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Mexican market mover: Wal-Mart takes top spot south of the border

Wal-Mart has become the undisputed número uno in Mexico's retail industry after nearly nine years of steady expansion south of the border.

The ranking quietly materialized on Feb. 25 when Wal-Mart de México S.A. became the official owner of all 194 stores and 205 restaurants owned by Cifra S.A., a former joint-venture partner.

The same day the acquisition was announced, Wal-Mart de México began trading its own stock on the Mexican stock market: Cifra officially became Walmex - and its shares, sold in series V and C, are now the second most actively traded on the Bolsa.

And Wal-Mart de México, a subsidiary of Wal-Mart Stores Inc. of Bentonville, Ark., increased its clout to 460 outlets in 43 cities, including 34 Sam's Clubs and 27 Wal-Mart Supercenters.

"Our goal is to keep growing," said Federico Casillas, planning director for Wal-Mart de México. "We think that a country of 100 million people still offers great growth opportunities."

The former Cifra outlets, bearing such names as Aurrerá, Aurrerá Bodega, Suburbia, Superama and the restaurant chain VIPS, will keep their respective names, mainly because of name recognition and market niche, company officials said.

With the Cifra acquisition, Wal-Mart de México cemented its place as the second-largest employer in the country with 70,700 workers - second only to Teléfonos de México, the giant phone company better known as Telmex.

And the retailer has no plans to stop the expansion. To the contrary: The plan is to open 47 more units by no later than next year, including five more Sam's Clubs, said Mr. Casillas.

In 2000 alone, the company plans to spend $350 million on expansion. The amount for next year has not been disclosed.

To further solidify its position, Wal-Mart Stores Inc. bought 271 million shares of Wal-Mart de México stock recently for approximately $600 million. The company founded by the late Sam Walton now owns nearly 60 percent of its Mexico subsidiary, compared with 54 percent two months ago and 51 percent in 1997.

"Wal-Mart welcomes this opportunity to acquire this block of Walmex shares," Lee Scott, chief executive officer of Wal-Mart Stores, said in a prepared statement. "This share purchase demonstrates Wal-Mart's continuing commitment to Walmex and its associates."

Mr. Casillas, who has been overseeing the growth in Mexico, said the keys to the success of Wal-Mart de México has been customer service and staying ahead of competitors.

For instance, one of the key policies at Wal-Mart de México is to keep the lines at the cash register as short as possible - a goal easily achieved thanks to the abundance of workers in Mexico.

At popular Wal-Mart stores such as the one in Colonia Estrella, a middle-class neighborhood in Mexico City, sometimes all 45 cash registers are open - especially on weekends.

José Luís Mastretta, the former director of the National Chamber of Commerce in Monterrey, said he remembers standing in long lines at the cash registers during the pre-Wal-Mart de México days.

"If you went shopping on a Saturday or Sunday afternoon, you'd have to wait in line at least half an hour," he said. "It was very frustrating."

Mr. Mastretta said that he still sees some long lines at the Wal-Mart stores in the Texas border towns of Laredo and McAllen, but not in Monterrey or anywhere in Mexico, thanks to a steady supply of workers.

Fewer lines

Rafael Matute, executive vice president at Wal-Mart de México, said he also believes that one of the best ways to stay ahead of the competition has been to offer the lowest prices and eliminate the long lines.

"When we see that a line is getting too long, we open another cash register," Mr. Matute said. "And if that doesn't solve the problem, we open as many as necessary."

That philosophy has paid off for the retailer.

Wal-Mart de México outlets had $6 billion in sales last year, almost the same as the three closest Mexican competitors combined. That compared with $5.8 billion in 1998.

But despite the rapid growth of Wal-Mart de México, competitors are not conceding anything.

"We're used to the competition," said Citáli Landa, manager of the French-owned Carrefour store in the central Mexican city of San Luís Potosí.

"This is not going to change anything," Ms. Landa said.

Carrefour owns 19 giant stores throughout the country, compared with 13 at the end of 1997.

"Here in San Luís [Potosí], Wal-Mart has a lot of competition," said Ms. Landa. "And if you check in other cities, it's the same story."

Officials at Wal-Mart's three closest competitors in Mexico - Controladora Comercial Mexicana S.A., Grupo Gigante S.A. and Organización Soriana S.A. - could not be reached for comment or did not return calls seeking comment.

Growth plans

However, on their respective Websites or in recent announcements, the three companies have disclosed aggressive growth plans.

For example, this year Comercial Mexicana, the second-largest retailer south of the border, is investing $120 million to remodel 13 stores and to build an equal number of new stores and warehouses. It's also planning to build between six and 10 restaurants.

Comercial Mexicana, which currently owns 155 outlets mostly in Central Mexico, had sales of $2.7 billion last year, a 2.8 percent increase from 1998.

María Antonieta Venzor, chief economist at the National Chamber of Commerce in Ciudad Juárez, across from El Paso, said that in some cities Wal-Mart de México is facing some tough competition from local retailers.

In Juárez, for example, a city of 1.5 million people, a chain named Smart is the dominant retailer.

And on top of that, thousands of Juarenzes, as Juárez residents are called, prefer to shop at the Wal-Mart in El Paso or at any other retailer in the southwest Texas city.

"Wal-Mart here has competition even from its sister store across the border," Ms. Venzor said.

And then there is the competition from such regional powerhouses as Casa Ley in the northwestern states of Baja California, Sinaloa and Sonora - or even from San Antonio-based H.E.Butt Grocery Co. in the northeastern city of Monterrey, she said.

Mr. Mastretta, who has watched the Mexican retail industry for over 20 years, agrees that Wal-Mart de México faces heavy competition throughout the country

Norteños, as northern Mexico residents are often called, also have a more discriminating taste and even make shopping a favorite pastime, Mr. Mastretta said. But despite the tough competition, Wal-Mart de México is a welcome addition to the country, Mr. Mastretta said.

Since Wal-Mart de México opened its first store south of the border at the end of 1991, the retailer has forced its competitors to modernize, be more efficient and offer better prices, he said.

Wal-Mart de México and other retailers are expected to grow even more because Mexico has a young population and every year millions more are joining the labor force.

The only way such growth can be slowed is if there's another economic crisis, such as the one triggered by the 1994 peso devaluation, Mr. Mastretta and Ms. Venzor said.

At the peak of the crisis, from late 1994 till mid-1996, more than a million people lost their jobs and the currency lost nearly half its value.

But like most civic and business leaders south of the border, Mr. Mastretta and Ms. Venzor say they don't expect a similar crisis any time soon, even in a year when the country will elect a new president July 2.

Mr. Casillas, the planning director, agrees that the competition that Wal-Mart de México faces is intense. But he says the retailer is not resting on its laurels.

"We continue to innovate," he said. "We believe we're the most efficient, offer the best prices and have the best technology."Added Mr. Mastretta: "And the consumer has been the biggest winner."
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