Colombia: Why are discounters so successful in Colombia?

Discount Retail Chain concepts are not new, it really is very old.


In 1913 the Albrecht family, had a store in Germany, in 1946, this country is devastated by war, the Food was scarce and expensive, so the Albrecht family decided to help their neighbors By assembling a format that minimizes exhibits, the products were displayed in the boxes and all superfluous expenses were removed to deliver at the lowest possible price the products to your customers. This same concept is maintained today by ALDI (Albrecht-Discount) in its more than 11,000 stores in 19 countries. Three firms currently operate in Colombia under the concept of HD: D1, ARA and Justo & Bueno, the three are already classified among the 50 companies with the highest sales in the country. In 2013 the HD invoiced in Colombia $ 1.5 billion pesos (US$ 400,000), by 2020 they reached Peso $ 14.6 billion (US$4 Mn), with close to of 3,700 stores, it is projected that by 2023 they will reach 5,000 points of sale with a turnover of around Peso $ 25 billion (US$ 7Mn).


D1

In 2009, a group of investors from various countries decided to copy the Aldi model to

Colombia and from there D1 arose initially in Medellín. The chain expects to close this year with about 2,000 stores and presence in 371 municipalities. With sales of $ 7.4 billion for the

2020 and with an impressive growth for this same year of 48% (see table 1). D1 leads this channel with a 50% share (see table 2). They handle 300 suppliers, 93% of them national, with about 550 references, already have 10 own PL brands. D1 is owned since 2015 by Grupo Santo Domingo. It is important to note that D1 was ranked 10th in 2020 among the thousand largest companies in the country classified by revenue.


ARA

This HD belongs to the Portuguese conglomerate Jerónimo Martins, Mr. Martins founded his

first store in Lisbon in 1792, today they manage 453 supermarkets and 42 cash & carry formats in Portugal. Since 1995 they have been in Poland with 3,400 points of sale. TO Colombia made their arrival in 2013 in the coffee region, today they have about 689 stores, they are present in 20 departments and expect to close the year with 1,000 stores.

They have a 27% stake and their growth for the last year was 26%.


Justo Y Bueno

It is the newest of the three, began operations in 2016 and belongs to the same

founders of D1, who after selling Valorem of the Santo Domingo Group. They went back to the HD business. They currently have 1,300 points of sale, in 310 municipalities. Its participation is 22% with growth in 2020 of 25%. Worth the It is worth noting that this same group is the owner of Tostao, the chain of further expansion in Colombia. The two companies Justo & Bueno and Tostao have entered


What is the particularity of HDs in Colombia and why are they being so successful?

First of all, PRICES: they have achieved price differentials that in some cases reach up to 30% below the traditional supermarket chains and grocers.


OWN PRIVATE LABEL BRANDS: most of their portfolio is own Private Label brands, they broke the paradigm that private brands were cheaper because they were of poor quality. They have managed to create significant loyalty to their own brands to the detriment of the country's large and traditional brands, especially in the food and toilet categories.


QUALITY: the fact of having low prices does not imply poor quality of the products. Ironically in some cases they have achieved products of better quality than traditional brands.


SUPPLIERS: with their own brands they have managed to develop microentrepreneurs, who have lower operating costs than large companies and therefore can give better prices, also microentrepreneurs work more committed since they see that they can grow along with HD, something That is not the case with traditional supermarkets.


NEARBY: every day the Colombian consumer has a discounter closer to their home or the road you use daily to get from work to home, even today you can find two or even three HDs of the different brands in a very few blocks. This in the situation of economic hardship that the consumers make it easier for them to buy since they can go several times a week to

market.


THEY BREAKED PARADIGMS: the consumer does not need comfortable or luxurious premises, does not need drivers or tasters, which even in some supermarkets are even desperate for the amount that there is, you do not need parking lots despite even being in upper middle class strata upwards, does not need advertising, what you are looking for is cost benefit, loyalty to brands. You do not need to have an infinity of brands or presentations of the same product, they have become very simple and I practice going to the market.


THE DISCOUNT FORMAT is for all strata even the upper class, there are Premium products such as imported Serrano hams and chorizos from Spain, Italian pasta and sauce, Spanish, Chilean and Argentine wines, etc. Ara imports cosmetics manufactured under its own brand from Europe.


Local: traditional chains are in very expensive places, in shopping centers and / or with commuter formats in exclusive areas with high rental costs and given their size they have very high fixed operating costs.


The discounters have small formats even in areas of not very high traffic, they do not even need parking lots, they operate with very few personnel, which leads to their fixed costs

are very different from traditional formats.


In my opinion, most traditional supermarkets have not been able to respond or have

underestimated discounter and their actions to defend themselves so far have not been successful, they come in a constant loss of market share. Success- Carulla- Casino are creating new formats that have nothing to do with it, such as Éxito WOW, Carulla-Fresh Market, Carulla Express, Surtimax, Surtimayorista, etc. and with him handling their own brands and imported products, it seems that they had no order or planning. The same occurs with Cencosud's Jumbo-Metro stores and the 14.


All of the above is reflected in the figures if we analyze the evolution of supermarkets

traditional: Consolidated success (Éxito + Carulla + Surtimax + Surtimayorista),

Olímpica, Cencosud, Makro and La 14, against Hard Discount: D1, Ara and Justo & Bueno del year 2016 to 2020 we observe very conclusive data, the total sales for these two

channels for 2016 were $ 26.7 billion (US$ 7 Mn) and for 2020 they reached the figure of $ 38.9 billion (US$10.1Mn) a growth of 45.7%, but traditional supermarkets grew 3.7% while the discounter 354.3%, if we take into account that the accumulated inflation for those four years it was 17.9%, traditional supermarkets did not even increase inflation. The other figure to highlight is if we observe in 2016 the participation of traditional supermarkets was 88% vs 12% of discounter and in four years it became 63% vs 37%, that is, traditional supermarkets lost 25 points of participation and in only 2020 they lost 7 points.


All of the above leads me to the conclusion that discounters have found a strategy to

do great damage to the traditional supermarket channel and at the same time to the strongest brands that mainly led the food and toilet categories. its aggressiveness and continued growth, and as the economic situation continues affecting and with it the pockets of consumers, discounter will have greater importance in deciding where to buy, obviously they are also cannibalizing in to the small mini markets and shops, but everything has gone to the benefit of the consumers.


I think that like traditional supermarkets, large consumer brands massive in the country, you have to change your strategy and start watching the HD channel of another way, since they are losing a lot of loyalty from their consumers who were loyal to them for many years.


Another topic that is current is the possible purchase of Justo & Bueno and Tostao by

by Jerónimo Martins (Ara), I think it's a very smart move and those who should having done it is, on the one hand, the Éxito group and, on the other, Juan Valdez. been very successful to have a second brand in the lower priced coffee shops, even curiously Jerónimo Martins has a small chain of coffee shops in Portugal called "Jeronymo". If the sale of Justo & Bueno to ARA is completed, it would have the latter a 50% stake in the HD channel and this would lead to a very "war" interesting between D1 and ARA, both with great financial backing and great experience in this channel, "war" that ultimately would have additional benefits for the

Colombian consumer.


In conclusion, this discounter channel will give a lot to talk about in the coming years.


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