The Latin American retail sector has experienced outstanding and sustained growth in the last decade, causing increase in both sales and revenues for big companies, as well as higher profits for their stakeholders.

Despite the recent mild slowdown, this market has very high growth perspectives and offers attractive opportunities for investors. Several indicators account for this potential.

In the last ten years, big retail companies, both local and global, have gained growing shares in this market. As an example, in only four years Walmart has come to own the biggest portion of the Chilean retail market (26.5%), while being the main player in Mexico. CENCOSUD, born in Chile, has consolidated itself as a relevant regional actor, controlling the main market shares in both Argentina (12.5%) and Peru (11.1%). The French firm Casino retains the biggest slices of the Brazilian and Colombian retail sectors. Even though big companies have substantially increased their participation in this market, the Latin-American retail sector continues to be fragmented, leaving considerable space to integrate some regions inside each country to big chains. In this sense, many of the big companies have ambitious organic expansion plans: In Peru, the group InRetail (controller of Supermercados Peruanos, the main retailing company in the country) plans to end the current year with 12 new supermarkets and to open another 15 in 2014. In Brazil, the chain Assaí (owned by Casino) has opened 8 new stores so far this year, in five new Brazilian states.

In addition to this, according to a poll conducted by LatAm Confidential (a Financial Times publication) among 6,500 Latin American consumers, during the last decade this expansion of modern retail channels (hyper-markets, supermarkets and minimarkets) has boosted a trend towards formalization in the Latin American market, modifying consumers’ preferences against traditional channels (independent local sellers, street markets, etc). This trend gives stability to the sector´s perspectives, while leaving room for growth, especially in countries such as Peru or Colombia, where preferences towards traditional channels still account for 28% and 26% of consumers, respectively. The preference for modern retailing is stronger in Latin-American expanding middle class (reaching 90% of consumers in Brazil and Chile), which reinforces the positive perspectives for the sector. The rise of credit and debit card usage in the region as means of payment for groceries´ shopping also strengthens this trend.

Improving economic conditions in Latin-America and the expansion of modern retail channels in the region have been followed by the configuration of new market characteristics: according to the LatAm Confidential poll, the price of products remains the main criterion for shoppers to decide where to buy, but other variables such as quality and nearness of the store have more weight every time, especially in the Brazilian market (40% of consumers decide on quality). In this context, the most successful retail companies have been those who have been able to adapt to the diversification of their clients with different formats: some big companies combine hyper-markets with small saving stores, such as Walmart with its Bodega Aurrera chain in Mexico, while others bet on proximity to residential areas offering high quality stores, as is the case of the Casino group with its Minimercados Extra in Brazil. Furthermore, many big firms have also implemented store brands, which outstand either on quality or price, in order to complement their diversification approaching strategies.

In short, the Latin American retail sector presents solid growth perspectives and the level of success and profitability of investments will depend on big chains’ ability to expand organically and on the effectiveness of their strategies, in order to respond to new preferences for more and more diverse consumers.

By Joaquín Nuñez, Analyst – EMA of London | Contact us if you would like to know more about investment and trade opportunities in Latin America