Retailers all over the world are increasingly focusing on in-fill strategies
as some retail segments & markets show signs of maturity.
Last week Wal-Mart de Mexico announced that 2/3 of all its openings
during 2009 would be in the form of a relatively new small-box Bodega-style
store that will help them in-fill markets in key regions across Mexico.
We believe the expansion of this Bodega format has far reaching
implications outside of Mexico and for a wide range of demographic & ethnographic segments, both for North and Latin America.
Read on to learn more about the key characteristics of
this store & why we believe this is an important development.
Bodega Aurrera Express: Key Characteristics
Wal-Mart de Mexico has experimented with different Bodega-style
store concepts, from the larger sized Bodega Aurrera (41,000 sq.ft) to mid-size
stores Mi Bodega (16,000 sq. ft) to the smallest of all Bodega Aurrera Express
(4,000 sq. ft). All of the Bodega stores
target primarily the +60% Mexican population that belongs to the E to D+ socio
economic segment (SES).
In Mexico, each store serves a slightly different
purpose, with Mi Bodega aimed at rural areas
as a destination store while Express is intended to be an in-fill store
targeting convenience & closer-to-home consumption.
This is not a fresh store and features an edited assortment with a focus on food essentials. It resembles a soft discounter, given its assortment focus on branded vs private labeled items.
We can infer some interesting things about Bodega
Aurrera Express' store economics based on their highly-urbanized (high shopper
density) real estate model:
Smaller ticket but more transactions. This
type of store calls for shoppers to visit it a few times a week while spending
a short amount of money on each visit. In a sense, this is very similar to how the
Bodegas' core shopper behaves in the formal trade.
Lower margins? A
higher mix of consumables vs. discretionary/general merchandise items compared
to a hypermarket could mean lower margins. Private label helps offset this, but so far
Bodega Express' private label selection seems to be limited (see section
below). Due to informal & open markets competition in
Mexico perishables can be lower margin than center store foods or GM - in the
US this is just the opposite.
Lower operating costs.
The store runs with less than 15
people. This has one key implication for suppliers: retailers typically will
try to shift labor as a way of reducing costs & improving efficiency.
Less capital intensive. Lastly, as mentioned before, investment on smaller stores is lower
compared to big boxes, making it easier for a retailer to expand rapidly.
These four characteristics tend to be true for most small-box
discounters. Outside of the economic
model, Bodega Express lacks some unique features typically associated with
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Differences vs. Traditional Discounters
The store varies in some aspects vs. traditional
discounters or even limited assortment grocers.
Key differences include:
as focused on private label. The
majority of sales for a discounter or LAG are typically derived from private
label; Bodega Express does not currently rely heavily on private label. The
thinking behind Latin American's retailers lag on private label development vs.
the rest of the world tends to be that lower income shoppers cannot afford to
risk trying a private label item and have it fail -shoppers can't afford having to re-buy branded item if the latter
was true. Though this might not be the case it is enough to defer purchases.
positioning & messaging. The
store does not appear to be trying hard to convey value outside of no-frills store
experience (i.e., no heavy signage, branding, or messaging)
limited perishable selection. Either a function of supply chain
complexities or the fact that people can find better assortments in the
informal trade, but for the most part the perishable selection is extremely
Location. A proportion of LAGs and discounters are
found both in highly urbanized but also more suburban areas. Bodega Aurrera
Express is likely to focus only in highly dense areas, leaving the rest of the
country to any of the other Wal-Mex formats.
The Broader Landscape
There are more than a few reasons why people whose responsibilities are not directly tied
to this geography, retailer, or segment, should still be aware of this
Store lifecycles are extremely important. Retailers are rapidly changing their food selling stores
to adapt to a demanding economic cycle, making some of the assumptions that
were previously successful less effective today.
Stores are becoming more targeted. Retailers
are specializing and targeting a narrower selection of shoppers and shopping occasions, highlighting
the need for supplier organizations to segment their customers less by
channel/format and more by trip positioning.
Opportunity to leverage best practices. We have seen
pricing communication, award winning private labels, labor models &
practices, impulse merchandising & marketing strategies, among others, coming
from small-box retailers & being incorporated into large boxes.
- Discounters are growing rapidly. We have seen discounters
grow rapidly in Europe and we are starting to see this box & business model move
swiftly into the US and parts of Latin America.
Small boxes can be disruptive to the market. Talk to anyone
familiar with Mercadona in Spain, where the company decided to cut 800 SKUs and
up to 1,200 more in a matter of weeks while reducing its prices across the
board by 10%. Or arguably Tesco's Fresh & Easy (not a pure discounter but similar
concept) regional impact in the US, or the generic pharmacies in Mexico which
have gone from a few hundred to more than 4,000 stores in less than a decade,
or even the impact Aldi has had in the UK/Europe. These are all examples
of disruptive moves from small-box retailers that have transformed the retail
Private label is growing everywhere. Most discounters' sales
come from private label, with some retailers' mix upwards of 90-10 on private
label vs. branded items. These small-box
retailers are a great place to look at to understand shelf dynamics.
New reference price points being established as a
consequence. See our last newsletter for examples, but as
more and more retailers expand their private label offerings many categories
are getting more than an OPP price reference, with mid, mid-high, and premium
price comparisons within and outside the store.
- Lower capex investments = ability to scale quickly. Zoning laws
& permits are easier to obtain, and many stores can be dropped rapidly into
a marketplace with a less intensive capex requirement. Think of what Fresh
& Easy did in the US, or the rapid store growth of Oxxo in Mexico who has consistently opened on average 700 stores/year over the last 4-5 years.
Lastly, as Perry Caicco's small box analysis from CIBC has indicated,
scale economics are difficult and need to be managed carefully, which supports
more private label and limited assortment vs. variety.
These are a few of the reasons why tracking the development of the
Bodegas in Mexico is of importance - things that can always lead to new
thinking for both supplier & retailer organizations.
The real question is whether this format is just a
formalization of the informal trade in Mexico and Latin America or if certain
elements would work in the US.
Without a doubt, the expansion & growth of small
stores creates new opportunities for retailers to take share from the
formal/informal trade. We have referred
to this kind of outlet as a cross-over segment - one that is aimed at
converting shoppers from the traditional to the modern trade.
If Bodega Express succeeds, we would expect other
retailers in Mexico to be fast followers - something we have seen in the past -
which would bring a totally new dynamic to the marketplace with the
proliferation of these types of stores.
We won't see a discounter market as developed as the UK/Europe
in just a few years, but 2009 could well be the beginning of a changing retail
environment in Mexico and potentially the inclusion of its winning elements
back into the US.
|RetailNet Group is the leading insight and advisory firm focused on retail growth strategies and consumer-facing transformational capabilities. We are deeply experienced retail/consumer analysts and strategists working exclusively to help brand-led businesses and large-scale retailers grow.
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Wal-Mart's Other Formats
runs a variety of formats in Central and Latin America that fill similar wide
variety of needs (RNG subscribers can see
photo galleries of some of these stores, including Despensa Familiar, Pali,
Maxi Bodega, Mas x Menos, Hiper Paiz)
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Aaron Chio is a Senior Analyst leading RNG's development of new research, insights and growth strategies in Latin America.
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