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Chile’s New Supermarkets Open Aisles of Opportunity
By Richard Blabey and Luis Hennicke
As Chile’s strong economy gives more consumers the buying power to indulge their tastes for quality and variety, food retailers there are rushing to accommodate a growing class of increasingly affluent urban shoppers.
The supermarket sector is in the expansion mode, busy adding new and larger stores that are eager to fill spacious shelves and freezer sections. The combination of growth, modernization and competition in the industry is opening new distribution channels for imported grocery products.
Small, traditional stores carrying a limited selection of mostly local products are gradually disappearing, giving way as supermarkets and hypermarkets multiply and attract more customers. While the number of food stores is dropping, total retail floor space is increasing. And the larger stores are pulling in shoppers by introducing new products, developing promotions and offering consumer discounts.
Supermarket sales in Chile reached an estimated $2.7 billion in 1996, up 5.5 percent from the previous year. Over the last five years, sales have more than doubled.
An expanding supermarket sector presents aisles of opportunity for U.S. exporters who can help meet the demand for a greater variety of high-quality foods. Along with similar growth in Chile’s fast food sector, it’s a trend that already appears to be having an impact on U.S. trade.
U.S. exports of processed foods and other consumer-oriented products to Chile climbed to a record $33 million in 1996. That was twice the level of 1994 and more than seven times the export value of 1990.
Activity Centered Around the Capital
Modern supermarkets and hypermarkets are concentrated in the Santiago area, Chile’s capital. Although nearly three-fourths of the country’s larger food stores are located elsewhere, the capital region accounted for half the supermarket floor space in 1995. Of course, 30 percent of Chile’s total population, including most of its urban population, resides in this area.
Chains dominate in sales, if not in numbers. Only a third of the country’s reported 645 supermarkets were part of chains in 1995, but these chains rang up two-thirds of total supermarket sales.
The industry is entirely Chilean owned, and U.S. and European international chains have not yet invested in Chile. On the other hand, a number of Chile’s top chains have gone "international," owning stores in Peru, Argentina, Paraguay and Ecuador, and considering expansion into Colombia, Venezuela and Brazil.
Within Chile, four firms control nearly half of the market, according to 1995 sales statistics. Santa Isabel, with its recent acquisition of two smaller chains, now leads the industry with a 16-percent share of total supermarket sales. Santa Isabel is also Chile’s leading international chain.
Its marketing strategy inside Chile has been to concentrate its stores outside of Santiago in cities and towns undergoing rapid economic growth. Only recently did Santa Isabel enter Santiago with the opening of five stores.
Distribuidora de Servicios (D&S), formerly the largest chain in Chile, is now second with a 15-percent market share. D&S targets customers in the middle and lower income classes with its Ekono supermarkets and Lider hypermarkets. Its Almac stores target middle- to upper-class customers by offering high-quality domestic and imported products.
In third place with a market share of slightly over 9 percent is Unimarc-Multiahorro. Next is Jumbo with only two stores in upper-income neighborhoods of Santiago and a market share of about 6 percent. However, one of Jumbo’s outlets is the largest food store in Chile. The Las Condes hypermarket anchors one end of Santiago’s most fashionable shopping mall and features 54 checkout counters.
Industry Competition Intensifies
Chile’s leading chains are in a race to open more stores, remodel older stores or build hypermarkets. The newer supermarkets often include flower shops, bakeries, extensive wine cellars and large dairy, meat, fish and fresh produce departments. The hypermarkets add a wide range of nonfood products and services, in addition to groceries.
Business hours usually run from 9:00 a.m. to 10:30 p.m., including weekends and holidays. Customers may pay by cash, check or credit card.
Competition for customers is beginning to drive smaller stores out of the major urban markets and force some into bankruptcy. Industry experts predict that the smaller chains will either have to unite or be absorbed by larger ones. In a few years, small food stores will survive only in small towns, rural areas and urban neighborhoods not served by major outlets.
The main advantage of the smaller stores is often their convenient location. Too small to sell nonfood products like soap and kitchenware, they rely on proximity to neighborhood residents, their experience in the local market and customer service to survive.
The supermarket industry is investing about $150 million annually in land, construction and food retailing technology. Santa Isabel, which has grown dramatically through acquisition, also has plans to open three or four new hypermarkets. D&S has purchased 20 store sites for future development in Santiago. Likewise, Unimarc-Multiahorro’s five-year investment plan seeks to double the number of its supermarkets in Chile.
The concentration of the industry into fewer and larger companies is beginning to influence wholesale distribution practices in Chile. The size of today’s top chains is increasing their bargaining power with local suppliers, who used to be able to dictate their prices when the industry was more fragmented.
The large chains also use the option of importing as a means to negotiate lower prices from domestic suppliers. Chile’s supermarkets usually receive credit of more than 30 days from their suppliers.
Hypermarkets Demand Wider Variety
The competition is prompting changes in sales and marketing strategies. The introduction of hypermarkets of up to 13,000 square meters of floor space is offering customers a wider variety of products and services at lower prices. This development is squeezing out smaller supermarkets which cannot compete in either product selection or price. Chile’s more traditional supermarkets, with only 1,000-4,000 square meters of space, stock a limited range of food products. Hypermarkets can stock 70,000 or more items. This difference offers U.S. exporters new opportunities to help fill the shelves and freezer sections with consumer items, particularly prepared and preserved foods and frozen foods.
In 1995, D&S opened its first Lider hypermarket. To prepare itself, D&S sent executives to study hypermarkets in Spain and also obtained technical advice from the French chain, Carrefour. Santa Isabel is now seeking a joint-venture foreign partner to launch its own hypermarkets in Chile, Peru and possibly Paraguay.
Some Store Brands Also Rely on Imports
Following the practice of chains in the United States and Europe, Chile’s major chains are introducing their own store brands. D&S sells products under the D&S label, while Unimarc offers a line of products called Mi Casa. Santa Isabel’s brand is Cinco Continentes.
Santa Isabel projects its store brand will generate 6 to 8 percent of sales. At Ekono, the D&S brand accounts for 3 to 4 percent of sales. Though far short of the 15 to 20 percent of sales captured by store brands in U.S. supermarkets, the market for private label brands is growing because of their lower price and good value. Private brands also generate substantially higher profit margins for chains and are believed to increase customer loyalty.
Most store brands are produced in Chile, but others are imported. D&S contracts with private label suppliers in the United States and Mexico. Santa Isabel, which initially lined up private label suppliers in Chile, is considering purchases from foreign suppliers, especially in Peru and Paraguay where it also owns stores.
Trends Favor More International Foods
Competition is fostering more professionalism within the industry, which now employs an estimated 75,000 people. Two business schools in Santiago offer technical courses in food marketing, while one of Santiago’s universities offers a course in supermarket administration. Chile’s supermarket association publishes its own monthly magazine, Super Technomercado, and every year recruits Chilean supermarket executives to attend the Food Marketing Institute’s convention and trade show in Chicago. The industry also supports its own trade show, Supermercados, which will be held this year in Santiago, August 6-8.
Industry executives and supermarket managers are becoming more aware of the variety of processed foods and other products available from outside Chile. In the drive to serve the more sophisticated and demanding urban shoppers and to gain a competitive advantage, many are seeking to stock a wider range of imported foods.
Future trends include the continued incorporation and consolidation of stores and the targeting of lower income consumers with lower prices. The explosive growth of suburban areas will also prompt new store openings.
To cultivate new consumers and maintain the satisfaction of the traditional ones, the industry will probably seek to develop more market niches serving specific groups of customers. This offers U.S. exporters the chance to supply some of the more highly specialized products that are not available locally.
ABC’s of Exporting to Chile
Chile has a number of regulations and procedures that apply to imported foods. Some of these requirements and recommendations are listed in the following. U.S. exporters interested in the Chilean market should carefully select a local agent, importer or distributor who can assist in complying with import rules.
All imported foods must meet the quality requirements specified in Chile’s Sanitary Food Regulation (decree No. 60 of 1982). A copy of this regulation (in Spanish) is available from the Ministerio de Salud (Health Department), Avda. Bulnes 177, 2nd floor, Santiago (tel. 011-56-2-672-6998).
Before food is brought into the country, the Chilean government recommends that importers submit samples for analysis to confirm that the product complies with existing standards. Requests for an analysis should be submitted to the Chilean Institute of Public Health, Avenida Marathon No. 1000, Santiago. Technical information on the product must be provided along with samples, and importers are charged a fee for the analysis.
Permission to import is granted by the Health Service at the port of entry. In the case of the Santiago Metropolitan Region, the permit is issued by the Servicio de Salud Metropolitan del Ambiente, located at Avenida Bulnes No. 175, Santiago.
Each request to import food must be accompanied by the following materials and information:
• A certificate from the sanitary agency of the country of origin, attesting that (1) the product has been manufactured and packaged by an authorized firm under sanitary control; (2) the product is fit for human consumption; and (3) the product is for sale freely throughout the country of origin.
• a brief description of the product in the case of manufactured and processed products.
• an official certificate of analysis on the quality and ingredients of the product.
• the date of manufacture and packaging, as required in Chile’s Sanitary Food Regulation. A six-digit code can be used, with the first two digits indicating the day, the second two the month and the last two the year.
In the case of chemical products or food additives, a technical sheet should also accompany the product, certifying that the additives are suitable for food and have been evaluated by the U.N. Food and Agriculture Organization’s Committee on Food Additives. Other requirements are specified in the Sanitary Food Regulation.
Each Regional Health Service is authorized to inspect and analyze food imported into the country before issuing a permit. Depending on the type of analysis and testing, products may be held for 10-20 working days before approval. This does not apply to perishables, such as meats. Fruits and vegetables are under phytosanitary control and are not analyzed by the Health Department.
Chilean regulations require that the permit number, including the date and name of importer, be placed on the label or package of each product. Each shipment and each food product is considered a separate transaction and requires a permit. Chile does not issue generic permits.
U.S. Agricultural Counselor Richard Blabey heads the Office of Agricultural Affairs, U.S. Embassy, Santiago. Luis Hennicke is the agricultural specialist in that office. Tel. (011-56-2) 330-3704; fax (011-56-2) 330-3203.
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