Attention, Central American Shoppers.

PriceSmart dots the region with its U.S.-style membership stores.

GO THROUGH THE CONTENTS OF A MIDDLE-CLASS CENTRAL American wallet these days and you have a good chance of finding a new bit of plastic tucked next to the bank and credit cards. But this one offers neither credit terms nor access to ATMs. In fact, it's only good for shopping at one store: PriceSmart.

But that isn't stopping thousands of consumers from paying US$25 or so for this piece of plastic. For them, it's the passport to a different way of getting the groceries--PriceSmart's membership shopping, being rolled out across Central America at impressive speed.

The membership concept, where store customers are part of a "club" and must pay an annual fee before they can access the store's low prices and bulk purchase possibilities, has been big business in the United States for years, generating $45 billion in annual sales. But now Robert Price, one of the pioneers of the concept, is bringing the idea to shoppers in Central America as chairman of PriceSmart, founded in 1995 specifically for ventures into emerging markets.

PriceSmart debuted its first regional store in Panama in late 1996, opening its second in 1997 (both under the Price Costco name, which is being phased out). This year alone, it has added stores in Costa Rica, Honduras, Guatemala and El Salvador. Next year, a store in Nicaragua and further stores in Panama are planned. The company also wants to expand into the Dominican Republic and Trinidad & Tobago.

Easy concept to sell. Why Central America? Passing up larger Latin American markets may seem odd. But as Isaac Valdez, PriceSmart's marketing and communications director, says, It can be a catch-22 situation. There may be more customers in Mexico, but there is also more competition. Our model is to come into emerging markets like Central America."

Another advantage for PriceSmart is that many Central American shoppers are already familiar with the membership concept and U.S.-style shopping warehouses--not in San Salvador or San Jose, but in San Francisco or San Diego.

Take the new San Salvador store, for example. With one million Salvadoreans in the United States, there's scarcely a customer who hasn't previously heard about this type of outlet from a relative or shopped in a similar store on a trip north to see hermanos lejanos. Says Ricardo Castro, the store's manager: "It makes it an easy concept to sell."

Like all PriceSmart outlets, his 50,000-square-foot store--big by local standards, but much smaller than the U.S. norm--has more than simply big-name U.S. groceries. It offers big-ticket non-food items such as TVs as well as banking services, photo developing, travel agencies, even tire centers and pizza delivery.

Castro, who wears a name badge just like the store's other employees, is delighted with the location in the Santa Elena suburb. "This is the fastest growing middle-class and business neighborhood in the city," he says. "Guatemala opened with around 12,000 members. We opened with 23,100."

Castro identifies two distinct groups of shoppers. First, obviously, there are the middle classes, those "ABC1" consumers who are enthusiastic for U.S. ways and U.S. merchandise. The second group is the business customers, the mom-and-pop store owners, who can buy goods from PriceSmart and resell them in their own neighborhood.

Gloria Romero, browsing through the Santa Elena store, is an example. Among the items in her cart is an enormous jar of Tootsie Rolls. Since PriceSmart opened, she has been buying them to sell to the children who come into her bookstore. "We have prices that allow them to resell and make a profit," Castro says, adding that PriceSmart has been selling to bigger retailers as well.

In Panama, PriceSmart plans to open next year in David, a smallish city near the Costa Rican border. Valdez says the store will be ideal for small retailers throughout the rural hinterland. "They can fax their order before they set out and it will be waiting for them," he says.

What, me worry? So far, PriceSmart's arrival does not seem to have caused panic among more traditional supermarket retailers. "It appeals to a different type of customer," says Alexander Psychoyos, president of Tagaropulos, which owns Panama's 14-store Rey supermarket chain. "The volume buyer has never been our target market. I am sure some of our customers buy there, but they have such a limited range that it is impossible to get all your grocery shopping done there." Rey did respond by trying to introduce some volume items, but "it didn't really blossom," he says.

Maria Alicia Espinosa, executive director of Calleja, which owns two Salvadorean supermarket chains with a combined 54 outlets, believes PriceSmart is not a threat. She contends that her stores will remain stronger in the traditional grocery market where they have always concentrated.

Castro agrees that his store is not competing headon, but believes his advantages are several. "They carry 50,000 items. We carry 2,500 items, but at the best prices," PriceSmart's Castro says. "If you carry 50,000 items, you cannot get the best margins." In addition, he doesn't have the warehousing and handling costs incurred by traditional retailers. "Our warehouse is the store," he says.

In the Santa Elena store, shoppers appear to have mixed views about PriceSmart's advantages. Oscar Quezada says prices seem cheaper than in other San Salvador supermarkets. Heidy de Kuri says prices are the same--but with four children, being able to buy in volume is a blessing. "The advantage is in the quantity," she says. For Gloria Romero, the attraction is being able to buy product lines she cannot get anywhere else. Only around 25% to 30% of brands in the San Salvador store are locally sourced.

Whatever the draw, PriceSmart is happy with the results from its Central American venture. Combined sales in its first two Panama stores are running at an annualized $60 million, reports President Gilberto Partida in the company's first annual report. Target sales were only $25 million per store. Writes Partida: "Our value proposition of delivering quality goods and services at low prices transcends language and cultural barriers." Whether it does or not, membership shopping looks like it may be here to stay for Central American consumers.