Chile has one of the most developed retail industry in Latin America, its expansion despite the restrictions due to the ongoing pandemic, proof of this are the last two acquisitions made by the Chilean Cencosud, one of the giants in the sector. .
The first was the purchase of GIGA, a chain of cash & carry supermarkets in Brazil, in the State of São Paulo, considered the largest in the Hispanic-Portuguese continent. The value of the operation would reach 100 million dollarswhich may be adjusted in consideration of the working capital in GIGA at the time of closing the transaction.
We are talking about a Brazilian company created in 2009, it has ten stores with an average of 4,500 m2 each, well located in the metropolitan region, close to busy avenues. Its year-on-year turnover as of March 2022 is around 300 million dollars.
The General Manager of the holding company Cencosud, Matías Videla, affirmed “although the penetration of cash & carry (or cash & carry, as it is known in Brazil) in São Paulo is 1.1% of total market sales, it is a participation that allows us to have a scale to develop a business in a state that has the size of an economy larger than Chile and the size of Argentina,” he said.
Referring to GIGA, he indicated “it is a highly valued brand in Sao Paulo, with high growth potential and with a local administration that has demonstrated a successful execution of this format.” For his part, Sebastian Los, general manager of Cencosud Brazil, stated that “this transaction is a milestone for our operation in Brazil; we firmly believe that GIGA will empower us with the correct format, in a state full of opportunities. This is the beginning of a new stage of growth, which our great team at Cencosud Brasil will know how to promote.” As usual, the purchase is subject to the fulfillment of certain conditions, among others, obtaining authorization from the Administrative Council for Economic Defense of Brazil.
But there is more. If the information referring to Brazil is important, even more important is the purchase by the same company of 67% of the chain of 160 stores The Fresh Market, a Premium specialty supermarket, located throughout 22 states of the United States. .
In this way, its entry into the US market was sealed in an estimated operation of 676 million dollars. On this occasion, the CEO of Cencosud clarified that they were convinced by knowing the DNA of the corporation, founded in 1982 and that since 2016 it had been in the hands of Apollo Global Management, an investment entity that was preparing it to take it to debut on the stock market in through an IPO.
What is an IPO? An IPO is the acronym for Initial Public Offering, which is known elsewhere as a Public Offering for Sale. It is equivalent to another type of financing that allows a large amount of capital to be injected into the companyhave a market value and continue with the expansion plans.
What elements are interesting for the business holding company? They highlight a high presence of perishable references, around 70%, compared to 40% found in a conventional Cencosud supermarket. They add to this an outstanding offer of prepared dishes that would constitute the true emblem of the place.
Likewise, those related to customer service have received recognition for this. Videla adds “the experience lived in these stores generated a lot of affinity with what Cencosud seeks to generate in consumers. We find the DNA and culture very similar,” she pointed out. They recognize distinctive elements to compete, given that it is “attached” to the big players, with purchases that can be complementary to those made by their customers at Walmart, Target or Publix, among others.
Likewise, “you can coexist, which generates a defensive and differentiated strategy from the big ones. We are not direct competitors, but a complement. It has a clear and well-executed proposal,” he said, adding that the opportunity is enormous, because there are many elements that can be transferred to Latin America, such as the supply of organic, vegan products, etc. “This company is going to grow, but it is also going to join Cencosud,” he concluded.
Considering the location of the company’s 160 stores -of almost 2,000 m2 each- they are located mainly in Florida (47 of them), North Carolina (21), Virginia (13) and Georgia (12). Basically, the east coast of the country. “There is free space in that market to grow two or three times without any inconvenience, in the same markets where it is today,” he explained.
This is good news, both for Cencosud itself, which executes them, for the recipient country – Brazil and the United States-, and of course, also for the country of origin, Chile. Foreign direct investment (FDI) is often an engine of growth where it is received. Surely the investor will transfer knowledge and know-how to improve the behavior of the acquired companies, create jobs, transfer some commercial technology and apply some manual of best practices. We could add more tangible and intangible benefits.
The issue that is a little more difficult to understand is that the firm’s parent company and/or the country of origin Chile wins. Let’s say that the mere presence in these two places causes the valuations of the main shares to rise; access to financing for this or other projects may become cheaper; the repatriation of profits, when any, will produce impacts on local taxation. In addition, it is indirectly opening doors to other Chilean companies that are interested in these or other markets.