Brazilian Retail News

Year 10 - Issue # 389 - São Paulo, June, 06th, 2011

Phone: (5511) 3405-6666

Carrefour fights hard with suppliers

In the middle of a possible negotiation with Abilio Diniz, owner of Grupo Pão de Açúcar, French Carrefour adopted a
harsher treatment on suppliers. The company has been demanding higher bonuses (discounts retailers get when purchasing
goods from the industry), longer payment deadlines and has been refusing to increase prices following commodity cost
rises. The scenario started being shaped when a new financial director took place in October. From there on, it became
more frequent the lack of some food, beverage and cleaning brands in the chain’s stores. In this moment, for instance,
there are no Nestlé’s dairy, cocoa and flour goods in Carrefour’s stores, as the retailer doesn’t agree with price rises. The
retailer has also been running on less inventory, making stock-out more frequent.

Casino asks for arbitration against Abilio Diniz

French retailer Casino asked the International Commerce Chamber for arbitration to solve the conflict with enterpreneur
Abilio Diniz on a shareholders pact that unites both controlling Grupo Pão de Açúcar, Brazil’s top retailer. The move shows
the relationship between the parties was deeply shaken after Abilio Diniz, president of Pão de Açúcar, started talking to
Carrefour to explore some kind of merger.

Walmart increases private label range by

166%
Walmart, Brazil’s third-largest retailer, celebrated one
year of the launch of its private label Bom Preço increasing
its assortment by 166% in the period. The brand offers FMCG
items and accounts for 65% of the entire chain’s portfolio,
positioned 10% to 30% below the leading brands. Walmart
intends to increase its private label sales by 30% this year,
above the 20% reported in 2010. To do so, is tripling the
number of new releases, with more than 300 new items in
several product categories. Today, the retailer’s private label
portfolio has 12,000 SKUs in more than 180 categories.

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Brazilian Retail News
Year 10 - Issue # 389 - São Paulo, June, 06th, 2011
Phone: (5511) 3405-6666

DIY sales drop 6%

Figures released by the National DIY Retailers Association (Anamaco) show the segment’s sales remained stable in
May month-on-month, but dropped 6% year-on-year. So far, this year the sector has increased its sales by 2.5% over the
first five months in 2010, while in the last 12 months sales rose 7.5%. Anamaco expects sales to go up this year by 8.5%.

Valentine’s Day to be the best in five years

Most Brazilian retailers expect to increase their sales
in the Valentine’s Day (June, 12th) season this year over
the same period in 2010. Serasa Experian said 57% of the
interviewed expect sales to rise, three percentage points
more than last year and the highest level since 2006. Three
quarters of the large companies forecast their sales will
go up. Retailers expect slightly more than a quarter of the
consumers will spend up to R$ 50 (US$ 31.25) in gifts, while
only 3% will spend more than R$ 300 (US$ 187.50). Best-
selling categories will be clothing, footwear and accessories
(29%), perfumery and cosmetic (22%), mobile (19%) and
flowers (6%).

Luxury sales rise 43% in the country

The Brazilian luxury market rose 43% in 2010 year-on-year, to US$ 8.9 billion, according to GfK Brasil. As in 2006
sales were in the US$ 3.9 billion range, the growth in the last five years reached 120%. The forecast is the luxury market
grows this year by 33%, to US$ 11.9 billion.

12 million have purchased online in Brazil

19% of the Brazilian internet users, or about 12 million
people, have already purchased products and services
using the internet. A total of 63 million people accessed the
internet in Brazil in 2009, according to data released by Ipea
institute. The typical online user is an affluent man, between
35 and 44 years-old, graduated, urban and employed. In
the Southeast region one can find the highest proportion of
online shoppers among internet users: 23%.

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Brazilian Retail News
Year 10 - Issue # 389 - São Paulo, June, 06th, 2011
Phone: (5511) 3405-6666

Momentum
Food Service: reality and forecasts
Marcos Gouvêa de Souza - CEO, GS&MD - Gouvêa de Souza
The Food Service segment sales reached US$ 529 billion in the United States in 2010, 48% of the total food sales, and in
the first quarter of 2011 rose 1.8% in real terms, following the slight recovery of the US market as a whole. These data were
gathered by Technomics, the segment’s main information, intelligence and consulting firm in the country, that monitors the
performance of suppliers, distributors, service providers and more than 1.032 million players in the US.
During the NRA Show 2011, last month in Chicago, the main transformations and perspective of the sector were highlighted,
as the segment evolved from US$ 252 billion in sales in 1990 to today’s US$ 529 billion.
It’s worth noticing in 1990 the Food Service segment accounted for 45% of the total food sales in the country, and evolved
until 2000, reaching 50%. Now, it is in 48%, result of changes in the consumer behavior in this period, with the growing trend
of the out-of-home meals. In the recent crisis, this process receeded and consumers resumed purchasing food to be eaten at
home, as a way to lower expenses and adjust habits to a new era.
The overall perception is that, passed the most critical period, as 2011 has been pointing, the growth of the Food Service
market will continue, and soon will be above the 50% mark, although with a new structural shape.
It’s a remarkable new form the offer has been presenting, as chains like Whole Foods, with more than 300 shops, with average
area of 42,000 sq.ft. and sales over US$ 9 billion per year, operate up to five Food Service operations inside one single roof,
mixing Japanese food, wine bar, beer shop, Italian food, catering and self service, with astounding quality and very competitive
price. Or as Wegmans chain has been doing, with close to 80 stores and average sales floor of 111,000 sq.ft. and sales close
to US$ 5.5 billion, also emphasizing ready or semi-ready products to be consumed inside the store or to be taken home.
The reasons for the stronger approach towards the Food Service market by the traditional food retailers are directly related
to the changes in the consumers’ behavior, as they try to mix convenience, the new economic scenario and the much higher
margins. Instead of going to restaurants and other chains with the same eagerness of the past, they’ve adjusted their behavior,
spending less out-of-home and purchasing more ready or semi-ready meals, to take home or office.
Regarding margins, while the traditional food operations bring an average gross margin of 30%, when bringing in services,
including distribution, prepare, customer service, packaging and delivery, this figure goes way up.
Earlier in the supermarket business prepared food, as well as salads and desserts, were a way to reuse raw materials. Now,
we’re not far from the moment the ready or semi-ready meals will own the largest share of the total food sales and, for sure,
bringing in the most part of profits.
There are many differences between the Brazilian and the US scenario in the Food Service market: size, structure,
matureness, organization of the supply chain, as well as the available information, the formalization and the acknowledge of
the importance of this segment.
In the last six years, the segment almost double its size in Brazil and its share of the total food business jumped from 24%
in 2002 to close to 40% in the Southeastern region of the country, above the national average of 34%.
But all these elements will be deeply transformed in the next years by the increasing formalization of the market; by the
stronger presence of international groups in the segment; by a more developed logistics and supplying chain; by the inevitable
consolidation; by the expansion of the largest chains; by the growing professionalization; by the increasing importance of Food
Service in the supermarket and hypermarket operations; by the growing attention the food industry itself will give to the potential
of the sector; and by the integrated work the segment’s trade groups, as ANR, Abrasel (restaurants), ABF (franchising) and
ABIA (industry).

Brazilian Retail News (BRN) is a weekly newsletter published by GS&MD - Gouvêa de Souza with the most important news
on the Brazilian retailing. The content can be freely used, once the source is quoted. If you want any information on BRN or our
services, please send an email to publicacoes@gsmd.com.br or access GS&MD - Gouvêa de Souza at www.gsmd.com.br.

Gouvêa de Souza & MD Desenvolvimento Empresarial Ltda.

Av. Paulista, 171 - 10º floor
Paraíso – São Paulo – Brazil – Zip Code: 01311-904
Phone: (5511) 3405-6666 – Fax: (5511) 3263-0066

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