How Justo & Bueno’s entry to Chile could massively disrupt the market

Date : 20 January 2020

Oliver Butterworth

Retail Analyst

Following on from our article on Colombian retailer Justo & Bueno entering Chile (found here), we will look further at what this could mean for Chile’s grocery market. 

Modern grocery retail in Chile is currently dominated by a handful of key retailers and, for now, the dominant store channel is supermarkets. However, modern (and traditional) retailers should be concerned about Justo & Bueno’s potential to rapidly influence and evolve shoppers’ buying habits in new markets.

In a short space of time the discount channel has become a huge success in Colombia and for many shoppers, it is their preferred store choice. The hard discount model is unexplored in Chile, but if Justo & Bueno succeeds it could encourage others to enter the market.

In the three years Justo & Bueno has operated in Colombia, it has opened 1,000 stores and has taken market share from both modern retailers (e.g. Éxito and Jumbo) and traditional mom-and-pop stores. This should be a concern for SME’s in Chile, as well as major retailers, such as Walmart.

                   Justo & Bueno celebrates opening its 1,000th store in Colombia (December 2019)
                   Source: Justo & Bueno’s Facebook

Chilean shoppers are seeking smaller stores…

In line with trends we are seeing in other markets, shoppers in Chile are migrating to buying more in smaller formats. Consequently, in recent years, Chile’s biggest retailers have been opening smaller format supermarkets, in favour of hypermarkets. Convenience stores, predominantly led by SMU’s OK Market banner, have also seen significant growth.

                   An OK Market in Santiago, Chile
                   Source: America-Retail

This favours Justo & Bueno, which will benefit from its stores’ smaller footprints. These make it easier to locate vacant units/land and enables it to get closer to the consumer. The proximity of discount stores to shoppers in Colombia has made them a convenient place to perform smaller top-up shops. This behaviour could be replicated in Chile.

Many customers will have previously used local markets or almances de barrio (traditional mom-and-pop neighbourhood stores) to perform these types of shop, so Justo & Bueno has the potential to heavily impact these.

…in convenient locations

According to a study conducted in Q3 2019 by Activa Research (a consulting company in Chile), the key drivers of store choice for local shoppers are: location, followed by price. Like other Latin American countries, proximity is becoming increasingly important to Chilean consumers, who are seeking greater convenience.

Justo & Bueno can apply learnings from its expansion in Colombia, which will help it to extend its presence outside of metropolitan areas and closer to residential neighbourhoods in Chile.

                                                             Justo & Bueno’s wide geographical reach in Colombia
                                                             Source: Justo & Bueno website

Private label presents a big opportunity

Over the last decade, Chile has been one of Latin America’s fastest-growing economies. As a result, Chilean consumers have greater spending power versus other markets in the region. Despite this, they have been receptive to the major retailers’ emerging private labels. It is estimated that private label accounts for around 10% of the market, which although comparatively low (compared to Europe and the US), the share is steadily growing.

This presents a big opportunity for Justo & Bueno and other hard discounters looking to enter the market. These retailers have a high percentage of private label SKUs across multiple categories. Their greater range and competitive prices of these items is likely to encourage price savvy customers to visit the stores and migrate to private labels. Initially, customers will be more receptive to trying private labels in basics and commodities, which are deemed less risky when moving away from established brands. 

Potential of going head-to-head with Walmart Chile

Walmart Chile’s discount banner Super Bodega aCuenta, is a compact discount hypermarket. Like Justo & Bueno, its business model is focused on offering quality products at low prices. There are currently around 120 stores under the banner. If Justo & Bueno opens stores at a similar pace to what it has done in Panama (the market it entered most recently), it could soon offer customers an alternative to shopping at Super Bodega aCuenta.

                                                               Inside a Super Bodeg aCuenta
                                                               Source: Super Bodega aCuenta Facebook page

Conversely, Walmart Chile is currently withdrawing its Ekono (soft-discount) banner and converting stores to its Express Lider supermarket banner. This might suggest that Chilean consumers are less prepared to transition to discount stores than first thought.

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 review the five key trends set to shape the Latin American grocery market over the next 12 months and beyond.

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