This is the latest business of the Chilean Cencosud in Brazil

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This is the latest business of the Chilean Cencosud in Brazil

Santiago — Cencosud is opening paths in the Brazilian market. After a few months flirting with the Giga supermarket chain, the multilatina closed this week an agreement for its acquisition for approximately 100 million dollars. It is his latest business in this market in which he debuted in 2007.

Matías Videla, corporate general manager of Cencosud, reveals that the plans aim to expand the chain in the medium and long term in order to strengthen operations in Brazil, the largest market in South America. To do this, the retail giant has a growth strategy in this country, where they already have a presence in eight states: Bahia, Sergipe, Minas Gerais, Goias, Rio de Janeiro, Alagoas, Ceara and now Sao Paulo. “We want to be a relevant operator at the national level,” he said in a conversation with journalists.

This is how in the last decade they have been looking beyond traditional supermarkets, and directing their gaze to a new model that is gaining relevance in this nation: the Cash & Carry or –said in Portuguese– the “Atacado”. “We have gone towards a strategy of changing the formats, changing the supermarkets to ‘attacked”.

That is what they are doing in other places that they already have in Brazilian territory. Cencosud, which also operates in four other Latin American countries, is not using resources from the parent company for the purchase of Giga; but it will finance it with the Brazilian company. “The company has profits and cash flow, with which it can manage this expansion with its own resources and financial capacity.”

The company, founded by Horst Paulmann in Chile 62 years ago, obtained a 29.4% increase in Adjusted EBITDA and added 18 new stores, including some in Brazil, in the first quarter of 2022. Today, the corporation is managed by Heike Paulmann, daughter of the Chilean-German tycoon.

COST EFFECTIVENESS

After overcoming some setbacks in the past, Videla clarifies that they have three consecutive years with positive cash flow, which did not happen in the past, and that it maintains Brazil with a financially “solid” operation, without debts and that, even, allows distribute dividends to the parent company, which is also unprecedented.

In fact, opening on the Brazilian stock market is not yet a priority for the company which, in 2020, had announced that it would start a process to debut in this square and thus achieve a way to accelerate development in this country. “We continue to expand and grow in Brazil without the need for these funds. We will do it when the market considers the values ​​of the companies attractive, today the markets have not recovered, nor has Chile, and I believe that we will make the decision at the right time”.

In Brazil, this increase in income between January and March was 15.5% compared to the same period in 2021. This, once again, was attributed to improvements in Cash & Carry performance and increased online penetration. According to Cencosud, the Adjusted EBITDA margin contracted 62 bps as a result of higher advertising expenses and pressure on margins from higher prices of inputs and the increase in food costs.

“Today –before the purchase of Giga– we are approaching 20% ​​of our sales, it is already in ‘attacked’. And with this acquisition we will be above a third of the sale of the company in Brazil. Clearly, this format requires scale and we are going to develop it throughout the regions”, says Videla.

From the multilatina they see it as a great acquisition, a very powerful operation, of a brand with solidity in the Sao Paulo market. “We not only buy, sell and operate, but knowledge and know how and we are very enthusiastic about the Giga teamwhich is very experienced in this format (Cash & Carry)”.

They estimate that its penetration in the state of Sao Paulo, where 44.4 million people live (similar to the population of Argentina), will approach 1.1% of the market that operates with the aforementioned commercial formula. Despite the percentage, Videla highlights that there is no operator that has a “relevant participation”, which allows them to have a scale to develop a business in this area.

Giga has 10 stores, a distribution center, and until December it had 1,300 employees.

“SEE OTHER OPTIONS”

The purchase is not intended to change the name of Giga. The chain was almost a discovery when evaluating other options in Sao Paulo. Videla put his eyes on this: “It’s much better, I liked it much more, we finally managed to get closer to the owners and close the deal.”

Finally, on Thursday night, and after several months of negotiations, the agreement was finalized. Now, it remains to obtain authorization from the Administrative Council for Economic Defense of Brazil to materialize the purchase. This process could be completed in two or three months, according to Videla’s estimates.

Cencosud’s commitment is to continue investing, incorporating new brands to its portfolio. “It is natural that we see options, much more in a context where construction costs are very volatile and perhaps the prices of the companies are true values,” said the company’s senior executive.

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