Almacenes Exito S.A.

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Almacenes Exito S.A.

Carrera 48 No. 32B Sur - 139
Envigado, Antioquía
Colombia
Telephone: (57 4) 339-6565 Fax: (57 4) 331-4792
Web site: http://www.exito.com.co

Public Company
Incorporated: 1950 as Gustavo Toro y Cia. Limitada
Employees: 39,100
Sales: COP 4.26 trillion ($1.83 billion) (2006)
Stock Exchanges: Bolsa de Valores de Colombia
Ticker Symbol: EXITO
NAIC: 443111 Household Appliance Stores; 443112 Radio, Television, and Other Electronics Stores; 445110 Supermarkets and Other Grocery (Except Convenience) Stores; 445120 Convenience Stores; 452111 Department Stores

THE FIRST FORTY YEARS: 1949–89

EXITO’s CONTINUING GROWTH: 1990–2000

MERGERS AND ACQUISITIONS: 2001–07

PRINCIPAL OPERATING UNITS

PRINCIPAL COMPETITORS

THE FIRST FORTY YEARS: 1949–89

Almacenes Exito was founded by Gustavo Toro, an energetic young man working in a grain warehouse in Medellín, Colombia’s second largest city. Only 21 years old, he, and two friends, invested COP 10,000 (about $5,000) to open a fabrics store in downtown Medellín in 1949. This store was small (four meters square) and sold clothing and blankets, too, but the owners named it Almacenes Exito (“Success Stores”), indicating, by the plural, that they planned to open others. (Éxito, Spanish for “success,” normally carries an accent over the first letter, but the company chooses not to use it, and often capitalizes the word when referring to the company name.) Low prices and attention to the customer were the principles behind the enterprise’s own success, and Toro was able to invite his ten brothers and sisters to join the business. To avoid conflicts in a venture so small, he laid down clearly the functions and responsibilities of each person. Guillermo Toro, one of Gustavo’s older brothers and former administrator of a pharmacy, introduced a new rule: no credit.

Business boomed until two big national chains, El Ley and El Tía, decided to open stores in the heart of Medellín. For the first time Almacenes Exito lost many of its customers, who were attracted by the self-service format of these stores. For the Toro family, personal attention to the customer was an obsession, and the idea of leaving the customer to his own resources was sacrilege. Times were changing, however, and the business had to adjust to new realities. The basement of Almacenes Exito became a self-service variety store. So successful was the new format that, inside of two years, the store had to be expanded in size. By 1970 it occupied an entire block. The employees were treated like part of the family, and the morning began with a glass of milk and pastry. In 1972 Exito added supermarket offerings to its fabrics and clothing, and two years later it added a second store in Medellín.

Sears had a giant store in Medellín operating under the slogan “All under the same roof” but the people in the area were not inclined to support a foreign chain. With financial aid from Sears, Almacenes Exito purchased the store. It was so well received that shoppers came there from other cities, even from Bogotá, the capital. The main attraction was the clothing offered at discount prices. By the 1980s expansion to other Colombian cities was the obvious next step. This required more capital, but in 1989 the company established a huge store in Bogotá. When it opened its doors, there was a crush of shoppers waiting, some since the night before.

EXITO’s CONTINUING GROWTH: 1990–2000

During the 1990s two more Almacenes Exito stores opened in Bogotá. The company went public in 1994, selling shares first in Medellín and later in Bogotá and Cali, where the chain opened its first store in 1997. By 1998, when the company led all others in the hypermarket and supermarket sector, there were ten in Colombia, located in or on the outskirts of the largest cities: Bogotá, Medellín, and Cali. Besides selling food, clothing, fabrics, and home appliances, there were a number of services offered, including mail, branch banking, payments of bills, eye examinations and glasses, insurance and travel agencies, shoe repair, and restaurant meals, including those sold at cost by the company’s own restaurant. Exito’s sales per square meter were the highest in the industry.

Almacenes Exito was a good corporate citizen, too, helping to finance roads, plant trees, and collect recyclable trash near its outlets, and allotting a part of its revenues to charitable institutions. It was regarded as one of the best companies in Colombia to work for, with salaries the highest in its sector and extensive family subsidies. Each month a group of employees left the company to learn something or see how other chains abroad did business. Gonzalo Restrepo López, president of the company, held frequent meetings with its 9,000 employees to expound his corporate vision.

COMPANY PERSPECTIVES

Almacenes EXITO S.A. offers to satisfy the needs, tastes, and preferences of its customers, through memorable shopping experiences and guarantees of excellent service, product selection, quality, and price, all in modern quarters and commercial formats for all budgets.

We are characterized by respect for each person’s dignity and a readiness to evolve and change while remaining true to our healthiest traditions and an obsessive attention to detail.

We are a humane team with a solid foundation of ethical and moral principles, rooted in a feeling of solidarity with the company, and we do our jobs with professionalism, honesty, and spirit.

By considering us to be its most valuable resource, the company offers us a supportive and dignified atmosphere, in which our efforts and individual talents are rewarded and that fosters personal growth, the integral formation of the human being, and the welfare of our families.

With a non-bureaucratic structure, a clear vision of the future, and the rigorous completion of all our economic and social obligations and responsibilities, we work to generate a profit proportionate to our role in the marketplace.

Almacenes Exito passed its chief competitor, Gran Cadena de Almacenes de Colombianos S.A. (Cadenalco) in revenue in 1997. However, new rivals were emerging from abroad. The Makro chain arrived in 1994 and Carrefour SA, the giant French retailer that was the second largest supermarket operator in the world, opened its first Colombian store at the end of 1998. A securities analyst said that Colombian supermarkets had the lowest profit margins in Latin America because there was too much competition, including strong local players and the foreign chains that were continuing to arrive in the country. Almacenes Exito chose to hedge its bets by purchasing 10 percent of Makro Colombia, 10 percent of Venezuelan’s leading retailer, Cadena de Tiendas Venezolana (Cativen), and 10.5 percent of Cadenalco. By March 1999 Almacenes Exito had bought so much of Cadenalco’s stock that, with 57 percent, it held majority control. These investments required capital. J.P. Morgan Partners invested $25 million to buy 7 percent of Almacenes Exito in 1998. The following year Exito sold a one-quarter stake to Casino for more than $175 million.

MERGERS AND ACQUISITIONS: 2001–07

The infusion of funds allowed Almacenes Exito, in 2001, to raise its stake to 80 percent in Cativen, which opened the first of six new hypermarkets in Venezuela, under the name Exito. Later in the year Exito and Cadenalco were merged under the former’s name. The merger added Cadenalco’s more than 70 stores, mainly supermarkets in six different formats, to Exito’s 14 hypermarket-type stores. Cadenalco’s main chains were Almacenes Ley, the leading department store chain in Colombia, and Pomona, a smaller chain aimed at upper-income customers. Ley was founded in 1922 by Luis Eduardo Yepes, Pomona by Jorge and Margaret Block in 1967.

Almacenes Exito saw its future not only in Colombia and Venezuela but also in Bolivia, Ecuador, Peru, Costa Rica, and Panama. A company executive said the key to success in such a case would not only be the injection of resources but experience in such critical areas as logistics, distribution, and commercialization. One of Exito’s assets was the implementation of cross docking, a method that made it easier for its suppliers to deliver merchandise to the chain. The alliance with Casino had enabled Exito to learn much about creating and marketing its own private label merchandise, which carried much larger profit margins than traditional goods.

Exito’s chief domestic competitor was Carulla Vivero S.A., a company that was carving out a niche for itself by seeking out lower-income shoppers, who, although looking for bargains, bought in high volumes and constituted a neglected market. Carulla dated from 1905, when José Carulla Vidal, a Catalan trader, opened a store in Barranquilla. Carulla later became a supermarket chain offering a high selection of goods and concentrating on quality control, but it did not have mass appeal. To diversify its clientele, the company purchased lower-end Surtimax in 2004. In 2006 Exito purchased one-fifth of Carulla Vivero for about $110.5 million after previously agreeing to buy the one-third stake held by the private equity fund Newbridge Andean Partners. A year later Exito raised its share of Carulla Vivero to 72 percent. These acquisitions gave Exito control of 47 percent of the revenue recorded in 2005 for Colombia’s large retail chains, with Almacenes Éxito accounting for 29.5 percent and Carulla Vivero for 17.5 percent. Almacenes Éxito had 99 stores and Carrulla Vivero 156 at the end of the year. The two chains had combined annual revenues of COP 6.55 trillion ($2.77 billion), 52,000 employees, and 275 stores in 53 cities.

Exito, in 2007, consisted of 47 Exito and 46 Ley stores, plus 12 Pomona supermarkets and 2 Q-Precios stores in 35 Colombian municipalities. Merchandise was divided into three areas: supermarket goods, items for the home, and entertainment. Shopping for the home included home appliances, furniture, kitchen utensils and glassware, tabletop and ceramic items, decoration, hardware, and auto supplies. Entertainment included computers, software, DVDs, telephones, television, home theater, other audio and video items, sporting goods, books, and toys.

KEY DATES

1949:: Gustavo Toro and two friends open a small fabrics store in Medellín, Colombia; the company incorporates a year later.
1970:: Now a self-service store, Almacenes Exito occupies an entire city block.
1972:: Almacenes Exito becomes a supermarket as well as a clothing and fabrics store.
1989:: Almacenes Exito opens a huge store in Bogotá, the capital of Colombia.
1994:: The company makes its initial offering of common stock to the public.
1998:: The company leads all others in Colombia’s hypermarket and supermarket sector.
2001:: Exito absorbs Cadenalco, Colombia’s second largest retailer.
2007:: Exito owns 72 percent of Carulla Vivero, formerly its chief competitor; Casino, France’s second largest retailer, raises its stake in Exito to 61 percent.

Yet Almacenes Exito had become an acquisition target itself. None of Gustavo Toro’s sons were still involved in the business, and other family shareholders, numbering about 50, were willing to sell 24.52 percent of the company in one package. They were no longer receiving dividends and reluctant to raise the money needed to expand further and keep the operation competitive with hungry rivals. The obvious choice was Casino, which held 38.6 percent of the shares, but negotiations ended without an agreement on price. The Chilean and Argentine retailer Cencosud S.A. then offered better terms, which the Toro group accepted. However, Casino exercised its right, as an existing shareholder, to block the deal. In April 2007 Casino and Cencosud reached an agreement to launch a home improvement store chain in Colombia as a joint venture. Cencosud then withdrew its offer to the Toro family, and in May Casino purchased a 21.9 percent stake at auction for about $320 million, raising its share of Exito to about 61.5 percent.

Following its purchase, Casino announced that it would invest $1 billion in Almacenes Exito over a two-to three-year period. The development plan was expected to establish a presence for Exito into all kinds of retail trade and to include a redesign and refurbishment of company stores.

Despite Almacenes Exito’s dominance of hypermarket and supermarket trade, through its own chains and those of Carulla Vivero, the company had competitors not only from other large retailers but also from smaller, local chains, family enterprises, and open air markets, which, taken together, constituted the majority of retail trade in Colombia. Total sales were growing, but at a relatively minor level because of low incomes, disparities in wealth, and considerable unemployment. In 2007 Gonzalo Restrepo López was still president of Almacenes Exito. A poll of over 200 top Colombian business executives chose him as entrepreneur of the year.

Robert Halasz