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Vincent Trius, President of Wal-Mart Brazil, has announced the acquisition of Bompreço, Ahold’s retail chain active in northeastern Brazil with 118 units (hypermarkets, supermarkets and mini markets). Trius also announced that Hipercard, Bompreço's credit card manager and one of Brazil's leading credit card companies, has been purchased from Ahold by Unibanco. He added Hipercard will continue to be accepted in all Bompreço stores.

Wal-Mart is to pay around USD300 million for Bompreço and Trius has stated that: “We are very excited to have this opportunity to help more people in Brazil improve their purchasing power. This acquisition demonstrates our long-term commitment to the Brazilian market and specifically to the northeastern part of the country.”

With the acquisition, Wal-Mart Brazil will operate 143 outlets in the country, including 13 Wal-Mart Supercenters, 10 Sam's Clubs, two Wal-Mart Todo Dias and the 118 Bompreço hypermarkets, supermarkets and neighbourhood stores. Wal-Mart Brazil is to retain its headquarters in Sao Paulo, but will add Bompreço's HQ in Recife as a regional operational base.

Bompreço is the leading supermarket and hypermarket chain in Brazil's Northeast region. In nine states across the Northeast region of Brazil, Bompreço operates a number of different formats including Hiper Bompreço hypermarkets (stores of between 4,000 and 12,500 square metres offering 45,000 lines, Bompreço supermarkets (sales areas of up to 3,200 square metres offering around 10,000 lines), Bompreço neighbourhood stores and Balaio discount stores, as well as two Hiper Magazine book and news stores.

There is little, if any, surprise at this transaction, as Wal-Mart’s keen interest in Ahold’s Brazilian assets has not been a very well kept secret ever since the Dutch group signalled its intentions to slim down and focus on operations in the US and Europe. For Ahold, the deal removes yet another peripheral business unit (although it must be annoyed that it was not allowed to simultaneously dispose of the G. Barbosa chain) and generates a decent pile of cash to chip away at its considerable debts.

For Wal-Mart, the acquisition enables it to fulfill a couple of key objectives. Firstly, the US retailer advances from number seven to number three in the Brazilian grocery/general merchandise retailing, closing the gap on number two player Carrefour but still some way short of the market leader CBD (part-owned by Casino of France). Secondly, through the absorption of Bompreço, Wal-Mart becomes more of a national player, breaking out of its existing southeastern stamping grounds of Rio de Janeiro, Sao Paulo, Parana and Minais Gerais and becoming active in Maranhão, Piauá, Ceará, Rio Grande do Norte, Paraíba, Pernambuco, Alagoas, Sergipe and Bahia. The deal gives it strong continuous coverage across the East of Brazil and will enable it to achieve some economies of scale through the introduction of its industry-leading logistics know-how.

What is not yet clear – and this is a critical issue for a company that has suffered wildly disparate fortunes in different foreign markets – is what Wal-Mart is planning to do with its new business in Brazil. Bompreço is a well-established, highly regarded, regional retailer with a loyal customer base that appreciates its compelling mix of competitive pricing and high-quality grocery merchandising, not to mention initiatives such as its popular loyalty card scheme. Wal-Mart, aside from its usual implementation of its IT systems and even more aggressive price stance, could conceivably leave Bompreço untouched, merely initiating back-office changes designed to bolster efficiency and drive up sales and profitability. Or, it could take the opposite approach and begin a vigorous programme of Wal-Mart-isation, converting the Bompreço outlets to its own banners and adopting a highly uniform marketing stance across the country.

Hopefully, having learnt from its experiences in the UK and Germany, for example, Wal-Mart will tread the middle ground, rolling out features such its Rollback pricing campaign, successful own-brand portfolio and expertise in fashion retailing without quickly and dangerously destabilising the undoubted brand equity that Bompreço has built up as an independent company and as part of Ahold. This softly-softly approach has reaped rich rewards with Asda in the UK, while the instant Arkansas makeover in Germany has been a key contributor to its flailing performance there. Despite the uncertainty over Wal-Mart’s plans for its new chains in Brazil, there is one thing that can be taken for granted: this will not be the world leader’s last acquisition in Latin America this year.
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