BMI's Executive Summary

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The Sector At A Glance

Key Insights On The Food & Drink Sector Of Chile

The final quarter of 2006 sees the Chilean economy closing another successful year out, with a full year GDP growth rate of close to 5.5%. This may be lower than last year’s 6.3% growth rate, but it is still sufficient to allow for real, sustainable productivity increases, as opposed to other parts of the region – Venezuela and Argentina come to mind – where growth is up in the double digits, but accompanied by inflation rates of similar magnitude. In Chile, inflation will close out the year at around 3%, perhaps not wholly satisfactory, but nonetheless a bright, shiny star in the regional context.

During 2004, total retail sales, including both food and non-food sales, expanded by 4.6% as lower unemployment rates boosted consumer spending. In 2005, total retail sales were up 8.7% y-o-y, supported by improved unemployment data of 8.5%, down from 9.7% on the previous year. Favourable credit conditions have furthermore contributed to the improved retail demand, although the central bank’s interest rate hikes have curbed consumer enthusiasm somewhat in H206. For full year 2006 we expect total retail sales to rise by close to 7.5%.

Chile’s two leading mass grocery retailers, Distribucion y Servicio (D&S) and Cencosud, have undertaken ambitious expansion projects in 2006, in response to the favourable growth outlook, as domestic demand is expected to remain the key driver for the economy’s growth. In 2007, their focus will increasingly shift to higher margin, non-food products and the development of hypermarket outlets integrated into larger shopping centre developments, with the aim of achieving higher overall margins and increasing outlets’ attractiveness to consumers. Additionally, both retailers are moving further into the financial services arena, initially offering credit cards. D&S now generates 18% of its entire revenues from its in-store credit card sales.

In November, second largest retailer Cencosud released sales forecasts for the final quarter of 2006 and for full-year 2007, which we can use as a barometer of how the mass grocery retail (MGR) sector sees the near-term future in the country. The retailer expects sales in 2007 to grow by around 12%, with investments at US$300 million. Q406 sales are forecast to rise by between 8% and 10% from the same period in 2005, taking sales for the full year to around US$5.8 billion.

In 2007 both D&S and Cencosud will be looking abroad as well as at home for investment opportunities; with the relatively small size of the Chilean market – its population of 16.4mn is one of the smallest in the region – companies seeking to grow must invest internationally. D&S is reportedly in discussions with the Falabella department store chain, which has operations in Chile, Argentina, Peru and Colombia; and Cencosud is on the verge of securing a 24.5% stake in Colombia’s largest retailer, Almacenes Exito.

Food and drink producers entered the final quarter of 2006 with mixed feelings about the first nine months. The domestic market has continued to grow, offering healthy sales opportunities. The foreign market, though, has not; the high peso has battered a host of producers’ export earnings. This is significant in a small country like Chile, where growers and producers alike depend on foreign markets.

The country’s biggest wine producer, Concha y Toro, for example, managed to report some much improved Q306 earnings figures, but only after a slash-and-burn cost cutting programme it was forced into due to the overly high level of the peso against both the US dollar and the euro, the currencies in which most of its sales are made. The fruit, poultry, beef, pork and fish sectors find themselves in the same boat. The traditional end of year demand spike at home will help them bob along for now, but come the New Year, president Bachelet’s administration will be under strong pressure to float a more realistic exchange rate and so protect employment and earnings in the food and drink sector.

Contents

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Chapter 1 – Business Environment

Retail Business Environment Rankings

Economics – Long-term Risk

Politics – Long-term Risk

Mass Grocery Retail Sales Growth

Barriers To Entry

Per-Capita Consumption

Table: Latin America Business Environment Rankings

SWOTs

Chile Food & Drink Industry SWOT

Macroeconomic Outlook

Table: Chile – Economic Activity

Chapter 2 – Retail

Regional Overview

Trending Towards Hypermarkets in Latin America

Rise of Hypermarkets

Table: Number Of Supermarkets/Hypermarkets, 2005

Table: Top Five Mergers & Acquisitions In The Latin American Retail Sector, 2005

Share Of MGR Sales In Total Sales

Industry Forecast Scenario

Table: Chile MGR Value Sales by Format – Historical Data & Forecasts

Industry Developments

Company Developments

Market Overview

Table: Structure of Chile’s MGR Market By Number Of Outlets

Table: Chile MGR Value Sales by Format – Historical Data

Chapter 3 – Food & Drink

Regional Overview

The Growing Market For Wine Sales And Production In Latin America

Table: Per-Capita Consumption Of Wine (litres)

Table: Wine Production Estimates By Country 2005

Industry Forecast Scenario

Table: Food & Drink Indicators – Historical Data & Forecasts

Industry Developments

Company Developments

Market Overview

Table: Chile Agricultural Sub-Sector Production – Historical Data

Chapter 4 – Tobacco

Industry Forecast Scenario

Table: Cigarette Value/Volume Sales – Historical Data & Forecasts

Industry Developments

Company Developments

Market Overview

Chapter 5 – Competitive Landscape

Key Players

Table: Key Players In Chile’s MGR Sector

Table: Key Players In Chile’s Food And Drink Sector

Regional Company Case Studies

Company Case Study – Organization Soriana

Table: Organizacion Soriana: Stores By Format, June 2006

Table: Organizacion Soriana, S.A. – Income Statement, January-June 2005 & 2006

Table: Organizacion Soriana: New Store Openings, April-June 2006

Table: Market Shares Of The Four Largest Mass Grocery Retailers In Mexico, 2005

Company Case Study – SABMiller

Table: Top Five M&As In Latin America In 2005

Table: SABMiller In Colombia, As At June 2006

SABMiller in Peru, as at June 2006

Wal-Mart in Latin America

Table: Wal-Mart Latin America Regional Operations

Table: Wal-Mart de Mexico (Walmex)

Table: Wal-Mart Brazil

Nestlé In Latin America

Table: Nestlé In Latin America

Company Analysis

Empresas Carozzi

Concha y Toro

Embotelladora Andina SA

Distribucion y Servicio (D&S)

Cencosud SA

Nestlé Chile SA

Soprole

Compania Cervecerias Unidas (CCU)

BMI Forecast Modelling

How we generate our industry forecasts

Retail Industry

Sources

Competitive Landscape for Latin America Food & Drink Reports: Sample of  
Companies Ranked

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At-a-glance perspective on the strengths, weaknesses, opportunities and threats facing each market’s food & drink industry. BMI also provides similar economic and business environment studies. Company SWOTs (Strengths, Weaknesses, Opportunities, Threats) covering all leading food and drink companies operating in each market, including competitive intelligence on geographic presence and competitive positioning of multinationals against local companies; leading products, services and brands; sales and local market share; foreign direct investment, projects, partners and acquisition strategy. Illustration of the industry via rankings tables comparing revenues, number of outlets, number of employees and registration dates. BMI analyses each company’s performance, market position, strategy and investment potential.

Network of Latin American Food Sources

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BMI's Latin American Food Reports are based on an extensive network of multilateral organisations, government departments, food industry associations, chambers of commerce and company reports. Information sources include: