Discount stores continue rapid growth in Colombia

Oliver Butterworth
Retail Analyst
@RetailAnalysis

Date : 06 January 2020

Over the last decade the discount channel has seen exponential growth in Colombia. The channel is dominated by three retailers; D1, Ara (owned by Portugal-based Jerónimo Martins) and Justo & Bueno.

Together the three retailers operate over 2,800 stores. In recent years the channel has become increasingly competitive as Ara and Justo & Bueno have quickened the pace of their openings. Combined sales for all three retailers increased by 44.7% in 2018, demonstrating their growing reach and increased popularity with customers.

A varied proposition

D1 stores follow the hard discount model, with an offer that consists of mainly ambient grocery sold directly from the box. Justo & Bueno is similar in its offering, but offers a limited range of, mostly packaged, fruit and vegetables.


Fresh produce in a Just & Bueno store
Source: IGD Retail Analysis

 


Demonstrating the value of the basic family basket in a Justo & Bueno store
Source: IGD Retail Analysis

 


Personal care products sold from the box in a D1 store
Source: IGD Retail Analysis

 

Ara stores have a look and feel that more closely resembles a supermarket. Their design is likely to have been influenced by Jerónimo Martins’s knowledge of discounters in Europe. Ara’s wider range of fresh produce, baked items and its chilled offering give it a competitive edge in the market.


Fresh produce in an Ara store
Source: IGD Retail Analysis

Winning through proximity…

Discount stores in Colombia range between 300 sq. m and 600 sq. m, a modest size compared to those seen in other regions. Their small footprint enables customers to shop them quickly. The vast numbers of new openings have meant that stores have naturally opened in new neighbourhoods and closer to new customers’ homes. Part of Justo & Bueno’s strategy is for its stores to reach rural areas where customers have difficulty accessing supermarkets.

For many Colombian consumers discounters fulfil the role of the local convenience store. Their proximity and low prices make them a desirable place to shop, equally whether buying a handful of items or performing larger top-up shops.

…and low prices

Customers are attracted to discounters’ consistently low prices and Colombian shoppers have been much more receptive to shifting their spend to private label products compared to other Latin American markets.

Retailers maintain their low prices through a high penetration of private label products (estimated at around 70% to 80% of their total offer), which are mostly sourced locally, and from running a streamlined operating model. Colombian newspaper El Tiempo states that 95% of D1’s products and 93% of Ara’s are sourced in Colombia.

The retailers have also been investing in the quality of their private labels. Michel Olmi, Executive Director of Reve Group (owner of Justo & Bueno) said Justo & Bueno has managed to "democratize access to products that previously people without high purchasing power did not know."

The channel is dominated by three key retailers…

D1

D1 was the first to enter the market and is the biggest in terms of both sales and total stores. In July 2019 it celebrated opening its 1,000th store and according to El Tiempo, as of December 2019, it operated 1,251 stores.

D1 maintains an aggressive opening programme, with around 400 new openings in 2019. This rapid expansion looks set to continue as in September 2019 it announced it sees the potential for over 2,000 stores in the country. For more on this see our article here.

Ara

Ara entered the market in 2012. According to El Tiempo, it recently opened its 600th store. In Q3 2019 Ara saw sales growth of 41%, driven by new openings and changes to its price investment strategy.


Ara's distinctive store exterior of one of its latest stores
Source: Linked In - Sergio Andrés Moreno Mejía (Operations Director for Ara)

Justo & Bueno

Justo & Bueno was the most recent to enter the market (in 2016) and it opened over 1,000 units in its first three years of operation. If it maintains this rate of openings, it could eventually surpass D1 as the discount market leader. Michel Olmi said its “commitment in the medium term is to become the largest low-cost chain in Latin America. El Tiempo stated in 2019 Justo & Bueno enjoyed sales growth of 57%.

According to Colombian newspaper Portafolio, Justo & Bueno now has 360 suppliers of food, beverages, personal and household care products, in addition to its own brand. It fulfils store deliveries from 15 distribution centres spread across the country. 

Gaining market share from traditional retailers

Discounters’ rapid growth has taken and continues to take market share from both traditional retailers (mom and pop stores) as well as the major retailers’ larger formats, including Cencosud and Carrefour. These retailers are having to re-think their strategies, specifically on how to best optimise their store portfolios to stay competitive in the market.

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 consider the trends supporting the channel's expansion across the region, including private label growth and the targeting of core shoppers, and the implications of the channel's growth on suppliers.

We’re wrapping up 2019 by looking at some of the most insightful discount stores we visited this year. This report will give you a view on how the discount channel is evolving globally. Discounters use a more shopper centric strategy, they invest in technology in their stores and evolve their assortments to align with latest trends.

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