WalMart Bodegas Lift Profits in Recession; Mexicans Live Day to Day'

Discussion in 'Economics' started by ByLoSellHi, Oct 5, 2009.

  1. Thanks globalization for lifting the living standards of Americans AND Mexicans!

    This will be a sneak peak of America's future; a time when people will be buying single serving sized Frosted Flakes for their kids.

    Wal-Mart Bodegas Lift Profit in Mexico: Week Ahead (Update1)
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    By Emily Schmall

    Oct. 5 (Bloomberg) --
    Wal-Mart de Mexico SAB, Latin America’s largest retailer, is profiting from the worst recession since the 1930s by offering smaller, cheaper products to Mexicans at its Bodega Express shops.

    Walmex, as the Mexico City-based retailer is known, will report this week a 12 percent increase in third-quarter net income to 3.66 billion pesos ($268 million), according to the average analyst estimate. A rise would mark the fourth straight quarterly advance in earnings.

    The Bodega Expresses -- 400-meter (1,312 feet) shops wedged into poorer neighborhoods -- are allowing Walmex to tap into demand for single-use boxes of cereal, milk and tortillas from Mexicans who buy meal-to-meal, according to HSBC Holdings Plc and Actinver SA. The World Bank forecasts the number of people living in poverty will swell by more than 4 million this year in Mexico, where the minimum wage is 55.85 pesos ($4.09) a day.

    Walmex is “capitalizing on the people who want to trade down, people living day to day,” said Francisco Suarez, an equity strategist at Actinver, Mexico’s largest independent money manager. Minimum-wage earners “depend a lot on this just to live,” he said.

    Walmex surged 20.5 percent in the third quarter and has climbed 42 percent in the past 12 months to 46.25 pesos, beating the 25 percent rise in the benchmark Bolsa stock index. Walmex, which is majority-owned by Bentonville, Arkansas-based Wal-Mart Stores Inc., trades for 24 times estimated earnings compared with 16 times profit for companies in the Bolsa index.

    Corn Flakes

    Seventy-three percent of the record 270 stores Walmex is opening this year will be Bodega Express units, Chief Executive Eduardo Solorzano said at a Sept. 9 conference in New York.

    Shoppers pay 3 pesos for 30-gram (1.1 ounce) boxes of Kellogg Co.’s Corn Flakes -- about the size of a single in the eight-box Fun Pack sold in the U.S. -- and 16.3 pesos for 50- gram containers of Nestle SA’s Nescafe instant coffee. Kellogg’s Fun Packs retail on-line for more than $4 in the U.S., where the federal minimum wage is $7.25 an hour.

    “In Mexico, purchasing power has been diminished,” Solorzano said at the conference. “We’re trying to adapt as much and as fast as we can.”

    Walmex spokesman Antonio Ocaranza declined to comment on the third-quarter profit forecasts. John Simley, a spokesman for Wal-Mart, didn’t return a phone call seeking comment.

    Street Vendors

    Mexico’s unemployment rate jumped to 6.3 percent in August, the highest in at least nine years, after Latin America’s second-biggest economy shrank 10.3 percent in the April-to-June period. The central bank forecasts gross domestic product will contract as much as 7.5 percent for the year, which would be the biggest decline since the Great Depression.

    Walmex started the Bodega Express line in 2007 in Mexico City to compete with the street vendors and small shops that dominate the marketplace in poorer neighborhoods.

    The Bodega division, which includes the Bodega Express stores as well as an older line of shops called Bodega Aurrera and Mi Bodega Aurrera, will account for 34 percent of Walmex’s sales in October, up from 30 percent in 2005, according to Actinver. The Bodega stores have helped put Walmex in 250 cities throughout Mexico, up from 64 in 2003, Ocaranza said.

    “To go now with a product that is a lot smaller and a lot more flexible, regardless of what happens with the economy, that is a very attractive format to operate,” said Francisco Chevez, an analyst with HSBC in New York.

    ‘The Little One’

    Because of their size and focus on single-use products, Walmex needs to build 20 Express shops to earn the revenue it gets from one Super Center, according to Tomas Lajous, UBS AG’s Mexico equity strategist.

    “Just because they’re opening a bunch of these, you can’t say automatically that this is great,” Lajous said. “They’re very profitable, but they’re very small.”

    Actinver’s Suarez said Walmex compensates for the size of the transactions at the Expresses by luring customers for numerous shopping trips a day.

    Georgina Luna, a 32-year-old mother of three, says she goes to the Bodega Express in her neighborhood in downtown Mexico City four times a day, spending between 50 pesos and 100 pesos each time.

    “There’s nothing else close by,” said Luna.

    On this trip, she bought milk and cold cuts before her four-year-old son Enrique spotted a shelf stacked with Zucaritas, Kellogg’s local version of Frosted Flakes. Tugging at her shirt, Enrique pointed to a 550-gram package that costs 12 times the 3-peso price on the 30-gram box.

    “Not that one,” Luna responded. “The little one.”


    Mexico’s Bolsa index fell 0.3 percent last week. Fomento Economico Mexicano SAB, the maker of Dos Equis beer, rose the most in the index, climbing 27 percent. Organizacion Soriana dropped 7.8 percent, the steepest decline.

    The peso slid 0.6 percent to 13.6400 per U.S. dollar, from 13.5625 on Sept. 25.

    Yields on Mexico’s benchmark peso bonds due 2024 fell seven basis points, or 0.07 percent point, to 8.16 percent, according to Banco Santander SA. The bond’s price rose 0.62 centavo to 115.93 centavos per peso.

    The following is a list of events in Mexico this week:

    Event Date Forecast
    Banorte shareholders meeting Oct. 5 --
    Walmex Q3 earnings Oct. 8 12%
    IMEF manufacturing index (Sept.) Oct. 5 52
    IMEF non-manufacturing index Oct. 5 52
    Consumer confidence (Sept.) Oct. 6 82
    Consumer prices (MoM) Oct. 8 0.58%
    Consumer prices (YoY) Oct. 8 4.97%

    To contact the reporter for this story: Emily Schmall in Mexico City at
    Last Updated: October 5, 2009 10:45 EDT
  2. I was surprised to see the same thing at Costco in Vegas catering to Hispanics. Single serving sales at Costco? It was in the low income area. Store closed early too.
  3. When i was in Mexico City, they charged people to park in the walmart parking lot. It was my impression in mexico that walmart is an "upscale" store.