Food Retailers Heat Up LatAm Investors

Both U.S. and European multinational retailers have been aggressively acquiring supermarket chains throughout Latin America. In Argentina and Brazil alone, at least 10 acquisitions have taken place over the past year. The major players are Ahold, Casino, Promodes, Carrefour, Sonae, D&S and WalMart, all of which have grown through acquisition.

But private equity firms are not to be left out. Indeed, retail continues to rank among the top industries LPs said they are putting their money in Latin America, with 20% of the votes in a recent poll conducted by PricewaterhouseCoopers.

A recent example is Newbridge Retail Investors LP (NRI), an entity formed and controlled by Newbridge Andean Partners LP, acquiring a controlling interest in Carulla y Cia SA, Columbia’s second largest supermarket chain. Newbridge Andean Partners LP, is a $160 million fund formed by Washington, D.C.-based Acon Investments LLC.

According to Newbridge, Carulla is also the dominant chain – with 25% of the selling space – in Bogota, Columbia’s capital and largest city. Carulla operates 74 supermarkets, 58 of which are in Bogota, 9 in the Cali region and 7 in the Northern coast region of Columbia. Carulla reported EBITDA of $20.7 million on sales of $317.2 million in 1998.

Newbridge and its co-investor, San Francisco-based Agua International Partners LP, invested a total of $33.7 million in the company, $24 million of which was from Newbridge. The investment will support expansion into new locations, renovation of existing stores and, potentially, acquisitions.

However, that expansion will take place only within Columbia, said Acon Investments’ Jose Knoell. This most recent investment brings the fund’s commitment to $110 million. He declined to specify where and when Acon intends to invest the remaining $50 million, but the firm’s stated strategy is to provide minority expansion capital for companies in the Andean region.

According to data from A.C. Nielsen Colombia, supermarkets represent less than 50% of food sales in Colombia, as compared with 84% in Brazil and 67% in Argentina. However, according to Newbridge, this absence is felt mostly outside the three largest cities and represents an opportunity for Carulla to expand.

Francisco Chevez, an analyst with Salomon Smith Barney, cited two current overall trends in Latin-American food retailing. He said the first is consolidation, “especially in Brazil, but also in Argentina. There were 500 food retailers in Brazil a couple years ago. [But] that number is rapidly shrinking.”

He predicted it will only take two more years for the Brazilian market to be consolidated. In Argentina the top 11 food retailers are publicly held.

The other trend, which he identified as a concern, “is in Mexico. There’s a lack of consumption growth, even though the economic trends are positive.” Chevez attributed this to inflation in late 98 and early 99 that eroded real wages, and said that’s only beginning to turn around now. – H.M.W.