Wal-Mart expanding in Central America
The blue whale logo of Hipermás grocery stores will soon become extinct. After a 13-year run as the megastore’s emblem and mascot, the smiling whale that assures customers that “everything costs less” will soon swim off into the afterlife.
In a few weeks, a bigger fish will replace the Hipermás whale: Wal-Mart.
While Wal-Mart has always been the parent company of the six-store chain in Costa Rica, only recently did the world’s biggest corporation decide to put its name on the walls of national supermarkets. Wal-Mart also oversees the grocery stores of Mas x Menos, Palí and Maxi Bodega.
“We see the changing the name of Hipermás as a way to innovate and a way to present ourselves in the way that Wal-Mart is known in other countries and other parts of the world,” Yolanda Fernández, the manager of corporate affairs for Wal-Mart Mexico and Central America, told The Tico Times. “To bring the Wal-Mart name here is a show of confidence that we are planning on bringing consumers the type of quality service and offerings that characterize Wal-Mart. We want them to know that there is always something better.”
In late February, Wal-Mart Mexico, which acquired 51 percent of Wal-Mart Central America in December 2009, announced that they planned to invest an estimated $378 million in Central America in 2011. The investment, the largest in the history of Wal-Mart in Central America, will be used to construct 80 new regional stores and generate 2,500 direct employee jobs and around 5,000 indirect jobs.
In Costa Rica, Wal-Mart has already opened two new San José locations in 2011, Palí Cristo Rey and Palí San Rafael de Montes de Oca, and has plans to open 19 more throughout the country in the next nine months. With the opening of the two Palí stores last week, there are now 552 Wal-Mart operated retail locations in Central America.
According to Fernández, the 2011 company slogan for Wal-Mart is “A year to be more Wal-Mart.”
“The slogan for 2011, ‘A year to be more Wal-Mart,’ doesn’t only apply to brands, but [also refers to] plans to physically change our retail locations to match our broader commercial offerings,” Fernández said. “We want our clients to be able to feel that there really was a change that was substantial and that each one of the clients feels better in each one of the stores that they visit. ‘Being more Wal-Mart’ means attracting more clients to our locations to see the real differences that we’ve made.”
The way Wal-Mart intends to be more representative of itself in Central America in 2011 is by employing the same strategy it has used to become the world’s largest retailer, raking in over $400 billion in sales in 2010. The company will expand and set up locations in small communities, and it will attempt to sell products for cheaper prices than its competition. This strategy is exemplified by the ubiquitous Wal-Mart retail slogan “Every Day Low Prices,” which was created in the early 1990s and incorporated in some variation by retail stores across the U.S., such as Target’s “Expect More, Pay Less,” or Sears’ slogan, “Life. Well Spent.”
If cheaper goods and “every day low prices” are offered by the current and new Wal-Mart locations, the expansion of the chains comes at a time national consumer prices are the highest in the region. In the last 10 years, prices of goods and services in the nation’s 292-product “basic package” have risen 101.72 percent. Costa Rica’s accumulated inflation rate is by far the highest in the region during the last decade: 17 percent higher than Nicaragua’s and 74 percent higher than Panama’s (TT, Feb. 4).
Import fees drive the high cost of products in many national grocery chains. According to Fernández, Wal-Mart is able to offer lower prices because national suppliers provide a large percentage of the chain’s products.
“Wal-Mart benefits from a very large amount of national suppliers and we purchase products in bulk,” she said. “In our national economy, the amount of national suppliers that work with Wal-Mart allows us to offer lower prices. We buy in bulk nationally, which allows us to save. Those savings are translated into lower prices offered to clients.”
The Competition’s Response
While all national supermarket and retail chains in Costa Rica are aware of Wal-Mart’s expansion plans, most said they will not cater their development plans to compete with the giant chain.
“Obviously Wal-Mart is a giant player in the country and the region, but their expansion doesn’t change our strategy, which is offering a wide selection of products and high-quality variety of fresh products such as fruits and vegetables,” said Diego Alonso, vice president of AutoMercado, a large competitor. “We have created a niche with the type of products we are offer and the experience of shopping at an AutoMercado is completely different than when shopping at other national locations.”
Alonso said that AutoMercado also has plans to expand in the upcoming years. He said the chain hopes to add at least one more location per year during the next four to five years. AutoMercado currently has 14 national locations.
“We aren’t trying to be the biggest chain in the country,” Alonso said. “Our niche is quality products, good service, a large variety of products and a pleasant experience for the customer. Our goal is to focus on maintaining and improve that.”
Other national chains, such as PriceSmart, also mentioned that their growth focus was internal, and that they didn’t want to speculate about making strategic adjustments to counter Wal-Mart’s expansion.
When Wal-Mart Mexico announced they would acquire Wal-Mart Central America in late 2009, Doug McMillon, president and CEO of Wal-Mart International, said the move would “improve the level of cooperation in the area and offer better service to our clients in Latin America.”
The $378 million investment is the first move in the region since the acquisition. In the next few weeks, the unveiling of the Wal-Mart name on the former Hipermás sites will be the next one.
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