RetailAnalysis
11 January 2017
Walmex: the strategy for growth

We explore how Walmex plans to consolidate its market leading position across Mexico and Central America.

1. Refocusing on food retail

Over the last three years, Walmex has steadily disposed of operations that fell outside its core food retail business. In 2014 the retailer sold its restaurant chain Vips and the following year disposed of Banco Walmart. In August 2016 Walmex sold its Suburbia clothing chain to department store chain Liverpool for USD1bn, though this is still pending clearance from the Mexican Competition Commission.

2. Growing Bodega/discount activities

These disposals have enabled a refocus of the business around these core grocery retailing activities. A key element of this is delivered through its Bodega Aurrera format in Mexico and equivalent discount-led concepts across other Central American countries. There's genuine scale within this: these account for c. 2,250 stores across Walmex's markets, representing 75% of its total store count. They also contribute c. 45% of total 2016 sales of MXN528bn (USD25bn), and are a continuing focus for growth across the region. Walmex has transferred Mexican format best practice to other markets, and developed different Bodega Aurrera formats for different stores sizes in Mexico, where expansion continues. The format has proved highly effective for Walmart in targeting lower income shoppers, many of whom may have previous shopped in traditional rather than modern retail outlets.

3.A multiformat growth strategy

The Bodega style outlets are complemented by an array of other formats, including Walmart hypermarkets, Superama supermarkets and Sam's Club warehouse clubs. And Sam's Club's recent double-digit sales increases rival Bodega/discount for the strength of performance. These have been the result of the adoption of a new strategy under new leadership, providing a renewed focus on its core warehouse club proposition. Sam's Club's 160 outlets across Mexico account for over 20% of Walmex sales, and although the banner is not opening new stores at the moment, channeling growth towards e-commerce, both Mexico and Walmex's other Central American markets hold potential for store expansion.

4. Investing in supply chain and omnichannel capability

The announcement last month of an USD1.3bn, three year, investment package underpins the retailer's ambitions to double its sales by 2025. Investments will focus on improving logistic capabilities, involving new distribution centres and investment in existing stores. Having posted a vigorous 11.9% net sales increase in 2016, Walmex is well placed for further growth. Store expansion continues at a good pace, with 63 new stores in Mexico in 2016. As for 2017, Walmex´s Communications Director Antonio Ocaranza has spoken to IGD of Walmex's intentions to continue expanding all formats, with a particular ongoing emphasis on the Bodega/ discount formats.

E-commerce is a growth focus, albeit from a low base. The retailer already operates grocery sites for its Walmart, Superama and Sam´s Club operations and is trialling click&collect in its Superama and Walmart formats. Mobile shopping is also being cultivated, to which Superama's new app and Sam´s Club's forthcoming app, are testimony.

5.Opportunities across Central America to grow

Having fully acquired Walmart Centroamérica in 2010, Walmex has centralised and integrated operations and systems across Mexico and Central America. Importantly, much of the thinking from Bodega Aurrera has been exported to to other Central American markets, for example with the Maxi Pali banner in Costa Rica and the Maxi Despensa format in Guatemala. As in Mexico, the company is the clear market leader in the region. Its impressive recent growth, together with an often low current level of modern retail and a differentiated format that boasts broad appeal across low income shoppers, give good reason to be confident in prospects for further expansion. 

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