Colombia's supermarkets make way for discount grocers and increased e-commerce

After a stagnant performance in 2017, the retail sector gained momentum in 2018, growing by 6.2%. Inflation was near the central bank’s target at 3.2% during the year, and this combined with the government’s December 2018 decision to increase the minimum salary by 6% for 2019 and general improvements in the country’s economic performance have translated to increased disposable income for some segments of the population. Nevertheless, the recent depreciation of the peso – falling by about 14% from COP2900:$1 in June 2018 to COP3300:$1 in June 2019 – and the propensity of consumers to browse many retail channels looking for optional prices and convenience have intensified competition in the sector, driving the advent of diversified retail formats.

Still, gains continued in the first three months of 2019, with retail sales – excluding fuels and vehicles – posting a 6.4% year-on-year (y-o-y) increase. Out of the 16 retail segments tracked by the Ministry of Commerce, Industry and Tourism, 13 witnessed higher sales levels. The top performers were computer and telecommunications equipment, which grew by 16%, alcohol and cigarettes (14.7%), cleaning products (10.9%) and other personal products (10.3%). All cities surveyed posted positive results; Barranquilla, Bogotá and Medellín each saw sales rise by more than 3% y-o-y during the first quarter of 2019.

Broad trends have buoyed the retail sector in recent years, including the growing number of new shopping malls and the expanding presence of internationally branded stores. The drive to increase IT usage among Colombians has also transformed the country into one of the region’s fastest-growing online retail markets.

Discount

Perhaps the most interesting trend within the fast-moving consumer goods (FMCG) segment is the success of local discount grocery chains. Marketing and management company Mall & Retail estimates sales of COP9.5bn ($3.2m) in 2018 across the more than 2100 stores in this category nationwide, which include brands D1, Ara and Justo & Bueno. Discount stores captured a 1.4% market share of modern channels in 2013, but by 2017 this had grown to 15.3%. Building on their growth of the last five years, local chains are aggressively expanding, with consumer research firm Nielsen expecting the launch of some 540 new stores in the discount segment in 2019 alone.

The company that pioneered the discount grocery offer in Colombia is D1. Launched in 2009 and currently owned by the Santo Domingo Group, it is the largest brand in the segment in terms of both sales and presence. It ended 2018 with 900 stores and sales growth of 22.1%, capturing COP3.8trn ($1.3bn).

Ara stores, owned by Portuguese group Jerónimo Martins, entered the scene in 2013. Jerónimo Martins aims to invest around €500m in its Ara band over 2019, 2020 and 2021 to double its number of stores, expand logistics facilities and train workers. The World Bank’s International Finance Corporation is supplying the company with a $93m credit to support the undertaking. Ara ended 2018 with 532 stores and sales of COP2.2trn ($752.4m), 56.7% more than in 2017, according to Colombian research firm Sectorial.

Justo & Bueno, meanwhile, entered the market in March 2016. The chain operated 549 stores at the end of 2018, with sales of COP800bn ($273.6m) that year. In August 2018 it was announced that US-based private equity fund manager Australis Partners agreed to invest in Reve Group, the owner of Justo & Bueno and discount coffee shop Tostao, although an amount was not specified at the time.

Supermarkets

While discount stores are growing their market share at the expense of supermarkets, the latter are expected to maintain a leading role in the region. According to Mall & Retail, supermarkets’ share of sales in Colombia fell from 80.9% in 2013 to 63.3% in 2017. Globally, international data and consultancy firm Kantar projects the proportion of supermarkets in the FMCG arena will fall from 50.8% in 2015 to 48.4% in 2020 as discounters, e-commerce and other segments expand.

Grupo Éxito is the country’s largest supermarket chain, with brands catering to all income segments. It has responded to increased competition with new promotions, deploying its own branded products, improving the shopping experience of its stores, and launching competitive pricing strategies and loyalty programmes. The group has also established a number of new lines, including Carulla FreshMarket, which targets a health-oriented customer base with a selection of fresh fruits, vegetables and organic products.

Most recently, the group introduced Éxito Wow in late 2018. Éxito Wow was first launched in Antioquia and subsequently in Bogotá as part of a strategy that seeks to take a holistic approach towards shopping. By integrating digital and physical experiences, customers can choose to make selections and purchases digitally, or shop in store where they can enjoy other offerings such as co-working spaces with free internet and cafés. With the help of Éxito Wow, the group’s sales in Colombia during the first quarter of 2019 grew by 2.7% and operating income was up by 3.6%.

Cash Only

The cash-and-carry model, for its part, is nascent in Colombia; these establishments capture just 2% of household spending. This reflects the global findings of Kantar, which notes that the cash-andcarry medium represented 1.8% of the worldwide FMCG market in 2017, but the firm projects this to rise to 2.1% in 2020. Cash-only stores are frequented by 22% of Colombian households, according to Nielsen, lower than in Brazil and Argentina, where the segment reaches 55% and 30% of households, respectively.

Foreign Arrivals

As local companies and brands continue to fight for dominance, Colombia’s retail potential has aroused the interest of international groups, both in terms of retail space construction (see Construction overview) and product offerings. While some brands, including US clothing companies Gap and Aéropostale, decided to leave the country in recent years, other have expanded. Following the opening of its first Colombian store in the capital’s Parque La Colina shopping mall in May 2017, Sweden’s H&M targets the opening of three additional stores during 2019. French sports retailer Decathlon, which opened its first Colombian store in Bogotá in February 2017, expanded with stores in Bogotá, Barranquilla and Medellín in 2018. The sports chain has further plans to open locations in Bucaramanga and Cali.

One of the most aggressive expansion plans comes from Japanese low-cost fashion and homeware retailer Miniso. The brand opened 11 stores between August 2018 and February 2019 and, based on their success, aims to have 150 locations around the country by the end of 2020. Also in the household products segment, Sweden’s IKEA plans to expand in Latin America by opening nine stores across Colombia, Chile and Peru by 2028. The Swedish giant will work with Chilean conglomerate Falabella.

Going Digital

The increased adoption of digital and mobile technologies in Colombia has resulted in three-digit sales growth through e-commerce platforms in recent years. According to consulting firm BlackSip in its report titled “Reporte de Industria: El E-commerce en Colombia 2018/2019”, between 2012 and 2017 online sales of fashion grew from COP165.1bn ($56.5m) to COP565bn ($193.2m), up 242%; household appliances from COP105.2bn ($36m) to COP541.6bn ($185.2m), for growth of 415%; and beauty and personal care products from COP2.5bn ($855,000) to COP20.7bn ($7.1m), up 728%. Electronics, food and beverages, and other household articles and furniture followed the same trend.

The report also states that e-commerce sales across major retail segments will grow from COP11.64trn ($4bn) in 2018 to COP32.03trn ($11bn) in 2022. Growth is expected to slow in the short to medium term for fashion and electronics, while other categories are set to continue their strong upward trajectory.

Increased interest and trust of online purchases by local consumers, as well as a strong adoption of e-commerce platforms by retailers, have captured the attention of global players. Towards the end of 2018 US e-retailing giant Amazon opened a service centre in Colombia – its first in Latin America – to provide support for its operations in the region. Despite being one of the world’s largest retailers, the company’s presence in Latin America has been limited to date, with sales estimated at $22m in 2017, according to Blackslip. However, this is ahead of its Chinese rival, Alibaba, at $16m that year.

On the regional front, in August 2018 Chilean-owned Falabella acquired the Colombian e-commerce platform Linio, which operates in eight countries in Latin America. The decision was made in order to compete in the digital market with Amazon and Alibaba by strengthening the online presence of the company’s departments, which include the Falabella brand for retail, Sodimac for home goods, and the Tottus supermarket line for food and beverages.