Research: Discounters in LATAM - an Evolving Market

The discount retail model has a promising future in Latin America, especially in a context where consumers are looking to optimize their purchasing power. However, brands will need to innovate in their business models, diversify their product offerings, and adapt to local conditions to stay competitive.

The key to success will be to find the balance between operational efficiency, strategic expansion and proximity to the Latin American consumer, overcoming the great dilemma between offering the lowest possible prices and ensuring that consumers perceive real value in the quality and experience they provide.

The Great Trade-Off: Price vs. Perceived Value

The biggest challenge for the discounters in Latin America lies in finding the balance between maintaining extremely low prices and offering attractive perceived value for the consumer. This is the central dilemma they face: how do they remain competitive on prices without sacrificing quality or customer experience?

On the one hand, discounters are distinguished by their ability to offer essential products at affordable prices. This is its main purpose, especially in a context of unstable economies or in consumer segments with limited purchasing power. However, as consumers become more demanding and also seek a satisfactory shopping experience, the perception of quality can become a critical point.

The dilemma becomes more acute when the channels must decide between reduce operating costs even further (to keep prices low) or invest in improving the customer experience, such as the atmosphere of the store, the quality of private label products or even the incorporation of technology. While a low price is critical, the modern consumer also values other aspects such as food freshness, trust in brands, and convenience of purchase.

The success of discounters has historically been based on their ability to deliver extremely low prices through a combination of factors:

1. Reduced assortment: discounters usually offer a limited number of products, mostly private labels, which allows them to negotiate better conditions with suppliers and optimize logistics.

2. Operational efficiency: Simplifying operational processes, from product layout to reduced number of employees, helps reduce costs. This allows savings to be passed on directly to the consumer in the form of lower prices.

3. Basic stores: The experience in discount stores is generally functional and simple. Not much is invested in decorations, visual marketing, or additional services (such as personalized attention), with the goal of keeping costs as low as possible.

However, this strategy focused on low prices generates a most basic customer experience. For some consumers, paying less justifies the absence of an attractive store or additional services. But for others, this can be a source of frustration, especially if low prices don't offset a perception of poor quality, or if the shopping experience is too limited compared to other supermarkets.

The key lies in how to continue to offer low prices, its main competitive advantage, without sacrificing the shopping experience, which is increasingly relevant to attract and retain modern consumers.

The Customer Experience Challenge

In recent years, consumer habits have been changing, driven by several factors:

• Greater access to information: Consumers today can compare prices, product quality, and customer experience with ease. This has raised expectations, even in discount categories, as other aspects beyond price are now valued, such as Product Quality, service and convenience.

• Emotional Value and Brands: Consumers, especially in more developed markets or in growing middle-class sectors, are also looking for a Pleasant shopping experience or some kind of emotional connection with the brand. This includes factors such as food freshness, product presentation, store cleanliness, and customer service.

• Comfort and technology: Technology also plays a critical role in customer expectations. More and more consumers are demanding fast checkouts, online shopping options, or digital loyalty programs. Discount chains have traditionally invested little in these aspects.

• Sustainability: A growing number of consumers are also looking for brands that adopt responsible practices in terms of sustainability and social responsibility. This may include using recyclable packaging, committing to animal welfare, or supporting local suppliers.

Main strategies to address this dilemma

Some discount retail chains in especially the more developed modern retail markets have managed to find innovative solutions to manage this balance:

• Investment in premium private labels: One way to improve the perception of quality without increasing costs is through the creation of Premium own private label brands, which offer a feeling of greater value. This has been key for discounters such as Lidl and Aldi, which offer affordable products but with packaging, ingredients or presentation that compete in quality with more expensive brands.

• Improvement in the layout of the stores: Although discounters maintain their focus on simplicity, many are adjusting the design of their stores to make them more attractive and functional, without incurring significant additional costs. This includes wider aisles, better provision of fresh produce, and more self-service points.

• Digitalization: Implementing technologies to support the optimization of the inventory planning and replenishment process, the logistics chain, loyalty programs, click and collect days, mobile payments and self-check-outs are strategies that several discounters are exploring to improve the customer experience without significantly increasing operating costs. By improving comfort, convenience of shopping, and having the right products in the right place to meet demand, hard discounters can increase customer satisfaction without substantially raising prices.

• Combining Essentials and "Premium Experiences": Some chains offer a shopping experience focused on essentials and low-cost products, but include in their assortment some "premium" or gourmet products at more affordable prices. This creates a perception that the customer is getting more bang for their buck.

Is it possible to balance price and experience?

The balance between low prices and a satisfactory customer experience it is difficult but not impossible. The discount chains that have been most successful have found ways to offer an experience that, while minimalist, is still convenient and engaging. The key is to identify which aspects of the experience consumers value most and in Optimize Operation to focus on those points, while maintaining its low-cost model.

In summary, the Trade-off between low prices and customer experience It is not something that can be completely solved without compromises. However, the hard discounters who manage to Innovating in experience, improve your perception of quality, while keeping their cost model low, will be better positioned to capture a larger share of the market.

The modern consumer, even in low-cost sectors, is looking not only for the best price, but also for a better price. Higher perceived value, and the discount chains that manage to do both will be the ones to lead in the future.

Successful references of Discounters in Latin America

In the region, several hard discounters have managed to stand out for their success and expansion:

Mexico:

• Tiendas 3B (Mexico): A pioneer in the hard discount model in Mexico and LATAM. T3B is a copy of the successful Turkish listed hard discounter BIM and has captured a large share of the Mexican market thanks to its strategy of low prices, private label products and rapid expansion and is the leading discounter in Mexico. It currently has more than 2,500+ stores with 16 warehouses in Mexico and recently expanding to Bolivia, consolidating itself as one of the leaders in the low-cost sector and listed on the NYSE: BBB.

• Bodega Aurrerá Express (Mexico): Part of US Walmart group, this express chain discount business model is based on offering low prices on essential products, maintaining a strong presence in urban and rural areas.

• Tiendas Neto (Mexico): With more than 1,000 stores, Grandson it is another important example in the country. Unlike Bodega Aurrerá, this chain offers an experience closer to traditional hard discounters, with a more limited product offer and ultra-low prices.

• Dollar General (México): Although this chain originates from the United States, Dollar General it has begun to expand in Mexico and Latin America. Its proposal is very similar to that of traditional hard discounters, with an offer focused on essential products at affordable prices. Its further focus on low-cost non-food products also makes it attractive to low-income segments.

• Tiendas Bara (Mexico): Part of the FEMSA group was founded in 1998. Bara is a discount store chain in Mexico that focuses on providing affordable groceries and household essentials.

• Supercito (Mexico): part of Grupo Comercial Chedraui, is a small-format supermarket chain. These stores are designed to serve local communities with essential groceries, household items, and everyday necessities.

• Waldo's (Mexico): Founded in Mexico and with more than 800 stores throughout the country, Waldo's It has established itself as a benchmark in the discount variety store format. Its strategy is to offer a variety of products ranging from food to household items, at very low prices, capturing the interest of consumers looking for cheap and convenient offers.

Panama:

• Super 99 (Panama): This chain has adopted the hard discount model in Panama, standing out for offering affordable products with a strong focus on own private label brands and affordable prices.

Colombia

• Tiendas D1 (Colombia): A pioneer in the hard discount model in Colombia, started at the same time as T3B. D1 has captured a large share of the market thanks to its strategy of low prices, private label products and rapid expansion. It currently has more than 2,000 stores, consolidating itself as one of the leaders in the low-cost sector.

• Ara (Colombia): Part of the listed Portuguese retail group Jerónimo Martins. Now has grown significantly in Colombia with a similar approach to D1. Its proposal includes competitive prices, a larger assortment and a combination of own private label brands and local products, which has allowed it to earn the loyalty of consumers.

• Tiendas Ísimo (Colombia): A discount chain launched in December 2022 by Grupo Empresarial Olímpica. Designed to fill the gap left by the collapse of discounter Justo & Bueno, Ísimo competes with established players like D1 and Tiendas Ara in the low-cost retail sector, aiming to capture a significant market share through competitive pricing and accessibility.

• DollarCity (Colombia/Guatemala/El Salvador/Peru/Mexico): Dollarcity started in Colombia essential mainly non food products for the home, office and pets at affordable prices and guaranteed quality with more than 547 stores. Its Canadian partner Dollarama, brings solid financing and global experience. Goal to exceed 1,050 stores by 2031 throughout Latin America.

Ecuador

• Tuti (Ecuador): This Ecuadorean discounter that has grown rapidly since its opening in 2019 in Guayaquil to 600 stores, focused on offering high-quality products at low prices, limited assortment of 400 SKUs, allowing it to reduce costs and improve inventory turnover, 85% own exclusive private label brands, offering operational efficiency: From your stores to your payment methods (cash only), every decision is designed to reduce costs and pass those savings on to the consumer

Peru/Chile

• Tottus (Peru/Chile): While not a discounter at its core, Tottus has adopted low-cost strategies in some of its stores to compete with the growing discount segment in Peru and Chile. Its own brand and diversification into smaller stores reflect an attempt to capture this niche market.

• Tiendas Mass (Peru/Chile): This discounter is part of the Peruvian conglomerate Intercorp. Was launched by the Dutch retailer Ahold in Peru. Over time, it evolved to become known as Tiendas Mass, focusing on offering low prices and a curated selection of private label and quality controlled products. Mass has reached 1,000+ stores in Peru and with the recent acquisition of Erbi got a first foothold in Chile.

Brasil

• Assaí Atacadista (Brasil): A leading cash-and-carry wholesaler with 300 stores, offering discounted prices on bulk purchases, incorporating elements common to discount retailers. Its comprehensive product range, dual pricing strategy, and focus on serving both businesses and individual consumers align more closely with the cash-and-carry wholesale model.

• Atacadão (Brasil): Owned by Carrefour, Atacadão operates numerous stores across Brazil. Sharing some characteristics with discount retailers, such as competitive pricing and a focus on cost-efficiency, it operates on a larger scale with a broader product assortment. Its cash-and-carry model is designed to serve both business clients and individual consumers, offering bulk purchasing options and a wide range of products beyond the limited assortments typical of discount stores.

• Makro (Brasil/Colombia/Argentina): Although Makro is more oriented towards wholesale trade, in some countries in the region it has developed a strategy of low prices for end consumers. In Brazil, for example, it is considered one of the benchmarks in this hybrid model between wholesale and hard discount.

Argentina:

• DIA (Argentina): Owned by listed Grupo DIA Spain. Operating under the discount retail format with 1,048 stores of which 70% is franchised. DIA emphasizes low prices achieved through cost minimization strategies, such as limited product assortments, a focus on own private labels, and simplified store designs. DIA stores typically offer a narrow selection of products, prioritizing affordability and efficiency over extensive variety or premium services in the neighbourhood.

World References of Discount Retail Chains

Globally, discount retailers have consolidated their success mainly in Europe and the United States. Some of the most recognized examples include:

• Aldi (Germany): Considered one of the pioneers of the hard discount model, Aldi. It has made a global impact with its offering of essential products at reduced prices and a broad international successful presence on 4 continents e.g. Europe, USA, Australia, China. Its strategy is based on a limited assortment, private label products and a very efficient operation. Typically featuring around 1,700 SKU and a weekly surprising large in & out assortment.

• Lidl (Germany): Another German giant, Lidl it has followed a similar strategy to Aldi, with low prices and strong expansion throughout Europe. It has recently begun to penetrate markets outside the continent, such as the United States, consolidating itself as a modern benchmark for the discount model. Typically featuring around 2,400 SKU and a weekly surprising large in & out assortment on- and offline.

• BIM (Turkey): Founded in 1995 with just 21 stores, BİM has rapidly expanded and currently operates over 12,482 stores in Turkey, as well as in Morocco and Egypt. Listed BİM is recognized for pioneering the hard-discount store model in Turkey, reminiscent of successful models like Aldi in Germany. BİM's approach revolves around offering a limited range of high-quality basic food items and consumer goods at competitive prices, typically featuring around 900 SKUs. The stores are characterized by minimal decor and streamlined service, focusing on efficiency and cost-saving measures. BIM is market leader in Poland.

• Biedronka (Poland): Founded in 1995, Biedronka, meaning "ladybug," is the largest discounter and at the same time market leading grocery retail chain in Poland, well-known for its accessibility and low prices, with over 3,700 stores and larger assortment of 4,000+ SKU.

• Dollar General (United States): With more than 19,000 stores across the United States, Dollar General It is one of the world leaders in the hard discount segment, offering a wide range of products at low prices. Its recent expansion into Latin America shows its ambition to capture emerging markets with a model based on efficiency and accessibility.

• Action (The Netherlands): Action stores are a chain of Dutch non-food discount retail stores known for offering a wide variety of low-cost products. Founded in 1993 in the Netherlands, Action has grown into one of Europe’s fastest-growing non-food discounters, operating over 2,900 stores across 14 countries. The stores focus on providing good-quality, affordable everyday essentials and household goods, with an ever-changing assortment of approximately 6,000 products across 14 categories, including toys, household items, gardening tools, DIY products, personal care, and some long-shelf-life food items.

Courtesy to Rafael Cerero Dolz

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