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Walmart buys brazil supermarket chain

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   http://www.reuters.com/newsArticle.jhtml?type=reutersEdge&storyID=4470991

http://www.reuters.com/newsArticle.jhtml?type=reutersEdge&storyID=4470991

Wal-Mart's Brazil Buy Key in Global Plan
Mon Mar 1, 2004 12:35 PM ET

By Emily Kaiser and Nicholas Winning
CHICAGO/SAO PAULO (Reuters) - Wal-Mart Stores Inc.'s (WMT.N: Quote, Profile, Research) purchase of Brazilian supermarket chain Bompreco shows the retailer has grand plans for Latin America's biggest economy as it increasingly looks abroad for faster growth, analysts said on Monday.

The purchase from Ahold NV (AHLN.AS: Quote, Profile, Research) , Wal-Mart's first international acquisition in more than a year, quadruples its Brazilian store base, and catapults it three spots to No. 3 in the market, behind leader CBD and No. 2 Carrefour (CARR.PA: Quote, Profile, Research) .

The $300 million price tag is tiny by Wal-Mart's standards -- the world's biggest company by revenue averages some $700 million in sales daily, and well over $1 billion on a busy day -- and analysts don't expect an immediate shake-up in the Brazilian retail sector. But they do call it a strategic win for a company that is banking on international expansion to drive growth.

"The point is what comes next, what are they going to buy, what will their strategy be? I think we are now in a wait and see phase," said Juliana Rozenbaum, an analyst at Itau brokerage in Sao Paulo.

Competitors are well aware that size is key to Wal-Mart's success.

The addition of Bompreco opens up a huge chunk of territory for Wal-Mart to expand its vaunted distribution system -- considered the best in the industry and a key reason why Wal-Mart can churn out big profits even while cutting prices.

Founder Sam Walton developed the idea of building distribution centers, and then planting a ring of stores one day's drive away to ensure that trucks could quickly reach them to restock. That strategy has served Wal-Mart well worldwide.

The 118-store Bompreco chain is the biggest supermarket group in Brazil's poorer northeast region, while Wal-Mart's 25 existing stores are in the wealthy southeast region where CBD and Carrefour also have their power bases.

LAUNCHING PAD

International markets are increasingly important for Wal-Mart as it encounters growing opposition to its massive U.S. expansion into more urban areas. Several California regions have passed ordinances aimed at keeping out Wal-Mart's supercenters, and many communities around the country have successfully blocked new developments.

Still the retailer manages to open more than 200 U.S. supercenters every year, and that pace is unlikely to slow.

Wal-Mart expects its international unit to drive one-third of sales and earnings growth in the next few years, and has hinted at interest in markets such as India and Russia.

Analysts have long considered Brazil a key launching point for Wal-Mart's South American growth. Before Bompreco, the retailer had only a handful of stores in only Brazil and Argentina, leaving plenty of room for expansion there and in other heavily populated countries such as Venezuela.

Amy Wyatt, a Wal-Mart spokeswoman, declined to comment on the retailer's South American expansion plans.

"This will be Wal-Mart's first acquisition in Brazil, and I think it will be interested in others," said Juracy Parente, director of Parente Varejo & Pesquisa, a retail consultancy in Sao Paulo.

For the fiscal year ended Jan. 31, 2004, international sales jumped 16.6 percent to $47.5 billion, accounting for nearly one-fifth of Wal-Mart's annual revenue.

The retailer's last international purchase was Puerto Rico's Supermercados Amigo, which it completed in December 2002. Wal-Mart also has stores in Britain, Canada, China, Germany, Korea, and Mexico, and owns 36 percent of Japan's Seiyu Ltd. (8268.T: Quote, Profile, Research) .



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