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Carrefour opens new stores in war-scarred Colombia

By María Bird Picó

Carrefour cast another vote of confidence for Colombia’s continuing efforts toward a peaceful, prosperous future when it opened its 17th hypermarket there this year.

The French chain’s aggressive expansion is welcome news for this South American country of 46 million, which has been beset with social, economic and political upheaval for decades. And it has done wonders for Colombia’s retail scene.

“The expansion of an international chain like Carrefour has generated retail development in cities like Santa Marta and Ibagué that were stagnant,” said Roberto Zawadzky, manager of the 452,000-square-foot (42,000-square-meter), open-air Chipichape Shopping Center, in Cali, in the western part of the country. “It is also another outlet for local products.”

But if the opening provides the hint of a stable future for Colombia, it also marks the escalation of an intense battle for market share among hypermarket chains. Carrefour’s hypermarket rivals in Colombia are Carulla Vivero, Éxito and Olímpica, all domestic.

Shopping centers are becoming a hot commodity for these gigantic stores, which are fighting to retain market share now that an avalanche of new malls (some 200 malls operate in Colombia today) have given shoppers more retail options. A market study by Fenalco, an entity that promotes Colombia’s business sector, found that 27 percent of consumers think shopping centers are a substitute for hypermarkets. Not surprisingly, hypermarkets are anxious to prove otherwise.

In the eyes of Colombia retail expert Leonidas Oyaga, however, the term hypermarket is being loosely used in the country. Except for Carrefour and, to an extent, Éxito, all the others are large supermarkets vying to become hypermarkets.

“Carrefour’s expansion has been successful so far in the big cities,” said Oyaga, a partner at The Partnering Group, a Colombia-based retail consulting firm. “What remains to be seen is how it will adapt to medium-size cities, where it would need to adjust its hypermarket format not only in the product mix but also size-wise. The per-square-meter sale will be lower in those cities.” For Carrefour executives, growth is business as usual. The company operates 730 stores in 30 countries and opens a new hypermarket every week worldwide. It also operates supermarkets and discount stores, but hypermarkets account for 60 percent of its sales. And Carrefour has certainly never shown any hesitation about Colombia, for all the country’s problems with an armed insurgency. The chain arrived six years ago, when few, if any, foreign retailers were considering going there.

“We see Colombia as a safe investment opportunity, and we are ratifying our trust with a $100 million investment over the next three years,” said Nicolás Umaña, a spokesman for Carrefour Colombia.

Other retailers are showing interest in Colombia these days. Press reports say Guess, Zara and Mango are among the European companies scouting Colombian locales. Wal-Mart, too, is said to be eyeing the country. “Carrefour has helped make Colombian retail more sophisticated by pursuing distinctive strategies, defining the targeted consumer and improving the efficiency of its operations,” said Oyaga.

Traditionally, supermarkets have anchored shopping centers in Colombia, but hypermarkets increasingly want a piece of the pie in newer centers. The first of these was Almacenes La Ley, a chain of 58 large-scale supermarkets and nine small-sized Pomona supermarkets, based in the capital city of Bogotá. Since 1999, La Ley has been owned by Almacenes Éxito, an operator of 26 hypermarkets.

Two of Carrefour’s hypermarkets, in Ibagué and Bogotá, are in shopping centers. In fact, Carrefour was developer of the 48-store Bogotá center, hence the name Carrefour Santa Ana. There will also be a new Carrefour soon in a shopping center under construction in Cali, to be followed by yet another in Santa Marta’s Ocean Mall.

But Carrefour is not adopting a malls-only strategy for the future, says Umaña. “We have had a positive experience in stores inside and outside shopping centers,” he said.

Currently, Carrefour is the fourth-largest hypermarket chain in Colombia, but it has ambitions to rise to No. 2 in two years, with plans to build about five new hypermarkets a year, Umaña says.

An Almacenes Éxito spokesman said his company has embarked on “an intense expansion plan to retain the No. 1 slot in Colombia’s retail market.” Without elaborating, he said the strategy includes anchoring shopping centers.

In Colombia Carrefour stores come in three sizes: 45,200 square feet, 86,100 square feet and 107,600 square feet or more, giving the company the flexibility for different markets.

Carrefour bailed out of Chile last year and out of Mexico this year, as part of its strategy to sell underperforming assets, but in Colombia sales are brisk. Carrefour’s Colombian subsidiary reported sales of $559 million last year, up significantly from $367.6 million the previous year.

Still, it has a bit of catching up to do. Its main competitor, Almacenes Éxito, rang up $1.32 billion in sales last year, while Carulla Vivero (of which U.S. investment fund Newbridge Andean Partners owns 34.3 percent) chalked up $654 million.

“The chain that manages to come up with a winning formula that appeals to the low and middle classes will hit it off, since traditional retailers still have more than 50 percent of that market in Colombia,” said Oyaga.

Carrefour’s appetite for expansion coincides with an improving Colombian economy, driven by austere government budgets, public debt reduction and export growth. International financial institutions have praised President Álvaro Uribe for shrinking the deficit to below 2.5 percent of gross domestic product. Sound economic policy and political stability have engendered a much-needed sense of confidence in the business sector, observers say.

The shopping center industry is among those reaping the benefits. Fenalco reports that 35 shopping centers were built in Colombia last year, 25 of them in Bogotá. A mall, Herradura, is going up in Tulúa, and others are under construction in Armenia, Cali, Medellín, Neiva, Tunja and Villavicencio.

Some of the shopping centers in this new wave are the projects of hypermarket chains wanting to make sure that if there is to be one mall in their market, they themselves will anchor it. Olímpica, for instance, recently opened a shopping center on the western side of Bogotá. The chain has also created a company called Portal de la 80 to build shopping centers with Super Almacenes Olímpica, its hypermarket brand, as an anchor.

Éxito (of which Casino Guichard-Perrachon, a French operator of hypermarkets, supermarkets and convenience stores, owns 25 percent) will also start building shopping centers. The company has announced plans to build three centers in partnership with some local construction firms. Two of these projects, in Villavicencio and Neiva, are to go up around stores Éxito already has in those cities. The third, in Fontibón, will be an extension of a soon-to-be-inaugurated store.

Shopping centers are the new frontier in the hypermarket chains’ war for market share. In view of Colombia’s troubled recent history, this is one war the country surely welcomes.

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