Jerónimo Martins , Portugal's largest retailer, has opened its first five Colombian stores in the city of Pereira. Signalling the retailer's commitment to diversification beyond maturing European markets, it aims to have approximately 40 stores under its Ara banner by the end of 2013. As the country's political risk profile continues to improve, we expect Colombia to rapidly evolve into one of Latin America's most promising consumer markets. Presenting ample opportunity for Jerónimo moving forward, the launch of its Latin America operations reflect a wider pattern of European retailers entering developing markets, prompted by a subdued consumer outlook and slowing domestic growth at home.
Jerónimo Martins, owner of the Pingo Doce supermarket chain in Portugal, has seen impressive growth with its Poland based discount chain Biedronka which currently accounts for 61% of sales. However, with EUR400mn to be invested in Colombia over the next two years, increasing diversification beyond Europe is likely to help to counter difficulties in Portugal (where sales only increased 0.3% last year) and ease reliance on its Polish operations. Not historically present beyond Europe, the retailer's choice of Colombia as a future location of growth points to the potential offered by the country, in line with our positive outlook for its mass grocery retail sector .
|Opportunities In Both|
|Colombia and Poland Total Mass Grocery Retail Sales (US$bn) - Historic & Forecast|
Key Colombia Views
Mass grocery retail local currency sales for 2013 = +8.34%; forecast compound annual growth rate (CAGR) to 2017 = +9.92%
2013 per capita food consumption local currency = +6.61%; forecast CAGR to 2017 = +8.12%.
Spending power to increase; income per capita is forecast to grow from roughly US$7,100 in 2007 to about US$11,200 by 2017 (strong growth along with anticipated population growth).
Population of approximately 50mn leaves considerable room for mass grocery retail penetration, unlike slowing developed European markets.
Although Colombia offers the European retailer an impressive international opportunity for growth, entry does not come without risk. Despite coming fourth on our Q213 Food & Drink Risk/Reward Ratings for Latin America, income disparities are set to continue providing challenges in both the organised and non-organised retail sector. Entering the market organically, the company will not benefit from the expertise of a local player and will face competition from Chilean retailer Cencosud and Colombia-based Almacenes Exito . Furthermore, having withdrawn from Brazil in 2002, the company will hope to report greater success with its second attempt to expand in South America, refining its appeal to a non-European consumer base.
Paired with plans to continue pursuing Polish growth by increasing stores to 3,000 by 2015 (with Bierdronka then comprising of 80% of sales), Jerónimo will be weary of carefully balancing both European and international growth following the obstacles faced by industry leaders Carrefour and Tesco in their domestic markets. Overall, however, Colombia presents exciting potential for growth. With further diversification beyond domestic markets, Jerónimo Martins is well positioned to benefit from an increasing emerging market presence. With ambitions to be a top three retailer in Colombia within five years, the country could prove a lucrative asset .