Carrefour to acquire Brazil’s third largest grocery retailer

Date : 24 March 2021

Oliver Butterworth

Retail Analyst

In June 2018, private equity firm Advent International acquired an 81% stake in Walmart’s Brazil business for US$4.5 bn, with Walmart retaining a 19% stake. The retailer was renamed Grupo BIG.

Carrefour Brazil has now reached an agreement to acquire Grupo BIG from Advent International and Walmart. The proposed acquisition would cement Carrefour’s leadership position in the market.

The transaction values Grupo BIG at an enterprise value of BRL7.0 bn (US$1.28 bn).

Brazil’s number one to acquire Brazil’s number three

If the acquisition is approved by Brazil’s competition authorities (CADE), it would see Brazil’s largest grocery retailer acquiring the third largest. In 2020, the two retailers generated combined gross sales of almost BRL100 bn (US$18.2 bn), with BRL74.7 bn (US$13.6 bn) generated by Carrefour, and BRL24.9 bn (US$4.5 bn) by Grupo BIG. Both retailers operate multi-format store operations. Carrefour has 489 stores, Grupo BIG 387, which will see the combined retailer operate 876 stores in Brazil.

Carrefour would extend its reach in the South and Northeast

Grupo BIG’s store network will compliment Carrefour’s estate. The acquisition will enable Carrefour to grow its presence in the South and North-eastern regions of Brazil, where it is currently underrepresented.

“Over the past three years we have accentuated our leadership in the food distribution market, and BIG will help us to further strengthen it with very complementary formats and locations.”, Alexandre Bompard, Chairman and CEO of Carrefour Group.

Source: Carrefour

Clear integration plan for new banners

Source: Carrefour

Optimising hypermarkets…

Carrefour’s hypermarket network would more than double, from 100 stores to 207. Depending on the location and sales potential of these stores, some will be converted to its Atacadão or Sam’s Club banners, with the rest transitioning to Carrefour hypermarkets.

…While strengthening its presence in the supermarket channel

Supermarkets will triple in numbers (from 53 to 152). Grupo BIG’s Nacional (located in the South) and Bompreço (Northeast) supermarkets are strong regional players, so will retain their banner name, albeit front loaded with Carrefour’s distinctive ‘C’ (see above).

Growing cash and carry network…

Carrefour will inherit 49 stores under Grupo BIG’s Maxxi atacarejo banner (non-membership cash and carry stores that serve both B2B and B2C customers).

Despite being a high-performing banner for Grupo BIG (accounting for 27% of its net sales in 2020) these will be converted to Carrefour’s own atacarejo banner (Atacadão). By converting the stores and implementing its own model, it expects to significantly increase their sales densities. The conversions will grow Atacadão’s footprint by around 25%.

…And expanding Carrefour’s presence with two new store formats

Carrefour will also gain two new store formats: Sam’s Club (a wholesale members club) and Todo Dia (a soft-discount proximity format). Sam’s Club is a unique and popular brand in the market with growth potential (more below). It will therefore continue to operate the banner, under a licence agreement with Walmart. It said it also plans to maintain all 99 stores in the Todo Dia discount banner.

Significant growth potential for Sam’s Club

Sam’s Club ended 2020 with 35 stores, which accounted for 21% of Grupo BIG’s net sales. The banner is targeted towards to Brazil’s A and B social classes, which account for over 30m people. There are currently 2m Sam’s Club members, suggesting there is room for further growth. Carrefour has outlined the potential for between 30 to 60 further stores.

Source: Carrefour

Inheriting quality stores

After Advent International acquired a majority stake in Walmart’s Brazil-based operations, it took several immediate steps aimed at improving profitability. It closed and sold many of its unprofitable stores, whilst maintaining those in the most strategic locations. 

Grupo BIG converted many of its hypermarkets to the Sam’s Club and Maxxi cash and carry formats, which has led to impressive sales uplifts. Since 2018, it renovated and modernised all stores under its hypermarket and cash and carry banners. As a result, Carrefour will inherit over 150 stores that are in excellent condition. Grupo BIG previously outlined plans to refurbish all its supermarkets across 2021 and 2022, which could be an area of investment for Carrefour in the future.

Our View

If the deal goes through, Carrefour will grow its store numbers by around 80%. The locations would allow it to gain a strong foothold in the South and North Eastern regions, where it currently lacks a strong presence.

Having a larger and more geographically spread network supports its commitment to making quality and healthy food accessible to all and offering Brazilians the best prices.

This a great opportunity to quickly expand and bolster its Atacadão banner, which will be a cause of concern for its main competitor and number two in the market, GPA. There is also a strong potential to expand Sam’s Club into new regions and reaching new customers.   

The acquisition is not without challenges. Carrefour already operates several of its own banners (and sub-banners) and will inherit new ones as part of the purchase. Some of the acquired banners are regional players, making it difficult for Carrefour to implement range or design changes, and therefore have consistent stores in each channel. At this stage, it is unclear how some banners, such as the Todo Dia soft discount banner, fit into Carrefour’s longer-term strategy.

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