The case for Colombia being the most promising retail opportunity in Latin America over the next 10-15 years is building. We have seen Brazil attract a lot of attention from many of the global retail behemoths as well as regional companies (from Chile in particular), but now we think that with an improving economic and political landscape, and a population of about 47mn that is under retailed, Colombia is the potentially lucrative opportunity to keep an eye on. We have seen foreign retailers such as Portugal's Jerónimo Martins target Colombia, and interest is only likely to increase over the next few years. We estimate that only about half of total food retail sales can currently be attributed to the organised sector, compared to about 60% in Brazil, which is a much larger country (making it harder to cover), and about 65% in Chile.
As the first chart illustrates, the overall size of the Colombian formal food retail industry currently bears a much closer resemblance to Chile than to Brazil, unsurprisingly given that Brazil's population of close to 200mn is about 12x the size of Chile's. There is therefore a lot of slack for Colombia to pick up if its retail market is to eventually more aptly reflect Colombia's size in population terms. This is the opportunity the likes of Jer ó nimo see.
|Much Slack To Be Picked Up In Colombia|
|Colombia, Brazil and Chile Total Mass Grocery Retail Sales (US$bn) - Historic & Forecast|
In March 2013, Jer ó nimo opened its first five Colombian stores in the city of Pereira. O wner of the Pingo Doce supermarket chain in Portugal, Jer ó nimo has seen impressive growth with its Poland - based discount chain Biedronka which currently accounts for 61% of sales. However, with EUR400mn expected 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% in 2012 ) and ease reliance on its Polish business .
Colombia ranked fourth in BMI 's Q313 food and drink ris k/reward ratings, placing it above the likes of Argentina as the table shows . For a retailer like Jer ó nimo with ambitions of targeting Latin America once more (it was once in Brazil ), the decision to select Colombia makes a lot of sense. It is much less competitive than Brazil for instance where the likes of Walmart and France's Casino and Carrefour are strong.
Speaking of Carrefour, in late 2012 it sold its Colombian business to Chile's Cencosud for US$2.5bn. Carrefour wanted to focus on Brazil and this was a great opportunity for Cencosud to significantly strengthen its business in Colombia. Casino is currently Colombia's leading retailer , but competition will pick up over the next few years.
|Reward||Industry Reward||Country Reward||Risk||Industry Risk||Country Risk||Food & Drink Rating||Rank|
|Source: BMI. Scores out of 100, with 100 highest. The Food & Drink Risk/Reward Rating is the principal rating. It is comprised of two sub-ratings Reward' and 'Risk'', which have a 60% and 40% weighting respectively. In turn, the 'Reward' Rating is comprised of Industry Reward and Country Reward, which have equal weighting and are based upon growth/size of food/alcohol and soft drinks industry (Market) and the broader economic/socio-demographic environment (Country). The 'Risk' rating is comprised of Industry Risk and Country Risk which both have 20% weightings respectively and are based on a subjective evaluation of industry regulatory and competitive issues (Market) and the industry's broader Country Risk exposure (Country), which is based on BMI's proprietary Country Risk Ratings.|