Grupo Comercial Chedraui S.A. de C.V.

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Grupo Comercial Chedraui S.A. de C.V.

Privada de Antonio Chedraui
Xalapa, Veracruz 91180
Mexico
Telephone: (52 28) 842-1100
Fax: (52 28) 842-1133
Web site: http://www.chedraui.com.mx

Private Company
Incorporated: 1987
Employees: 23,556
Sales: MXN 28.73 billion ($2.64 billion) (2005)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores; 445120 Convenience Stores; 445291 Baked Goods Stores; 531120 Lessors of Nonresidential Buildings; 551112 Offices of Other Holding Companies

Grupo Comercial Chedraui S.A. de C.V. is the holding company for one of Mexico’s leading self-service retail chains, Tiendas Chedraui, which is particularly strong in the southeastern part of the country and sells clothing, electronic goods, and general merchandise as well as food items. The growth of this chain has led the company to create another, smaller one, Súper Che, restricted to basic groceries, and an operation, Che$uma, aimed at supplying wholesalers and specialized retailers. Chedraui also owns El Super, a Los Angeles supermarket chain primarily serving the city’s large Hispanic population, and shopping centers in Mexico. In addition, the company offers, through its individual stores, financial services tied to its credit card and those of a number of banks. Chedraui’s customers tend to be lower middle class in terms of income.

75 YEARS IN EASTERN MEXICO: 1920–95

The group’s origins date back to 1920, when Lázaro Chedraui Chaya and his wife, Anita Caram de Chedraui, both of Lebanese extraction, founded a store named Puerto de Beyrouth in Xalapa (or Jalapa), the capital of the state of Veracruz. This city in eastern Mexico remains headquarters for the group. The store, which was renamed Casa Chedraui in 1927, grew only slowly; in 1945 it had a staff of just six and in 1957, still only 15 staffers. By 1961, when the business took the name of Almacenes Chedraui, there were 80 people working under the direction of the founders’ son Antonio Chedraui Caram. The store was selling a broad variety of clothing and fabrics, both retail and wholesale.

The year 1970 marked a basic change in the business, as Chedraui opened its first supermarket, Super Chedraui, in Xalapa. This was so successful that the number of employees rose from 70 to 180 in the following year. A second Chedraui supermarket was opened in the city of Veracruz in 1976, a third in Coatzacoalcos, Veracruz, in 1981, and another unit in Xalapa, called Super Economía, in 1982. The following year Chedraui established the first two units of its Las Galas department store chain, in Xalapa and Villahermosa, the capital of the neighboring state of Tabasco. Grupo Comercial Chedraui, the family’s holding company, was incorporated in 1987.

REGIONAL COMMERCIAL POWERHOUSE: 1996–2004

By 1997 Grupo Comercial Chedraui was operating 33 Tiendas Chedraui stores, and seven more were opened during the year. About 90 percent were located on property owned by the enterprise rather than rented. Also part of the group were about 50 bakeries under the name La Hogaza—most of them in the Tiendas stores— and a number of fabrics shops operating in five cities. In addition, the holding company was proprietor of several commercial centers, such as Plaza las Américas in Veracruz and Plaza Crystal in Xalapa. In all, the group was present in ten Mexican states, of which seven were in eastern and southeastern Mexico. However, it committed itself fully to the self-service principle in retail operations by selling the Las Galas stores in 1997 to El Puerto de Liverpool S.A., Mexico’s leading department store chain, for $35.5 million.

Chedraui was the first Mexican commercial group to enter the potentially lucrative Los Angeles market, founding the first unit of its El Super chain in 1997, opening two more the next year, and establishing an additional two in 1999. Chedraui took a 60 percent stake in this operation, with the rest in the hands of various local partners. Each store represented an investment of about $8 million, including furnishings and inventory. El Super was principally a supermarket chain with an ambience and design similar to that of Tiendas Chedraui and an average of about 64,000 square feet in area, but only a minority of the goods sold were Mexican.

Grupo Comercial Chedraui was planning to make an initial public offering of about 15 percent of its shares on the Mexican stock exchange in order to add to the 48 Tiendas Chedraui in operation in 1999. This did not come to pass, and in 2002 the number of units in the chain had grown only to 54. There were 64 La Hogaza bakeries, of which 53 were located in the Tiendas. The warehouse-type fabrics stores were sold to La Parisiana in 2000, and an experiment in establishing pharmacies in the Tiendas had been abandoned by 2002. In contrast, in 2002 the holding company opened a convenience store chain called Supercito, establishing units in Xalapa and Veracruz. In addition, Grupo Comercial Chedraui joined two other big retailers— Grupo Elektra, S.A. de C.V., and Coppel, S.A. de C.V.—and Banca Firme and two other investors in establishing a credit bureau collecting data on individual consumers. In addition, the group had opened more shopping centers. Several of these went by the name “Plaza Crystal,” but the one in Boca del Río, Veracruz, was named “Plaza Américas,” and the one in Villahermosa was named “Plaza Olmeca,” in honor of the Olmec ruins found in the state of Tabasco.

A 2002 article in the Mexican business magazine Expansión maintained that Chedraui was paying 3 to 5 percent more for its supplies than its competitors. The chain’s suppliers had their own grievances, according to an article that appeared the same year in the Mexico City daily Reforma. They were obliged to offer a 20 percent “commercial discount” that was supposed to be passed on to the retail customer but often remained with the stores. Another discount of 8 to 12 percent was demanded each time a new store opened or an existing one held its anniversary sale. Yet another 2 percent of the price of the order was discounted to help pay for advertising expenses. Tags on clothing had to meet the chain’s requirements. It was claimed that Chedraui did not always make payment within the required 90 days and held the suppliers responsible for spoiled perishables when the fault lay with store logistics.

KEY DATES

1920:: Founding of a store in Xalapa, Veracruz, that becomes Casa Chedraui seven years later.
1970:: The Chedraui family adds a supermarket to its existing clothing and fabrics enterprise.
1983:: The family opens a department store chain in eastern Mexico (but sells it in 1997).
1997:: Tiendas Chedraui, a supermarket chain, has grown to 33 outlets in 10 Mexican states.
2002:: Grupo Comercial Chedraui opens a convenience store chain called Supercito.
2005:: The company buys 29 Carrefour supermarkets for about $545 million.
2006:: The Tiendas Chedraui chain has 96 outlets.

GOING NATIONAL: 2005–06

Tiendas Chedraui had 61 units with $1.3 billion in annual sales in 2004, when the French retail chain Carrefour S.A.—the largest self-service retailer in Europe— announced that it would sell its assets in Mexico, Japan, and Portugal. Grupo Comercial Chedraui purchased Carrefour’s 29 Mexican supermarkets in March 2005 for about $545 million. The Carrefour stores, which had combined sales of about $670 million in 2004, consisted of 11 in Mexico City and neighboring areas of the state of México, 2 more in this metropolitan area that were still under construction, and 16 in other Mexican states, including 6 in which Chedraui had never been present. The purchase, which was said to include at least some of Carrefour’s debts as well as its assets, was financed by Banco Inbursa, S.A.

The purchase came as a surprise to many observers because Antonio Chedraui Obeso, chairman of the board, was said to have told some of his colleagues that his group had dropped out of the bidding for the Carrefour chain. Writing in the Saltillo (Coahuila) daily Palabra, Alberto Aguilar reported that rival bidders were offended by the behavior of the investment banking unit of Banco Santander Serfin, S.A., which allegedly did not even inform them of the sale. Aguilar wrote that “there was not transparency” in the transaction, which he contended was “seasoned with irregularities.” After soliciting sealed bids, he contended, Santander had negotiated individually with the bidders in an effort to obtain more money.

Chedraui’s acquisition put its Tiendas chain into the Mexico City metropolitan area for the first time. Carrefour ranked fourth in sales in its field in Mexico’s capital, where it faced stiff competition from the other major self-service retailers in Mexico: Wal-Mart de México, S.A. de C.V.; Grupo Gigante, S.A. de C.V.; Controladora Comercial Mexicana, S.A. de C.V.; and Organización Soriana, S.A. de C.V. About half of Carrefour’s Mexico City stores were considered to be in areas above the typical income range of Tiendas Chedraui customers, leading to speculation that the group might change the format of the converted units.

Grupo Comercial Chedraui again made waves later in 2005, this time with an advertising campaign based on “videoscandals.” The first of seven planned spots in this aggressive television campaign compared Tiendas Chedraui’s prices favorably to those of another chain. Although no rival retailer was named nor branded products compared—in order not to compromise relations with Chedraui’s suppliers—it became common knowledge that the competitor was a Wal-Mart unit in Mexico City.

In 2006 Tiendas Chedraui had 96 stores in 49 cities of 19 Mexican states, with an average selling space of 7,000 square meters (about 75,000 square feet). This space was divided into five principal areas: products of mass consumption, perishables, general merchandise, clothing, and electronics. Products of mass consumption numbered about 7,000 articles and included food, wines and liquor, perfumes, and pharmacy. The 4,600 perishable items included fruits and vegetables, dairy products, meat, poultry, fish, seafood, tortillas, frozen and prepared foods, and bakery products. The 32,500 general merchandise articles included white goods such as refrigerators, furniture, hardware, stationery, toys, home and decorative products, auto accessories, products for the garden and for entertainment, and sporting goods. The 52,000 clothing and related items were for babies, girls, boys, women, and men. Included were shoes, fabrics, linens, and foundations. The electronics articles included audio and visual entertainment goods, telephones, and computers. Tiendas Chedraui accounted for 82 percent of the group’s sales and nearly 89 percent of its employees in 2005.

Súper Che was selling basic food articles: groceries and perishable items. There were only two units: in Huamantla, Tlaxcala, and Papantla, Veracruz. Che$uma was focused on delivering provisions to wholesalers, semi-wholesalers, and specialty stores. It had ten units: in the cities of Xalapa, Veracruz, Villahermosa, and Oaxaca; León, Guanajuato; Morelia, Michoacán; Mérida, Yucatán; Cancún, Quintana Roo; and Tuxtla Gutiérrez, Chiapas, and was contemplating expanding to all areas of Mexico. Che$uma was also exporting goods to seven countries. El Super had seven supermarkets in the Los Angeles area. Chedraui also had a fleet of 82 heavy-transport units and a real estate division whose object was to acquire property, construct stores, and to administer and maintain the projects in which the group participated. It was operating 32 commercial centers.

Grupo Comercial Chedraui joined the Sherman Financial Group LLC in establishing Bancofácil, S.A., in 2006. This new bank was scheduled to establish units in all Tiendas Chedraui stores in 2007. It would offer savings or credit accounts that could be opened with as little as MXN 100 (less than $10) and a credit card for persons with incomes as low as MXN 1,500 (less than $150) a month. Among the advantages offered by Tiendas Chedraui were twice-a-month, 10 percent discounts on each MXN 100 (about $9) of goods purchased. Customers could pay their Teléfonos de México, S.A. de C.V. (Telmex), bills in any Tiendas store and their electric and water bills in most Tiendas units. American Express cardholders could make payments on their accounts in any unit. The chain accepted all credit and debit cards as well as its own and also cashed checks issued by government institutions without requiring a minimum purchase. It also accepted personal checks of less than MXN 10,000 (about $900). Tiendas Chedraui was the first supermarket chain with ATMs and also offered cash back transactions with purchases by cardholders of Banco BBVA Bancomer S.A. with any type of debit card. Almost all the stores allowed customers to receive money from the United States by means of the SEMEDIR card.