Wal-Mart Operations in Brazil: An Emerging Giant (Case #9, Notes)
Overview
On May 9th, 1994, Wal-Mart entered the Brazilian retail market through a partnership with Lojas Americanas, Brazil's leading department store chain. Wal-Mart's initial market entry strategy was to: open 80+ stores rapidly; target major urban areas with high consumer purchasing power; employ proven U.S. tactics, strategy, and product mix; obtain leading market position in short time.
The initially aggressive and promising entry strategy came to a halt after Wal-Mart encountered severe problems in its internal and external environment. Long checkout lines, high stockout rate (40%), unreliable supply lines, faulty management-performance measures, road traffic, cultural dissimilarities, and competitors' reaction were responsible for Wal-Mart's initial failure in the Brazilian retail market.
In response to challenges in its environment, Wal-Mart adopted a more conservative expansion, consolidated distribution, improved assimilation into the Brazilian culture, and acquired managers from competition. As of November 8th, 2001, Wal-Mart operated a total of 22 stores in Brazil. In May of 2001, Wal-Mart replaced its three limited-capacity distribution centers with one large, fully owned property, with plenty of room for future expansion. As of October 10th, 2001, Wal-Mart had opened up two smaller neighborhood outlet stores, Todo Dia, under a different brand name in an effort to accommodate the purchase behavior of many Brazilian consumers. In 2004, Wal-Mart Wal-Mart bought Bompreco from Royal Ahold for $300 million. Bompreco operated 118 stores at the time. This acquisition made Wal-Mart the third-largest supermarket operator by sales in Brazil.
Brazilian retail consumers consider product quality the most important factor in the purchase decision-making process, followed by product price, customer service, store cleanliness, and store distance. From a macroeconomic perspective, the purchase behavior of Brazilian consumers is affected by Brazil's floating currency, inflation (currently 4.5%), foreign direct investment (with related investment rating), and a current energy crisis.
The 1995 data state that Brazil's entire retail industry accounts for 6.6% of GNP, with total consolidated sales of U.S. $43.7 billion. Top 5 retailers in the Brazilian retail market account for more than U.S. $12 billion. The 1997 data show that Wal-Mart's major competitors are Carrefour, Companhia Brasileira de Distrubuição (Pão de Açucar), Royal Ahold, and Makro Atacadista. In addition, some smaller retail chains and a large number of individually owned stores account for the remaining portion of the Brazilian retail market.