| | |  Business News | November 2009 
Wal-Mart Expands in Mexico
 Lauren Villagran - El Paso Inc.
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November 25, 2009
World’s largest retailer opens new store every two days
Mexico City — Sluggish as sales have been in the U.S., Wal-Mart is looking south for a boost to its bottom line, as Mexico has become one of the discounter’s highest-growth markets.
Wal-Mart de México stores are outperforming their U.S. counterparts, with double-digit growth in earnings and store openings.
For Wal-Mart Stores Inc., the Bentonville, Ark.-based parent company, Mexico ranks with China and Brazil as its top three growth areas in the world.
What’s powering the growth?
As customer receipts decline – consumers are spending less per trip during the downturn – Walmex, its nickname in Mexico for its stock symbol, has attracted more traffic to its existing locations, opened up a range of different concept stores and focused on creative “first impression” pricing.
Its efforts resulted in an 18-percent increase in third-quarter earnings to 3.86 billion pesos ($293.4 million), up from 3.27 billion pesos ($248.3 million) a year earlier.
Same-store sales, a closely watched indicator of sales at stores open at least one year, rose 4.7 percent in the third quarter over the same period in 2008.
Meanwhile, the parent company on Thursday reported third-quarter income edged up 3 percent to $3.24 billion from $3.14 billion a year ago. However, same-store sales slipped 0.4 percent during the quarter.
Walmex’s third quarter ended Sept. 30, while the parent company’s third quarter ended Oct. 31.
Wal-Mart Chief Executive Mike Duke stated in the quarterly report that “the sales environment continued to be difficult this quarter, but customer traffic is up throughout the company. We gained market share, especially in the United States, the United Kingdom and Mexico.”
270 in 2009
The chain – which in Mexico operates five different retail brands – has increased its store count by 10 percent this year, opening 164 super centers and smaller-format locations in 28 different cities nationwide. The goal for 2009 is 270 new stores.
“Wal-Mart continues to easily surpass its competitors, reflecting ongoing gains in market share in the middle of one of the harshest recessions in Mexico’s recent history,” said Banamex analyst Eduardo Estrada Lopez in a recent report.
Wal-Mart in Mexico sources 84 percent of its product mix nationally, and many of its suppliers run small businesses, like sweets importer Andres Sevilla. His company, Comercializadora Kram, S.A. de C.V., distributes Pez dispensers and candy, chocolate bars by Ritter, Sweet-n-Low candies – among other treats he imports from the U.S. and around the globe – to Wal-Mart stores nationwide.
And, although his business has been hit hard by the recession (his chocolates and candies are considered luxury products), his fortunes are tied to Wal-Mart, one of his most important clients.
If the retail chain decides to purchase a new product line from him this year, for example, it will make the difference between an estimated 8-percent decline in sales or a slight gain, year over year.
Wal-Mart is a picky, but essential client, Sevilla said.
“It’s a client that likes you to stay on top of things, checking if the stores have product or not,” he said. “They want you to be on the look out and always keep the buyers informed.”
Mini markets
Major suppliers, too, have benefited from Wal-Mart’s growth. PepsiCo has seen 18 percent to 20 percent growth in both sales and volumes to Wal-Mart stores, said Arturo Traeger, who manages PepsiCo’s account with Wal-Mart in Mexico. Walmex is its single biggest client, contributing about 15 percent of total sales.
Traeger points to two successful Wal-Mart strategies in Mexico that have helped lift PepsiCo’s sales. The first is the growth of its smaller neighborhood market stores, known as Bodega Aurrera, and a mini version called Bodega Aurrera Express. The second he calls “first impression” pricing, in which the retailer places key products at store entrances with a price point that makes customers immediately comfortable, like 10 pesos, or about 75 cents.
“As a sales strategy, that helps ease the consumer into making a purchase,” Traeger said.
Wal-Mart operates 3,913 stores outside the U.S., and Mexico is by far its largest international market, with 1,352 stores.
Shares of Wal-Mart de México S.A.B. de C.V. have risen 38 percent this year to 50.95 pesos on the Bolsa Mexicana de Valores. Wal-Mart Stores Inc. shares have fallen 5.5 percent over the same period to $52.97.
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