Brazilian Retail News 396, July 25th

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Brazilian Retail NewsYear 10 - Issue # 397 - So Paulo, July, 25h, 2011

Phone: (5511) 3405-6666

Brazilian retail news 1 25/07/2011

Brazils largest sporting goods retailer prepares IPO

SBF Group, owner of Centauro and by Tennis sporting goods chains and Brazils largest company in its segment,

has opened 60 stores in the last 18 months, largely due to funding by development bank BNDES. To continue growing

and reach the goal of 80 new shops until late 2012, SBF has been preparing its IPO, adjusting the company to all market

accounting criteria. The company aims to open its capital earlier next year, after increasing its FY sales to R$ 1.7 billion

(US$ 1.06 billion) this year, 20% more than in 2010.

Consumers increase purchase in supermarkets

In the last four years, consumers have not only increased the number of visits to supermarkets in Brazil, but also have

raised average spending and the number of items purchased. According to a Kantar Worldpanel study, the average value

spent in each shopping trip rose from R$ 27 to R$ 31.50 (US$ 19.68). A Nielsen study says consumers have been goingto supermarkets ten times per month.

KFC prepares expansion in So Paulo

US fast food chain KFC prepares to expand in So

Paulo state. Until the end of the year, there will be opened

six stores in large cities, in an R$ 8 million (US$ 5 million)

investment. Three of these shops will be franchised and ve

will be located in shopping malls. Today, KFC runs in Brazil,

operated by BFFC group, 12 stores in Rio de Janeiro and

one in So Paulo.


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Riachuelo to open 75 new shops until 2013

Riachuelo, one of Brazils largest department store

chains, bets on a vertically integrated business model to

increase its market share, opening compact 1,000 sq.m.

stores and aiming young women in the next years. There

will be invested R$ 295 million (US$ 184.37 million) to open

75 stores, 22 of them to be inaugurated until December.

Number of mobile phones in Brazil goes to 217.3 million

Preliminar data reported by the National Telecommunications Agency (Anatel) say Brazil ended June with 217.3 million

mobile phones, 1.1% more than in May. There are today 111 mobile phones per 100 people. From January to June, 14.4

million mobile phones were added to the user base, a 7.1% year-on-year rise. In the last 12 months, there were 32.2

more million phones, a 17.4% rise.

Sony Music will invest in digital sales

Sony Music decided to test in Brazil an internet-based digital music sales service. If successful, the trial will be rolled-

out to other countries.

Mquina de Vendas purchases Eletro

Shopping chain

Mquina de Vendas, Brazils second-largest electronics

retailer, formed by the merger of Ricardo Eletro, Insinuante

and CityLar, announced the purchase of Eletro Shopping,

who runs 150 stores in six Northeastern states. The deal

was estimated in the R$ 160 million (US$ 100 million) range

and leads Mquina de Vendas to 900 stores in 301 Brazilian

cities, with FY sales of R$ 7.2 billion (US$


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The challenge of the large store formats

Marcos Gouva de Souza - CEO, GS&MD - Gouva de Souza

Momentum

Suddenly, this became a one million dollar question: are the large store formats in their declining age or not? The answer is

classic: it depends.

The large store formats have, in fact, been facing new challenges, specially in the most mature and developed markets, who

have suffered the consequences of the recent economic crisis.

Traditional department stores, hypermarkets, supercenters, home centers and category killers have all been experiencing

some additional problems, due to changes in consumers behavior.

But all generic statements are dangerous.

The large store formats have been having trouble in the most mature European countries and in the US, due to the formatscharacteristics and changes in consumers behavior, as they have preferred visiting stores closer to home or ofce, making

smaller purchases, but more often. In the emerging markets, however, the situation is completely different, as large store

formats are a destiny for consumers who have recently started purchasing goods and who have ooded hypermarkets and

supercenters in India, China, Russia, South Africa, Turkey, Romenia, South Korea and other countries. Auchan, Carrefour,

Walmart, Tesco, Metro and others have seen their stores crowded with people purchasing, making supplying and logistics the

biggest issue in these markets.

Each market has its own reality and all generic assumptions can lead to huge strategic mistakes.

In France, Germany, Italy, Spain and Belgium, the recent economic crisis has created new challenges in serving consumers

who have become more cautious in their spending, preferring to shop more frequently in smaller quantities, with almost daily

visits to the closest stores, purchasing the day-to-day needs, walking short distances and behaving more rationally.

In these countries and regions, the store formats more focused on micromarkets, with limited assortment, are the onesbetter serving consumers today. This is the case of convenience stores, neighborhood markets, soft discounters and hard

discounters. As in the US the reinvention of drugstores transformed them in c-stores, these have been the formats with better

performances over the market average.

But even in these markets there are players who, due to the excellency of their large format operations, have been having

crowded stores, destinies for many consumers. This is the case of Auchan, Systme U and Leclerc hypermarkets in France, or

Tesco megastores in the UK and Metros Extra hypermarkets in Germany, who have led the competence of these operations

to other markets.

This is why one should study deeply the current affairs, as there are plenty of examples showing hypermarkets and other

large store formats have been facing serious threats in some markets and, at the same time, are ideal for emerging countries.

And in Brazil we live the consequences of this contradiction, with large stores in highly developed and mature regions, as the

Southeast, who should have been facing hard times but that, due to the positive economic environment, have been receivingnew customers who want to purchase more goods, specially durable ones. And in the new emerging regions, as the Northeast

and Midwest, the performance of these store formats is helped by the soaring spending potential.

As one can notice, the issue has a much broader dimension than one could imagine, specially in a scenario of growing

multichannel expansion, with increasing internet and mobile sales, concentrated in some product categories and, in this case,

it doesnt matter if the market is emerging or mature, as consumers shop according to their relationship with digital channels,

the presence of internet and mobile phones in each market, and the amount and access to brick-and-mortar stores.

And the only thing sure, as usual, is that there is not a single thing sure.

Brazilian Retail News (BRN) is a weekly newsletter published by GS&MD - Gouva de Souza with the most important newson the Brazilian retailing. The content can be freely used, once the source is quoted. If you want any information on BRN or our

services, please send an email to [email protected] or access GS&MD - Gouva de Souza at www.gsmd.com.br.

Gouva de Souza & MD Desenvolvimento Empresarial Ltda.

Av. Paulista, 171 - 10 oor

Paraso So Paulo Brazil Zip Code: 01311-904Phone: (5511) 3405-6666 Fax: (5511) 3263-0066

Brazilian Retail News 396, July 25th

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