Hello world: U.S. retail giant Wal-Mart leans heavily on Latin America for growth abroad.

Brazilian homemaker Divina Guerra dos Santos is a key target for global retail giant Wal-Mart in its bid to drive growth outside of the United States. As she wanders the aisles of a Wal-Mart Todo Dia in Taboao da Serra near Sao Paulo her view of the Arkansas behemoth sums up the retailer's strategy for success in Brazil: "It's nice, clean, with attentive clerks and the best possible prices."

The Wal-Mart growth strategy outside the United States is a bet to avoid a crunch that is clearly coming: The U.S market is huge, but it just won't grow at the same rate in the coming decades. So Wal-Mart is headed around the planet in search of new opportunities. Nearly 41% of its 6,534 stores and more than a half-million employees (of 1.8 million total workers) are now abroad in 15 countries, including Argentina, Brazil, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Puerto Rico. International sales in fiscal 2006 were US$62.72 billion--20.1% of the company's total and up 11.4% from the previous year. The retailer also is in Germany, Canada, the U.K., South Korea, Japan and it is just beginning its assault on China.

International is a big part of the profit picture, too. Foreign income hit $3.30 billion, also up 11.4% compared to companywide net income of $11.20 billion. Growth abroad matters. The company projects that it will open 350 new stores in the United States during fiscal 2007, but 230 new stores in foreign lands in the same period. Opening new stores in the United States, Wal-Mart executives note in company reports, robs existing stores of sales at a rate of 1% a year. Opening abroad, however, for now only takes business away from erstwhile local competitors, the biggest of whom sell out rather than face the retail giant and its fearsome buying power.

The Todo Dia stores is one way that Wal-Mart is moving forward in a region with a huge gap between rich and poor. A simple, straightforward supermarket format, Todo Dia stores are built in poorer neighborhoods and have just 5,000 items, compared to the 40,000 items typical of a Wal-Mart Supercenter, like one in the Sao Paulo neighborhood of Indianopolis that sees 12,000 customers a day. The idea is to grow on several fronts and in areas normally served by stores operated by Companhia Brasileira de Distribuicao (CDB), which owns the supermarket chains Pao de Acucar and Extra.

The fight for second place with French hypermarket chain Carrefour pushed Wal-Mart into acquisition mode. In 2004, it bought for $300 million the Bompreco supermarket chain, the leading grocer in northeast Brazil. In December 2005, it paid $800 million for the Portuguese-owned Sonae chain, No. 1 in the southern part of Brazil. Despite the hurry-up offense, Wal-Mart executives say there is no expectation to lead the market in the short-term. "The objective of Wal-Mart in Brazil is not to be the leader, but to be the most efficient retailer. Market leadership will come as a result of that. Size is important in retail, but that doesn't mean you have to be the biggest," says Wilson Mello Neto, vice president of corporate affairs for Wal-Mart Brasil, at the company's headquarters in Alphaville, in greater Sao Paulo.

With the Sonae purchase, Wal-Mart has 295 stores in 17 Brazilian states and, this year, it expects to open 12 to 15 more, an investment of nearly $225 million. "We have a bold plan that assumes effective growth year on year. We never retreat," says Mello.

Although Brazil accounts for just 2% of the global retail market, the country's potential and a strong growth strategy will allow Brazil to get on Wal-Mart's international map in less than a decade. "Before the Bompreco and Sonae buys, the numbers didn't make a dent in international results. Today, the results are significant and Brazil is a strategic asset," Mello says.

Brazil still lags far behind Wal-Mart's Mexican operations, where the company this year will invest $1.10 billion, the largest amount in its history in Mexico, and will open 120 new stores and modernize existing stores. "This investment demonstrates our long-term vision for Mexico," says Raul Arguelles, vice president for corporate affairs at Wal-Mart de Mexico. Last year, the company saw sales of $15.50 billion in the country, a jump of 13.7% compared to the year before.

Mexican way. Wal-Mart de Mexico, which has 130,000 employees, is the biggest retailer in the country and expects to stay firmly in the lead. Store openings this year reinforce this goal: 55 Bodegas Aurrera, a supermarket format; five Superamas, a mini-supermarket; 30 Vips restaurants; an El Porton eatery; eight Sam's Clubs; 13 Wal-Mart Supercenters; and nine Surburbias, which are clothing stores. "The potential of what we see in Mexico is fundamental to continued growth," says Arguelles. "We're not successful because we're big. On the contrary, part of our growth has been because of a long-term vision of constantly reinvesting profits."

Wal-Mart de Mexico recently signed with Televisa, the country's biggest media company, to install and operate an in-store advertising system, an investment in 5,000 screens in 300 stores throughout Mexico. According to Televisa, 74% of purchasing decisions are made in the store itself.

In order to make its supply chain more agile and to reduce the cost of its merchandise, Wal-Mart de Mexico last year opened a distribution center in Mexico City for perishables. "We are looking for efficiency in the entire supply chain so that our consumers can have the best price and quality," says Arguelles. "The distribution center also will allow us to send Mexican goods to other countries with company stores." Beginning in February, Wal-Mart de Mexico has sent a weekly load of avocados to Wal-Mart stores in the United States. By the end of March, Wal-Mart had sent 130 tons of Mexican fruit to Texas and Oklahoma from the state of Michoacan, on the Pacific Coast.

In fact, at the start of the 2006, U.S. railroad line Kansas City Southern said that the Wal-Mart network and Hong Kong impresario Li Ka-Shing would be fundamental to a $300 million expansion of the port of Lazaro Cardenas, in Michoacan. The objective of the plan, still not confirmed by Wal-Mart, is to ensure the flow of products to the United States despite congestion at ports on the U.S. West Coast, particularly at Long Beach and Los Angeles. "The company visited installations in Lazaro Cardenas and we were shown the advantages of the place and its routes," says Jesus Armando Palos, general director of the Mexican port. Wal-Mart already works with container operator Hutchison Whampoa at Lazaro Cardenas, moving cargo for export and import between South America and Asia.

Among the multitude of busy but happy suppliers is Lucky, a Sao Paulo snack maker that has begun recently to export to Wal-Mart de Mexico after three years as a supplier to Wal-Mart in Brazil. The 620-employee operation will send 100 tons a month of Brazilian appetizers known as salgadinhos, and its goal is to expand the business to the United States and to Central America by adapting the types of snacks it makes. "For Wal-Mart de Mexico we developed different flavors, completely different from Brazilian snacks. Mexicans like things a lot spicier," says Guillermo Livreri, export manager at Lucky. Wal-Mart Brazil has a network of 3,000 suppliers and last year exported $200 million in Brazilian products to Wal-Mart stores around the world.

In order to appeal to all kinds of shoppers, Wal-Mart also brought another U.S. format to Brazil by opening Sam's Club membership warehouse stores. "We have been in Brazil a decade and we can say that we're hitting a maturity curve as a business. The big thing is that you find a significant difference in price here," says Marcos Ambrosano, vice president of Sam's Club in Brazil. In competition with traditional retail, Sam's Club stores offer items up to 15% cheaper by way of an operating structure that guarantees low costs. "Everything is very clean and organized, but with a simplicity that allows us to operate at the price of the product," says Ambrosano.

Many customers of Sam's Club in Brazil are small business owners who take advantage of sales to supply their own establishments. Such is the case with Fernando Nogueira, owner of Don Fiori, a small pizzeria that specializes in home delivery in Itapevi, in Silo Paulo. He buys, for instance, 120 liters of soda per week at the warehouse store. Asked to explain why, Nogueira goes straight to the point: "Price. It's cheaper here."

Solid footing. Wal-Mart's buying spree across the region is heading quickly to other countries. In March, the retailer giant raised its stake to 51% in Carhco, a holding company that operates 363 supermarkets in Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica, changing the name of the company to Wal-Mart Central America. "Now, with Wal-Mart, the market will be much more competitive, but we believe that we're going to be as competitive as we were," says Jose Luis Laparte, president of PriceSmart, a membership shopping club in the region.

PriceSmart has a solid footing in Central America and the Caribbean with 700,000 members. In the fiscal year ending August 2005, the company had gross revenues of $605 million, up 14.1% from the previous period. For fiscal 2006, PriceSmart expects to hit $700 million. Executives say the company has no reason to fear Wal-Mart as a competitor and say they will continue to reinforce their low-cost, low-price strategy. "There's still a lot of market potential and we have 10 years of experience in the region," says Laparte.

CARLOS ADESE * SAO PAULO MARISOL RUEDA * MEXICO CITY

Power Seller
Wal-Mart's footprint in Latin America is heaviest in Mexico
and Brazil.

number of stores

              2004   2005   2006F

Argentina      12
Nicaragua                    40
Honduras                     48
Puerto Rico    54
El Salvador           66
Costa Rica                  135
Guatemala                   137
Brazil                      310
Mexico                      867

F=Forecast

SOURCE: Wal-Mart

Note: Table made from bar graph.