Wal-Mart de Mexico SAB de CV in Packaged Food (Mexico)

Wal-Mart de Mexico SAB de CV in Packaged Food (Mexico)

STRATEGIC DIRECTION
¦ Wal-Mart de Mexico is expected to continue leading modern grocery retailers throughout the forecast period as well as having a substantial influence on Mexico’s packaged food industry. Wal-Mart continues to experience strong growth thanks to its strategy of relentless expansion and consumer segmentation. Bodega Aurrera, Wal-Mart’s discounters chain, offers a wide variety of products in small packaging sizes at very low prices, catering mainly to Mexico’s many low-income consumers, the majority of whom would otherwise shop at independent small grocers, where they would be faced with a much more limited range of products. Wal-Mart is developing a massive private label portfolio in an attempt to keep unit prices down for low-income and middle-income Mexican consumers. Private label is becoming increasingly popular in Mexico as the country faces very difficult economic times, a situation which is leading many consumers to prefer to save money on staples so that they have more to spend on affordable. Wal-Mart’s supermarkets chain Superama caters to higher-income consumers, offering an ever expanding portfolio of health food items, gourmet food, fine wine and other types of premium products. These strategies have so far been extremely successful and are expected to continue performing very well throughout the forecast period.
KEY FACTS
Summary 1 Wal-Mart de Mexico SAB de CV: Key Facts
Full name of
company: Wal-Mart de Mexico SAB de CV
Address: Manuel Avila Camacho 647, Col. Periodistas, Delegacion Miguel Hidalgo, CP
11220, Mexico City, Mexico
Tel: +52 (55) 5283 0100
www: walmart.com.mx
Channels of Hypermarkets, supermarkets, discounters, warehouse clubs, apparel and footwear operation: specialist retailers
Source: Euromonitor International from company reports, company research, trade press, trade sources
Summary 2 Wal-Mart de Mexico SAB de CV: Operational Indicators
2012 2013 2014
Net sales MXN300,147.8 million MXN307,753.7 million” MXN321,547.5 million
Outlets 1,982 2,199 2,248
Selling space 5,625,910 sq m 6,023,260 sq m 6,179,570 sq m
Number of employees 204,887 203,892 r
n/a
Sales of grocery n/a n/a n/a
Source: Euromonitor International from company reports, company research, trade press, trade sources
INTERNET STRATEGY
¦ As of 2014, three of the Wal-Mart’s business divisions in Mexico participated in internet retailing: the Superama supermarkets chain; the Wal-Mart Supercenter hypermarkets chain; and the Sam’s Club warehouse clubs chain. Superama and Sam’s Club are known to target more affluent consumers in the high-income and middle/high-income segments, while Wal-Mart Supercenter targets middle-income consumers. The company’s bodega-style grocery retailers which target low-income consumers do not offer internet retailing, and this situation is not expected to change at any point during the foreseeable future, as Mexico’s low-income consumers are not usually computer literate and tend not to have access to the internet.
¦ Superama Movil, the supermarket chain’s internet retailing application for smartphones and tablets, was successfully launched in 2012, winning an e-business award from Expansion business magazine in the process. By the end of 2012, the application had reached 60,000 downloads and mobile sales already represented 20% of all Superama internet retailing value sales.
¦ Also in 2012, Wal-Mart launched an online video club called Vudu, although media streaming and rental services are outside the scope of Euromonitor International’s internet retailing research.
¦ By mid-2013, Wal-Mart had already launched its e-commerce website for its Wal-Mart Supercenter hypermarkets chain. Unlike the Superama website, this website did not initially offer packaged food or any other grocery items, focusing mainly on consumer electronics, leisure goods, personal accessories and various other items of general merchandise. Nevertheless, by the end of 2014, the Wal-Mart Supercenter website had also started retailing groceries, including packaged food. The company signed an agreement with FedEx Mexico for the provision of delivery services and another with Mercado Libre for the provision of electronic and alternative online payment methods.
Summary 3 Wal-Mart de Mexico SAB de CV: Share of Sales Generated by Internet Retailing
Source: Euromonitor International from company reports, company research, trade press, trade sources
COMPANY BACKGROUND
¦ Wal-Mart de Mexico is a division of US-based Wal-Mart Stores Inc. Wal-Mart arrived in Mexico in 1993 with the acquisition of leading Mexican retailer Grupo Cifra, a company which was already a publically listed company on the Mexican Stock Exchange. Since the company’s Aurrera retail brand was already widely recognised among the Mexican population, Wal-Mart decided to keep this name for its discounters chain as well as for one of its private label product lines. The subsequent acquisition of Cifra provided Wal-Mart de Mexico with an instant presence in hypermarkets, a channel in which it operates under the Wal-Mart Supercenter brand, supermarkets, where it is present with the Superama chain, discounters, a channel in which it operates bodega-type outlets, apparel and footwear specialist retailers, where it operates the Suburbia chain, and warehouse clubs, a channel in which it is present through the Sam’s Club chain. In addition, Wal-Mart de Mexico is also present in the Mexican consumer foodservice industry through the VIPs and El Porton chains.
¦ In 2005, Wal-Mart became the largest private employer in Mexico. In 2007, the company launched its Medimart private label line of consumer health products. During 2008, Wal-Mart was recognised as the company with the best corporate management in Mexico.
¦ Banco Wal-Mart began operations in 2007 and from the outset was intended as a practical option for those Mexican people looking for consumer credit. As less than a quarter of the Mexican population has access to credit, retailers including Wal-Mart previously lost instinctual sales due to the high proportion of the Mexican population without access to credit would otherwise have been happy to purchase durable goods and pay in instalments. With the situation in mind, Wal-Mart de Mexico decided to offer credit to consumers with no credit history, as well as offering them access to various useful financial services such as basic savings accounts and cheque accounts.
¦ Since 2009, Wal-Mart de Mexico has been the second-largest public company traded on the Mexican Stock Exchange, with total value sales of MXN491.7 billion, slightly behind the telecommunications company America Movil. Wal-Mart has continuously outperformed the average growth of the ANTAD index several years. The company has a network of over 15,400 suppliers, of which 93% are companies with production facilities located within Mexico.
¦ During the third quarter of 2009, Wal-Mart announced a strategic alliance with Corporacion GEO, the second-largest construction company in Mexico. This alliance involves a deal for the construction of new Wal-Mart retail outlets close proximity to 10 apartment building complexes set to be constructed by
GEO within the Mexico City Metro area. In addition, similar deals were closed for the construction of Wal-Mart outlets in close proximity to residential developments in other Mexican cities such as Guadalajara, Monterrey and Puebla.
¦ During 2010, the Mexican and Central American divisions of Wal-Mart began merging their operations. There are five countries in the Wal-Mart Central America division: Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. Wal-Mart Central America comprises 519 outlets with 11 distribution centres located across these five countries. Wal-Mart Central America serves 280 million consumers and generates an average of US$3.3 billion in annual retail value sales. Future projections suggest that there is potential for Wal-Mart Central America to serve 33 million more consumers over the coming 15 years, which could result in an increase in the company’s revenues of US$240 million. The acquisition of Wal-Mart Central America will allow Wal-Mart de Mexico to record 20% growth over the next 10 years. Given the ample financial resources of the company, it would be possible for the company to acquire Wal-Mart Central America without the need to fall into debt. Finally, the merger between Wal-Mart de Mexico and Wal-Mart Central America makes sense for practical reasons including the various similarities between Mexico and its close neighbours in Central America, the geographical proximity of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua to Mexico, the possibility of commercial synergies due to the various free-trade agreements which subsist between all of these countries, the fact that Spanish is spoken in all these countries and the similarities in the business cultures throughout Central America, including Mexico.
¦ During 2011, Wal-Mart implemented a new concept of standalone chemists/pharmacies outlets under the Medimart Farmacia facia, which offer 24-hour service seven days per week. The aim in locating these chemists/pharmacies outlets in standalone premises outside of larger Wal-Mart outlets is to make the purchasing process more convenient for those consumers who do not want to trek through a huge large-format grocery retailers or mixed retailers outlet in order to purchase medicines and other consumer health products.
¦ In 2012, Wal-Mart de Mexico became embroiled in a scandal regarding allegedly corrupt practices involving the bribery of Mexican authorities to the tune of US$24 million. The bribes involved currying favour among various officials in order to have the expansion of the company’s retail chains through illegal construction licenses rubber-stamped without any fuss. This situation caused concern among the company’s shareholders, although no negative impact on the company’s sales has been reported, nor has its leading position in grocery retailers in Mexico being affected.
¦ During 2013, the company’s warehouse clubs chain Sam’s Club launched Horeca VIP, a new kind of membership scheme involving hotels, restaurants and specialist coffee shops, which offers members access to more personal attention when visiting participating businesses.
¦ Also during 2013, Wal-Mart initiated the process of divesting its consumer foodservice division, which includes the VIPs, El Porton, Ragazzi and La Finca chains, to Alsea, one of the leading players in the Mexican consumer foodservice industry. This move allowed the company to remain strongly focused on its core business, which is retailing.
¦ During 2014, the company continued expanding through the opening of new retail outlets, including standalone Medimart chemists/pharmacies. The company also place more of a focus on its Internet retailing division, with positive results.
PRIVATE LABEL
¦ Wal-Mart de Mexico offers a wide and comprehensive range of private label products, most of them covering basic groceries and apparel. The Great Value line is its most popular private label line in Mexico, with over 500 different products, most of them groceries and home care products. In 2009, the company launched its ecological private label Great Value Terra, which was announced as a product line which is more environmentally-friendly, mainly as many of the products offered under the line are biodegradable. Great Value Terra was launched with five products: multipurpose cleaner, powder detergent, bathroom cleaner, descalers and plastic refuse bags.
¦ Being such a large retailer, Wal-Mart can afford to offer a substantial and growing number of private label products covering a number of retail divisions. Its private label lines offer a wide variety of products ranging from basic groceries and clothing to consumer electronics under the Atvio name,
automotive accessories under the name Super Tech, generic medicines under the Medimart line and even pet food. Wal-Mart’s private label portfolio is expected to continue growing and the retailer’s already quite sophisticated private label strategy is set to focus even more on meeting the increasingly stringent demands of Mexican consumers. The retailer uses a combination of its strong brand name and fantasy brands for this purpose. For example, the Aurrera private label, which is available mostly at the company’s bodega-type discounters outlets, covers a number of staple packaged food items such as rice, beans and vegetable oil. Great Value is a fantasy brand offering a broad range of products which are usually positioned in prime locations on retail shelves in Wal-Mart Supercenter outlets, while Member’s Mark is a private label offered exclusively in warehouse clubs within the Sam’s Club chain.
Summary 4 Wal-Mart de Mexico SAB de CV: Private Label Portfolio
Private label
brand Categories Notes
Great Value Packaged food, home care, tissue and hygiene Over 500 budget range products
Equate Consumer health, tissue and Vitamins, medicine supplies, sanitary protection and
hygiene dietary supplements
Medimart Consumer health Budget range of OTC consumer health products and generic Rx medicines
Aurrera Packaged food Staple products
Ol’Roy Pet food
Things
Contempo Apparel Clothing and footwear
La Mode Apparel Clothing and footwear
Metropolis Apparel Clothing and footwear
Super Tech Automotive products
Cozies Persona care Nappies/diapers
Handi Work Home improvement Tools
CRX Consumer health Rx drugs and consumer health products
Atvio
l^ia Verde Extra Electronics products
Packaged food Organic range of jams and spreads, honey
Packaged food Premium positioning, generally imported products
Special
Member’s Packaged food Staple products
Mark
Bakers & Packaged food Product line for foodservice businesses
Chefs
Non Stop Apparel Clothing and footwear
Weekend Apparel Clothing and footwear
Vips Packaged food Frozen processed food, instant coffee
Source: Euromonitor International from company reports, company research, trade press, trade sources
COMPETITIVE POSITIONING
¦ Wal-Mart de Mexico has been the overall leader in store-based retailing in Mexico for a number of years and in 2014 the company is expected to account for 11% of total value sales in retailing and store-based retailing. Most importantly, in grocery retailers, the company is expected to account for an outstanding 17% of total retail value sales in 2014.
¦ Wal-Mart is expected to lead modern grocery retailers in 2014 with a 31% value share.
¦ Wal-Mart de Mexico manages a very wide range of outlet formats across numerous different grocery retailers channels, covering demand among low-income consumers through its three bodega-type Aurrera outlets, middle-income consumers with its Wal-Mart Supercenter hypermarkets and Suburbia
apparel and footwear specialist retailers outlets, while more affluent consumers are served by the Superama supermarkets chain and the Sam’s Club chain of warehouse clubs.
¦ The company avoids selling excessive amounts of important products as it wishes to remain careful to avoid being placed at a disadvantage in the event of a sudden substantial devaluation of the Mexican peso. It is important to note that the negotiating power of the company is very strong, and suppliers usually comply with the demands of the company, not only in financial terms, but also in terms of delivery conditions and even packaging demands. For example, Wal-Mart demands small packaging for many products sold at its bodega-type retailers as many of Mexico’s low-income consumers can only afford products when they are in small packaging.
¦ As one of Mexico’s leading retailers, Wal-Mart de Mexico continuously seeks new locations and new outlet formats in order to accommodate the specific shopping needs of particular consumer segments. An excellent example of this practice is the recent deal struck between Wal-Mart and the Constructora GEO construction company to build new Wal-Mart retail outlets in close proximity to new apartment building complexes. Another example of Wal-Mart’s innovative approach to the location of its outlets is that its discounters outlets are often located in places with excellent public transport links as the majority of consumers shopping at Bodega Aurrera outlets are unlikely to own a car or have access to. As previously mentioned, the company is active in terms of placing discounters in small cities and towns with fewer than 100,000 residents which have been largely ignored by chained grocery retailers in the past.
¦ It is almost guaranteed that the company will continue expanding strongly in Mexico over the forecast period, although some concerns are being raised about the company’s dominant position in retailing in Mexico. It is thus possible that the company could face censure from Mexico’s competition authorities at some point during the forecast period, especially if any of the country’s current grocery retailers chains declare bankruptcy or decide to merge with one of their rivals.
¦ In order to become more competitive, during 2014 Superama—a chain which was previously positioned as a premium grocery retailer—decided to change its pricing strategy, reducing the prices of more than 5,00 items. The publicity campaign which accompany this was conducted under the slogan “Decidimos ser tu tienda” (We decided to be your store) in an attempt to attract a wider range of consumers.
Summary 5 Wal-Mart de Mexico SAB de CV: Competitive Position 2014
Channel Retail Value Share Rank
Retailing 10.6% 1
Store-based retailing 11.3% 1
Grocery retailers 17.4% 1
Modern grocery retailers 31.4% 1
Discounters 47.9% 1
Hypermarkets 38.7% 1
Supermarkets 11.4% 3
Non-grocery retailers 1.5% 4
Apparel and footwear specialist retailers 12.5% 1
Health and beauty specialist retailers 0.1% 23
Parapharmacies/drugstores 0.3% 11
Mixed retailers 12.4% 3
Warehouse clubs 72.4% 1
Non-store retailing 0.5% 22
Internet retailing 2.0% 1
Source: Euromonitor International from company reports, company research, trade press, trade sources, trade interviews

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Current Situation………………………………………………………………………….

Issue…………………………………………………………………………………………

Mission……………………………………………………………………………………..

Objectives……………………………………………………………………………………….

PEST Analysis:
Political…………………………………………………………………………….
Economic…………………………………………………………………………..
Social………………………………………………………………………………
Technology………………………………………………………………………..

External Analysis– Porter’s Five Forces:
Barriers to entry…………………………………………………………………….. .
The Bargaining Power of Suppliers……………………………………………….
The Bargaining Power of Buyers…………………………………………. ………
Competitive Rivalry…………………………………………………………………..
The Threat of Substitution………………………………………………………….

Opportunities……………………………………………………………………………
Threats……………………………………………………………………………………..
Overall evaluation of the external environment………………………………….

Internal Analysis:
Organizational strategy…………………………………………………………….
Value chain analysis………………………………………………………………..
Strengths…………………………………………………………………………….
Weaknesses…………………………………………………………………………
Market share……………………………………………………………………….
Overall evaluation of the internal environment………………………………….

Key Success Factors…………………………………………………………………………

Alternatives (Strategic Choice of Business Strategies and Corporate Strategies)

Criteria Matrix to Evaluate Alternatives ……………………………………………..

Recommendation…………………………………………………………………………….

Action Plan……………………………………………………………………………………

Contingency Plan …………………………………………………………………………….

References..…………………………………………………………………………………
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