Solid sales performance for Walmex in Q2

Date : 24 July 2019

Oliver Butterworth

Retail Analyst

In its Q2 2019 results Walmex (Walmart’s operations in Mexico and Central America) announced a total revenue of MX$154.35bn (US$8bn). This was a 5.2% increase versus Q2 2018. Same-store-sales grew by 5% in Mexico, underlining the country’s importance to Walmex’s performance overall.

Mexico a strategic focus for Walmart

Mexico continues to be one of Walmart’s key investment markets and is where it has the highest number of stores outside of the US (2470 stores as of June 30th, 2019). Given the size of the operations, its continued success and importance to Walmart’s medium-term outlook, we will look in-depth at its operations in the country and the initiatives driving its success.

We have forecast a CAGR of 7.3% and expect sales in Mexico to reach US$36.9bn by 2023. This makes Mexico Walmart’s joint fastest growing market (with South Africa), behind India. We foresee most of its sales growth in the period to 2023 to come from its discount and wholesale channels.

Source: IGD Retail Analysis

Mexico’s strategic priorities can be broken down into four key areas;

  1. Market leadership; maintain market leading growth through a focus on price leadership and improvements to freshness. Its committed to increasing private brand penetration as part of its value proposition.
  2. Omnichannel development; establish itself as the omnichannel leader in Mexico, transforming its capabilities and reducing cost to serve. Plans to re-launch its grocery platform and extend home delivery reach in 2019. Also developing its B2B and Club proposition.
  3. Productivity and efficiency; drive strong EDLC (Every Day Low Cost) approach, focusing on productivity initiatives including centralised distribution for larger suppliers.
  4. Ways of working; adopt agile ways of working, including embedding data and analytics. Rolling out new workforce management tools, including AI-powered apps.

Enhancing the omnichannel experience

In Walmex’s Q2 results it said online sales in Mexico increased by 50% and accounted for 1.5% of total sales in the country, compared to just 0.2% at the end of 2016. Richard Mayfield, executive vice president and CFO of Walmart Inc. said 85% of the population in Mexico have a Walmart store within 10 minutes. This therefore presents a massive opportunity for Walmex to attract and retain customers through enhancing its omnichannel experience.

In Mexico the retailer has remodelled over 100 of its stores to adapt them to better meet the need of an omnichannel future. It has also invested US$370m in two new distribution centres dedicated to ecommerce to support growth in this channel. It has installed specialised areas, both inside and outside the store, where customers can collect online orders. This makes it much quicker for customers who choose a specific a time slot and collect their shopping without having to queue or navigate the store.

Source: IGD Retail Analysis

Many stores have been equipped with free Wi-Fi, so customers can browse Walmex’s extended catalogue in-store. Walmex is also piloting a Pickup tower in one store. This is a physical, digitalised tower at the front of the store where customers can quickly pick up online purchases by scanning a bar code sent to their phone.

Source: Walmart

In its 2018 annual report, Walmex commented; “Our goal is to make the lives of our customers and members easier while saving them money when they buy with us in our online or brick-and-mortar stores and clubs. In that regard, we devoted our efforts to developing a seamless shopping experience”.

Omnichannel capabilities extend to discounter banner Bodega Aurrera

Walmex’s omnichannel strategy extends to its Bodega Aurrera discount banner. At the end of 2018 Walmex had added free Wi-Fi in 490 Bodega Aurrera stores and installed specialised kiosks in 302 stores. Customers can use the kiosks for ordering general merchandise online while in-store.

Growth in grocery home delivery

In Q1 2019 ecommerce sales grew by 49%. During the quarter Walmex extended its online grocery operations to an additional 41 stores. Grocery home delivery is now available in 236 stores and this number continues to grow.

COFECE reject Walmart acquisition of Cornershop in Mexico

In September 2018 Walmart proposed to acquire last-mile grocery delivery company Cornershop for US$225m. This was in line with its aim of bolstering its ecommerce presence in Mexico. However, in June 2019 the Federal Commission of Economic Competition (COFECE) opposed the acquisition over concerns that Cornershop could potentially refuse to offer its service to Walmart’s competitors.       

This is a big blow to Walmex as the acquisition would have strengthened its ecommerce capabilities and home delivery proposition. The merger would have enabled Walmex to control the future strategy and development of the Cornerstone app itself. It would have also made Walmex more competitive against Amazon, which began offering grocery home deliveries in Mexico in January 2019.

What’s next for Walmex and Cornershop…

Walmex will maintain its focus on becoming the most trusted omnichannel retailer in Mexico. In the short to medium-term it will continue working with Cornershop as a third party, but Walmex has the potential and capital to develop its own last mile solution in the longer-term.

Walmex launches new home delivery service through WhatsApp

Walmex has now made it possible for customers to order products through WhatsApp and have these delivered to their home. Customers can make instant purchases either through sending text messages or photos of the items through the app. The service is available 24 hours a day, seven days a week and customers can pay for products using either cash or card on delivery.

Gabriela Buenrostro, deputy director of Corporate Communication at Walmex, told Forbes "This new purchase method…is the result of the company's innovation to better serve our customers, so they can buy [products] via WhatsApp in an agile and frictionless way”.

Ecommerce opportunities in Latin America

As part of its wider strategy, Walmart recognises the greater ecommerce opportunity in Latin America. In its alliance with Spanish start-up and last-mile delivery service Glovo, it has recently expanded its coverage in Argentina to include the cities of Córdoba, Mendoza and San Justo.

Walmart aims to continue expanding its home delivery service throughout Argentina. Fernando Robirosa, deputy director of Walmart eCommerce said, "We want to continue expanding our coverage throughout the country, so that many more customers can take advantage of the service offered by Glovo and thus gain greater capillarity, coverage and immediacy in the delivery of products and merchandise from our stores."

Source: Glovo Website

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