operations in Central America were promising. For example,
the growth of production capacity was 3.7%, sales reached over US $3.640 billion with an
increase of 6.9% in total products and 5.2% in generic products. In addition, operating profits
grew more than sales (Exhibit 11). Scot Rank, President and CEO of Wal-Mart Mexico and
Central America, together with his team, made an effort to align synergies between operations
in Mexico and Central America in order to function as just one company. Therefore, the
company’s 2011 strategy had to be implemented based on operations both in Mexico and
Central America.
In January 2011 Wal-Mart Mexico and Central America’s managers had committed to
growing sales from 9.7% annually in 2010 to 12% annually in 2011 and 15% in 2012. In
order to achieve this goal, they had decided to go back to the EDLP strategy (Exhibit 12),
based on headquarters’ operations and culture. This implied strict control of costs, a change in
relationships with suppliers so that the cost of merchandizing, which had previously been paid
for by the supplier to promote its products at stores, now had to be incorporated as an
additional discount (between 5% and 15%) to the price. Wal-Mart believed that
merchandizing was no longer necessary when using EDLP, in order to take advantage of the
global purchasing power that headquarters had, along with efficient inventory management
and promoting happiness and joy at its stores.
43
Wal-Mart de México. “Walmart De México Adquiere Operación De Walmart En Centroamérica” Wal-Mart
Mexico. http://www.walmex.mx/assets/files/Informacion%20financiera/BMV/BMV/Esp/2009/12062009%20Adquiere%20Operacion%20De%20Walmart%20En%20CA.pdf, Viewed February 2012.
21
In order to improve operational efficiency and profits, they focused on increasing store
productivity: energy savings with LED lighting and Energy Control and Systems monitoring.
In addition, they concentrated on the logistical efficiency of their distribution centers,
increasing the number of distributed boxes by 40% and the number of stores served and
productivity by 30%; they also reduced the waiting time of suppliers by 15%. In the
company’s 2011 expansion plan, they expected to open 365 new stores equaling 563,000 m²
in Mexico and 80 new stores equaling 43,000 m² in Central America.
Even though Wal-Mart Mexico and Central America had a generally-defined strategy for its
operations in Central America, the challenge to implement it was even greater. They had to
make large investments to get the region to operate like a true Wal-Mart. First, they had to
change the way they grew. For many years Wal-Mart Central America had used warehouses
or discount stores and bet on growth from larger retail spaces. The redefinition of space was
essential. Alberto Ebrard, Executive Vice-president and COO for Central America mentioned:
“The first strategic change to prepare the region for accelerated growth will be the
redefinition of a multi-format strategy. Central America already had one; however,
the differentiation and positioning of the different types of stores was not clear, like
we have it here in Mexico (Exhibit 13). The first thing was to redefine the correct
client that each store targeted and redirect business strategies based on those clients.
For example, even though the Maxi Bodega format is a warehouse, it had much
higher prices than discount store formats. We are re-launching the Bodega, lowering
prices, improving selection and changing the name to Maxi Pali or Maxi Despensa
to put it under our umbrella of discount stores.”44
In addition, they planned on incorporating Wal-Mart’s brand, starting by changing the
names of the hypermarkets to Wal-Mart Supercenters. According to Scot Rank and
Alberto Edbrard, aligning the regional strategy based on store type, rather than using the
previous structure that had been aligned by country, allowed them to focus on the
specific needs of the clients targeted by each type of store, while permitting operational
efficiencies and reduced expenses in order to offer everyday low prices. Over the next
few years, they would need to make internal changes, as well as those perceived by their
clients and suppliers.
Closing
Super Selectos’ management team was evaluating what strategy to follow in order to
continue as El Salvador’s number one supermarket chain. In the last few months their
promotional war with Wal-Mart had been the strongest yet. “They’re killing us,” said
Carlos Calleja. They were planning on having a retreat for the Executive Committee in
two weeks and were preparing a series of analyses and reports to be presented.
44
Wal-Mart de México. Webcast “Resultados del Tercer Trimestre 2011”. Wal-Mart Mexico
http://www.walmex.mx/ Viewed February 2011.
22
Exhibit 1.
Costs Associated with Purchasing vs. Retail Services
Costs Associated with Purchasing
Time spent buying;
Retail Services
Variety of products to reduce consumer’s
time spent buying;
Distance between consumer and store;
Accessibility to locale, decreasing the
distance between consumer and store;
Change that the consumer has to make if Ambience at locale to lower psychological
he or she cannot find the exact brand and costs of purchasing;
size of what he or she is looking for;
Availability of information and probability
of getting the desired product at the right
Information costs in terms of products to
time, which lowers costs of change that
be purchased;
consumers have to make if they cannot find
the exact brand and size they want.
Storage of bought products;
Psychological costs of buying, issues
with noise, cleanliness, etc.
Source: Loreto Lira. “Cambios en la industria de los supermercados concentración,
hipermercados, relaciones con proveedores y marcas propias”. Universidad de los
Andes,
Santiago.
Public
Studies,
97
(Summer
2005),
via
http://www.cepchile.cl/dms/lang_1/doc_3472.html
23
Exhibit 2.
miles de millones
Value of Global Food Retail Industry, Period 2005-2009.
5000.0
4500.0
4000.0
3500.0
3000.0
2500.0
2000.0
1500.0
1000.0
500.0
0.0
Valor
2005
2006
2007
2008
2009
3326.9
3547.9
3807.3
4074.1
4349.4
Years
Source: Elaborated by the author with data from the Global Food Retail Report, Datamonitor. In
thousands of millions.
24
Exhibit 3.
Leaders in Global Sales of Food Retail, By Point of Sale Type, 2008.
Global sales
rank
1
2
3
4
Supermarkets
Kroger Co (United
States)
Safeway Inc (United
States)
Hypermarkets
Discounters
Wal-Mart Stores Aldi Group
Inc (United States) (Germany)
Schwarz
Carrefour SA
Beteiligungs
(France)
GmbH (Germany)
Tesco Plc (United
Kingdom)
Royal Ahold NV
(Netherlands)
Tesco Plc (United
Kingdom)
Auchan Group SA
(France)
Lawson Inc (Japan)
Internationale Spar Centrale BV
(Netherlands)
Carrefour SA (France)
Edeka Zentrale AG &
Co KG (Germany)
E Leclerc (France)
Carrefour SA
(France)
6
Rewe Group
(Germany)
7
Delhaize Group SA
(Belgium)
Wal-Mart Stores
Inc (United States)
Tengelmann
Group, The
(Germany)
8
ITM Entreprises SA
(France)
9
Carrefour SA
(France)
Royal Ahold NV
(Netherlands)
10
Woolworths Ltd
(United States)
Metro AG
(Germany)
11
Supervalu Inc (United Target Corp
States)
(United States)
12
Publix Super Markets
Inc (United States)
Meijer Inc (Japan)
13
Internationale Spar
Centrale BV
(Netherlands)
14
Mercadona SA
(Spain)
Casino GuichardPerrachon SA
(France)
15
Sales share
of top 15
30.6 percent
Shinsegae
Department Store
Co Ltd (South
Korea)
Systeme U Central
Nationale SA
(France)
Itochu Group (Japan)
Rewe Group
(Germany)
Supervalu Inc
(United States)
5
J Sainsbury Plc
(United Kingdom)
Casino GuichardPerrachon SA
(France)
Schwarz
Beteiligungs
GmbH (Germany)
Convenience stores
Seven & I Holdings Co, Ltd
(United States)
George Weston Ltd
(Canada)
Dansk
Supermarked A/S
(Denmark)
Uny Co Ltd (Japan)
Musgrave Group Plc (Ireland)
Co-operative Group (CWS) Ltd
(United Kingdom)
FEMSA (Fomento Economico
Mexicano SA de CV) (Mexico)
X5 Retail Group
NV (Russia)
Tesco Plc (United Kingdom)
Edeka Zentrale AG
& Co KG
(Germany)
AEON Group (Japan)
Reitan-Gruppen AS Alimentation Couche-Tard Inc
(Norway)
(Canada)
Norma
Lebensmittel
Filialbetrieb GmbH
& Co KG
(Germany)
Auchan Group SA (France)
CBA Kereskedelmi Kft
(Hungary)
Louis Delhaize SA
(Belgium)
Tander ZAO
(Russia)
Jerónimo Martins
SGPS SA
(Portugal)
73.5 percent
68.8 percent
57.5 percent
Casino Guichard-Perrachon SA
(France)
Source: United States Department of Agriculture. “Global Food Market” USDA.
http://www.ers.usda.gov/Briefing/GlobalFoodMarkets/Industry.htm
25
Exhibit 4
Classification of Market Segment by Income
Category
A
B
C+
C
CD
Income US$
Greater than or equal
to 3500
2500 to 3499
1500 to 2499
1000 to 1499
600 to 999
250 to 599
Source: Grupo Calleja
Exhibit 5.
Types of Super Selectos
Type
Super Selectos
Complete
selection,
personalized service, serves
urban areas with middle to high
purchasing power, open 14
hours.
Super Selectos
Limited selection, personalized
service, experience, perishable
goods, serves smaller
populations with low to middle
consumption, open 12 hours, on
average
Logo
Observations
69 stores
National
81% of sales in 2010
15 stores
19% of sales in 2010
Source: Grupo Calleja. Commercial Presentation, 2011.
26
Exhibit 6(a).
Promotions from Super Selectos and Selectos Market
27
Exhibit 6 (b)
Promotions from Super Selectos and Selectos Market
Exhibit 7.
Annual Sales of Super Selectos
Year
Net Sales
(millions US$)
2006
403
2007
440
2008
446
2009
514
2010
551
Source: Grupo Calleja
28
Exhibit 8.
29
Exhibit 9.
Rules of Sam Walton to Create a Company
1.
Commit to your business. Believe in it more than anybody else. I think overcame
every single one of my personal shortcomings by the sheer passion I brought to my
work.
2. Share your profits with all your associates and treat them as partners. In turn, they
will treat you as a partner, and together you will all perform beyond your wildest
expectations.
3. Motivate your partners: Money and ownership alone are not enough. Constantly, day
by day, think of new and more interesting ways to motivate and challenge your
partners.
4. Communicate everything you possibly can to your partners: The more they know, the
more they will understand. The more they understand, the more they will care.
5. Appreciate everything your associates do for the business: A paycheck and a stock
option will buy one kind of loyalty. But all of us like to be told how much somebody
appreciates what we do for them.
6. Celebrate your successes. Find some humor in your failures. Don’t take yourself so
seriously. Listen to everyone in your company and figure out ways to get them
talking.
7. Exceed your customers’ expectations. If you do, they will come back over and over.
8. Control your expenses better than your competition. This is where you can always
find the competitive advantage.
9. Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody else
is doing it one way, there is a good chance you can find your niche by going in
exactly the opposite direction.
30
Exhibit 10.
Purchase Price to Acquire Wal-Mart Central America
Thousands of
US$
2,146,643.78
110,835.81
439,671.07
2,697,150.66
Type of Payment
Stock payments
Cash payments
Contingent liability
Total Purchase Price
Source: Wal-Mart Mexico
Exhibit 11.
Financial Statements of Wal-Mart Mexico and Central America
2010
% of income
Net Sales (millions of US$)
Mexico
2009 % var
Central America
2010
2009 % var
Consolidated
2010
2009 % var
23,458.3
21,380.7
9.7
3,648.9
3,414.8
6.9
26,548.5
21,380.7
24.2
Gross margin
22.0
21.7
11.6
22.2
22.1
7.4
22.1
21.7
26.4
General expenses
13.5
13.4
9.9
17.4
17.3
7.5
14.0
13.4
29.4
8.6
8.2
14.3
4.8
4.8
7.2
8.1
8.2
21.4
10.4
10.0
14.2
6.5
6.5
7.5
9.9
10.0
23.0
Profit
Operational cash flow
(EBITDA)
Source: Wal-Mart. “Información financiera anual”
http://www.walmex.mx/assets/files/Informacion%20financiera/Anual/Esp/Financiero/financie
ro2010esp.pdf
31
Exhibit 12.
Wal-Mart Everyday Low Prices
32
Exhibit 13.
Types of Stores Wal-Mart Mexico and Central America
Type
Logo
Warehouses and Discount Stores
Inexpensive stores that offer basic
merchandise, food and household goods.
Value proposal: price
Observations
1,718 stores
457 cities
38.6 % of sales in 2010
Hypermarkets
Hypermarkets that offer wider selection
of merchandise, from groceries and
perishable items to clothing and general
merchandise. Value proposal: price and
selection
230 stores
84 cities
27.0 % of sales in 2010
Price Club
Wholesale price clubs with membership,
focused on businesses and consumer who
buy the best price. Value proposal: price
leader, volume, new and different
merchandise
128 stores
75 cities
22.7 % of sales in 2010
Supermarkets
Supermarkets located in residential areas.
Value proposal: quality, convenience and
service
Department
Clothing stores that offer the best fashion
for the whole family at the best price.
Value proposal: fashion with value, price
and quality
184 stores
44 cities
7.0 % of sales in 2010
94 stores
34 cities
3.0 % of sales in 2010
Restaurants
Restaurant chain, leader in cafeteriarestaurant industry. Includes Mexican
food with El Portón restaurants. Value
proposal: convenience, flavor and quality
365 stores
65 cities
1.7 % of sales in 2010
Bank
Commercial bank for clients of WalMart Mexico stores, basic products and
financial services. Value proposal:
convenience, simple and price
263 stores
31 cities
910,000 account holders in Mexico
Source: Wal-Mart Mexico and Central America
33