San José, Costa Rica, since 1956

Wal-Mart Buys Into Central America

IN a little more than a year, Wal-Mart, the world’s largest retailer, will likely have control over the largest retailer in Central America, the Central American Holding Company (CARHCO), which comprises 363 supermarkets throughout Central America, including such Costa Rican fixtures as Mas X Menos, Palí and Híper Mas. Its recent purchase of a one-third stake in CARHCO has some observers predicting growth for the Costa Rican economy, with others cautiously apprehensive about the potential competition.Wal-Mart, which bought the one-third stake last week for an undisclosed sum (TT, Sept. 23), looks to see its interest in the company grow to 51%, perhaps as soon as 2006.“It is part of our agreement to move towards a majority ownership,” said William Wertz, head of International Affairs for Wal-Mart Stores Inc. “In terms of an exact time, we don’t know when that will be, but we anticipate by the end of next year.”HOWEVER, Costa Ricans should not expect to see Wal-Mart stores popping up in their neighborhoods in the near future, or the trademark blue vests on the backs of CARHCO store employees, according to both Wal-Mart and CARHCO.“We have a lot of confidence in the management of CARHCO and it’s not going to change,” Wertz said. “I think that most of the initial changes we will make will be behind the scenes… information sharing, distribution and installation of computers.”“It will be (current CARHCO management’s) decision down the road,” whether Wal-Mart will open its own Central American branches, Wertz said.Aquileo Sánchez, director of Corporate Affairs for Corporación de Supermercados Unidos S.A. (CSU), Costa Rica’s CARHCO shareholder, did not rule out the possibility, but said no Wal-Mart stores will open in the near future.INSTEAD, Sánchez said, Wal-Mart will be watching and learning about the Central American market before it gains its majority shares. In the process, both retailers will be able to learn from each other.“Wal-Mart is an expert in logistics, management and technology applied to the business of retail,” he said, adding that Wal-Mart’s global network will allow the Central American company to offer new products not produced or imported to the region.CARHCO was formed in 2001 as an equal joint venture of CSU, Guatemalan retailer La Fragua S.A. and Dutch retailer Royal Ahold NV, which sold its interest to Wal-Mart. CSU operates 154 grocery stores in Costa Rica and Nicaragua, including Más X Menos, Hipermás, Palí, La Unión and Maxibodega, and operates the Corporación de Compañías Agroindustriales (CCA), a network of agricultural producers. According to Sánchez, Wal-Mart’s involvement will not only benefit CARHCO, but the overall economy of Central America. “WAL-MART is a company that has businesses around the world, and (they) want products from Central America,” he said, pointing out that Wal-Mart buys more than $300 million in Central American products, primarily clothing, per year.“CARHCO countries have much more fertile soil, better conditions and agriculture,” said Bert Flickinger, managing director for the New York-based consulting firm Strategic Resource Group, who worked as a consultant for Wal-Mart in the ’80s and ’90s. “Wal-Mart can source these superior products for much lower net and transportation prices and get them to warehouses for its stores in Mexico, the United States and Canada much more quickly than imports from Africa and Asia.”This investment in Latin America will also lead towards reinforcing its divisions in Brazil and Argentina, which have been financially disappointing ventures when compared with its widely successful Mexico operation, he added.“Wal-Mart is going to be a key component in Central America,” Flickinger told The Tico Times. “They are really trying to build a big business bridge between Mexico and Brazil, and CARHCO is the critical keystone in that bridge” because of its location in a region with a growing economy and favorable market conditions, he said.ONE of these favorable conditions in Central America would be the Central American Free-Trade Agreement with the United States (CAFTA), set to take effect on Jan. 1, 2006 in Guatemala, El Salvador and Honduras, four of CARHCO’s five operating countries.The other two, Costa Rica and Nicaragua, have yet to approve the agreement. Although Wertz says that Wal-Mart had interest in investment here long before CAFTA was drafted, Flickinger says the agreement would clear away economic red tape for investors and provide a “friendlier business environment” for retailers and wholesalers.The investment in CARHCO, and its timing, is similar to Wal-Mart’s joint venture investment in 1991 with local Mexican retail chain Cifra preceding Mexico’s signing of the North American Free-Trade Agreement (NAFTA), which took effect at the start of 1994. Wal-Mart went on to purchase Cifra in 1997 and renamed the company Wal-Mart de Mexico, S.A. It is now Mexico’s largest private sector employer and retailer, boasting a net profit of 3.8 billion pesos ($350 million) for the first half of 2005.ANSELMO Sánchez, president of Costa Rica’s Small and Medium Enterprise Association, told The Tico Times he is unsure what the entrance of Wal-Mart would mean.“In this case, it could open some new opportunities for small and medium enterprises (SMEs). This depends on how they implement (Wal-Mart’s) policies,” he said. However, he made the comparison to Mas X Menos, which in 1960 became the first large supermarket to enter the Costa Rican market, previously dominated by small corner stores.“For SMEs, it is very difficult to work with Mas X Menos. They put a lot of conditions on small businesses that work as providers for them. Whatever they say is how it has to be,” he said. “I don’t know if Wal-Mart will… increase this.”As with the entrance of Mas X Menos, he added, small businesses will have to adapt to the changes Wal-Mart could make to the market if they want to survive.MANRIQUE Ugalde, country manager for PriceSmart – a membership-based discount shopping club with warehouse stores in 11 countries, including all five CARHCO countries – told The Tico Times in an e-mail that, while he does not expect significant changes to the market in the short term, the arrival of Wal-Mart in Central America will benefit consumers in the long run.“There will be more and better opportunities for our labor force at all levels,” he said. “In addition, the different local commercial operators will have to look for better ways to compete, which will also benefit consumers.”“(The scale of the market here) is something new, and it will be interesting to see how they react to this reality,” Ugalde added, saying that the region’s size will require Wal-Mart to take a different approach from its strategy in the United States and Mexico, where markets are larger.IN the United States, however, not all see the retail behemoth in such a positive light. In fact, communities across the country have protested and organized locally to keep Wal-Mart stores from entering their neighborhoods, blaming the retailer for driving local businesses, often with higher wages for employees, into bankruptcy. Other aspects of Wal-Mart’s business practices have inspired strong criticisms, class-action lawsuits and even a national campaign against the corporation. Wal-Mart’s pressure on producers to continue to cut wholesale prices year after year has been blamed for forcing thousands of U.S. jobs overseas and pushing factories from one poor country to the next. A Pulitzer Prize-winning series on Wal-Mart published by the Los Angeles Times in 2004 reported that employees are paid low wages, denied overtime compensation and prohibited from unionizing.A nationwide sting by the U.S. Federal Bureau of Investigation (FBI) in 2003 resulted in the arrest of hundreds of illegal immigrants working as janitors in Wal-Mart stores. According to an official quoted in a USA Today article, these employees were provided no health benefits and paid below minimum wage, sometimes as little as $2 a day.CSU’s Aquileo Sánchez, however, is quick to dismiss the criticisms of Wal-Mart, which “takes the role of a defender of the consumer,” he said. “Every day, millions of consumers give (Wal-Mart) their vote of confidence.”

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