D1 expected to double store presence in Colombia

Date : 24 September 2019

Oliver Butterworth

Retail Analyst

Colombian discounter D1 has said it believes there is scope for it to operate over 2,000 stores in the country, doubling the number of stores it operates presently. Given its aggressive expansion in recent years, we see this as a realistic target and one that is likely to be achieved sooner rather than later.

The business recently opened its 1,000th store

In July 2019 D1 opened its 1000th store, a huge milestone considering the business only entered the market a decade ago. By the end of 2019 it expects to have opened around 400 stores during the calendar year, which would take its store total to close to 1,300. D1 stores can be found in more than 260 municipalities across the country, reaching almost 60% of the Colombian population.

Source: IGD Retail Analysis

Discount channel becoming increasingly competitive…

Discount continues to be the fastest growing channel in Colombia. D1, Ara (owned by Portugal-based Jeronimo Martins) and Justo & Bueno are the three leading discount retailers.

D1 was first to enter the market but in recent years Ara and Justo & Bueno have increased the pace of their opening programmes, which has significantly increased competition. Collectively, the three retailers have over 2,000 stores between them, a staggering number given that Ara entered the market in 2012 and Justo & Bueno in 2016.

Source: IGD Retail Analysis

Combined sales for all three retailers increased by 44.7% in 2018, emphasising their growing reach and popularity. In 2018 D1 saw an increase in same-store sales and the business said it serves more than 25m customers each month, which equates to more than half of Colombia’s population.

…impacting traditional neighbourhood stores and major retailers

The rapid rise of discounters in Colombia has seen the likes of D1 take market share from both traditional retail (mom and pop stores) and major grocery retailers, such as Grupo Éxito and Jumbo.

D1, Ara and Justo & Bueno are showing no signs of slowing down their expansion plans. Naturally discount stores will open in new territories, reaching new customers, which will continue to impact hypermarket and supermarket sales.

How will D1 continue to grow?

D1’s store strategy is focused on its low prices, the quality of products and its proximity to customers. Prices are kept consistently low due to a high concentration of private label products and the efficiency of its operating model. Also, only 10% of its range is imported from outside of Colombia, which helps it keep its costs low and pricing and margins more consistent.

Shoppers are feeling increasingly time-poor, D1 recognises this and sees proximity as essential. This gives the business scope for a greater density of stores in neighbourhoods/cities with a pre-existing D1 presence. Its long-term aim is for every Colombian to have a D1 store within 15 minutes of their home. The stores’ modest sizes, compared to larger supermarkets, make it easier for the business to locate new sites.

The combination of both convenient locations and low prices will see more customers migrate to the channel, which will be a big concern for the bigger retailers.

Major retailers will need to differentiate to stay competitive…

Due to the increased pressure from discounters, the biggest retailers will need to evolve their proposition to remain competitive. One retailer that is doing this particularly well right now is Grupo Éxito.

Éxito operates several banners across a range of channels. This allows the business to successfully appeal to all customer demographics. For example, its Surtimax (discount) and Surtimayorista (cash and carry) banners appeal to less affluent customers, whereas its premium Carulla Fresh Market format targets middle to upper class shoppers.

Surtimayorista, Bogota

Source: IGD Retail Analysis

In response to the growth and subsequent threat of the discounters, the business has started to invest heavily in its omnichannel strategy and enhancing its brick-and-mortar store proposition to better target the modern shopper.

In 2018 the business launched its innovative WOW and Carulla Fresh Market concepts. These modern designs help the business to differentiate and stores that have been remodelled to these formats have had positive sales uplifts.

We take an in-depth look at the discount channel in Latin America. We focus on key markets, like Brazil, Colombia and Mexico, and the retailers driving growth in the channel, including ara and Bodega Aurrera.

We look at five themes, including the growth of discounters and the continued strength of the atacajero format, that are set to shape the region's grocery markets in 2019 and beyond.

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