DIA’s transformation strategy showing positive effects in Brazil

Oliver Butterworth
Retail Analyst
@RetailAnalysis

Date : 23 July 2020

DIA reported a 14.9% growth in like-for-like (LFL) sales in Q2 at a group level, while it was also able to report LFL growth in all its markets for the first time since Q4 2016. In Brazil LFL sales grew 14.7%.

Net sales in Brazil were up 20% in local currency, but this was outweighed by a 28% devaluation of the Brazilian Real during the period. The strong results were despite DIA having significantly fewer stores, having closed over 300 unprofitable stores during 2019.

‘Make DIA a Champion’ strategy in full swing

In May 2019, L1 Retail (DIA’s majority owner) announced its five-year ‘Make DIA a Champion’ rescue plan to turn the business around. In November 2019 DIA received a capital expansion of €605m (US$656m), demonstrating its investors’ confidence in executing this.    

Make DIA a Champion is now being implemented, and we have seen significant changes already.

Improved supply chain and store operations

Stephan DuCharme, DIA’s executive chairman, said “transformation initiatives such as improved supply chain and store operations, which supported our enhanced fresh offer, were key drivers of performance”.

DIA has significantly increased its fresh produce range. In its latest store designs DIA positions fresh produce and bakery at the front, helping it to showcase the quality of the categories.

              Source: IGD Research

The bakery offer has been modernised and the produce fixtures are kept low-level, making the front of store feel more open and spacious. This design has been heavily influenced by discounters in Europe, particularly Lidl.  

              Source: IGD Research

Enhanced assortment and stronger private label

DIA’s strong Q2 performance was supported by a wider assortment in most categories and the strengthening of its private label offer. DuCharme said he expects “the accelerated roll out of transformation initiatives, including optimised assortment, to have a positive impact going forward.”

As a key strategic pillar, DIA has been reformulating its private label portfolio. In the first half of 2020 it launched around 500 private label products. This consisted of both new and re-designed products across food, personal hygiene, and cleaning categories.

The packaging is more inspirational and modern, with a stronger use of bright colours. Many products have been enhanced with new and improved recipes, using better quality ingredients.

Source: LinkedIn, DIA Brasil

Changing Brazilian’s perception of private label

Historically private label products have been perceived poorly in Brazil, with many shoppers questioning products’ quality. DIA has a new localised leadership team in the country and a team dedicated to the development of quality products, which are better aligned with the profile of the Brazilian customer. 

DIA responds to Brazilian consumers’ passion for promotions…

Brazilian consumers are highly motivated by promotions, therefore EDLP (everyday low prices) mechanics are less effective than in other markets. DIA has started to respond to this through new customer-driven promotions of ‘highly attractive SKUs’, which should help drive traffic and increase basket spend.

DIA recently launched its Every Penny Counts campaign, which gives customers even greater value. The campaign was strongly advertised in newspapers and on TV.

Source: LinkedIn, DIA Brasil

…and leverages its app to do so

DIA is also using its ClubDIA app to drive promotional activity. At the beginning of July customers using the ClubDIA app received 20% off most DIA own-brand products when using the app. Customers would activate a coupon in the app and redeem the 20% saving at the checkout.

Source: LinkedIn, DIA Brasil

Can Brazil be an ‘engine of growth’ for DIA?

DIA has set out a clear strategy and its transformation plan is well underway. Creating an empowered local leadership team, who understand the Brazilian consumer, will support this.

Mikhail Fridman (co-founder of L1 retail) described Brazil as “a very relevant market” and one that could be “an engine of growth for the company in the medium-long term”. Fridman believes there is the potential for thousands of stores in the country and we expect DIA to increase the pace of its expansion in the second half of the year.

DIA has already optimised its store network, through the closure of some, while its latest store design is modern and provides an enhanced shopping experience.

Changing shopping habits could support its success

The key to DIA’s success will be re-engaging with Brazilian consumers and communicating the value and quality of its private label products. Brazil will face a recession in the short to medium term and during these times consumers will naturally become more frugal. More than ever, customers will be seeking value, and this will affect store choice. This will be a perfect opportunity for DIA to communicate its low prices and quality products.

We recently produced an in-depth report on DIA’s strategy in Brazil. Subscribers can access this here.  

In this report we explore DIA’s strategy and its renewed focus on Brazil. We uncover why it could be a key retailer to watch in the medium-to-long term.

We visited GPA's latest Pão de Açúcar G7 store in São Paulo, Brazil. This is one of GPA's highest performing supermarkets under this banner. It showcases several new innovative features, some of which have been developed in partnership with Brazilian start-ups.

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