Grupo Éxito: Retail

THE COMPANY: Grupo Éxito is the lead retailer in Colombia. It has been operating for more than a century and has a local market share of over 40%. Currently its majority shareholder is Casino Group from France. The company has 418 stores and is present in 68 Colombian towns and cities.

Locally, it has seen organic growth as well as the acquisition of important players in the sector. It uses a number of different store formats, including regular supermarkets, hypermarkets, premium and low budget supermarkets, and proximity and convenience stores (mini-markets). They also manage diverse complementary businesses such as credit cards, insurance, travel agencies, gas stations and real estate.

Grupo Éxito offers a variety of goods including food products (about 70% of their net income), such as fresh and perishables, groceries and packaged food, and nonfood products (30%), including appliances, textiles, digital products and apparel. In 2011 the company began its internationalisation programme with the acquisition of Disco and Devoto, the lead retailer in Uruguay, which has more than 40% market share.

It consists of 52 stores in three different formats: hypermarket, premium supermarket and regular supermarket. With this acquisition, Grupo Éxito was able to consolidate its position as the fifth-biggest food retailer in Latin America. In the third quarter of 2012 Grupo Éxito's revenues totalled COP2.4trn ($1.4bn), representing 20.3% year-on-year growth, driven by a 4.3% increase in same store sales and 16% in sales area. This change has a base effect, since figures from the third quarter of 2011 did not include the Uruguay operations. Meanwhile, EBITDA profitability showed a declining performance compared to the first half of the year, despite remaining at healthy levels (7.7%).

Its stock accounts for about 7% of the Colcap Index. In relative valuation terms, the company has become more expensive than its comparable peers with respect to price to earnings ratio and EV/EBITDA. However, the price to book value multiple shows a discount.

DEVELOPMENT STRATEGY: Grupo Éxito has implemented a combined growth strategy of organic expansion, conversions and acquisitions, generating a 10.2% CAGR on net revenues since 2000. The momentum of the local economy is expected to continue in the coming years, with average growth projected to be 4.6% until 2017. This will continue to favour the operational performance of Grupo Éxito, whose strategy seeks to capture the broad potential for consumption in the local economy, as more than 80% of its sales come from Colombia. The future economic situation in Uruguay is also optimistic. According to IMF projections, its economy will grow 4.2% in 2012 and 4% in 2016, while inflation will remain at around 6%.

The company’s local expansion strategy consists in strengthening its presence in intermediate-sized cities, but focusing mainly on the proximity and bodega formats. Furthermore, it is important to emphasise that the intensification of openings of the former allows them to better compete with the informal sector, which, according to the company’s data, represents nearly 50% of the market in Colombia.

On the other hand, Grupo Éxito may expand its operations in a non-organic manner, given the company's statements regarding its plans for international expansion, and since it is in a highly liquid position (cash and liquid investments) that exceeds COP2trn ($1.2bn). Moreover, in line with its expansion, the company has stated that it is looking to enhance its profitability while strengthening its number-one position in the Colombian retail market.

The supplementary businesses operated by Grupo Éxito are also an additional source of revenue growth, but their contribution to the aggregate sales is still low. Those that are most relevant due to their maturity are credit cards and real estate development.

Finally, the company has stated that it is open to entering into other complementary businesses, which could generate more traffic at its stores and strengthen its focus in the retail market in the years ahead.

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The Report: Colombia 2013

Capital Markets chapter from The Report: Colombia 2013

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