The Grupo Chedraui Q4 conference call offered insights that suggest management has designs on mimicking the highly successful ALDI format, in Mexico.
The Supercito banner in Mexico operated by Grupo Chedraui represents a relatively novel venture. Small footprint local grocers, containing a high percentage of private label products supplemented by some leading national brands and offering the capability of capturing a consumer weekly shop via hard discounts, is exactly what has led to the runaway US success by ALDI, a private german chain shaking up grocers. The decision of Chedraui to sharply accelerate growth with the Supercito format, forecasting a doubling in size of entire banner, within just one year, through building an additional 100 new Supercito stores, suggests a very, very, large runway may lie ahead.
This may be far more than a simple shakeout plan to wrest market share from mom and pop local grocers and convenience type stores in Mexico; rather, it suggests that Grupo Chedraui considers the format to be evolutionary.
Traditionally, small footprint stores sell goods at higher prices. Consumer behaviors with small format grocers in the past have been to rely upon a local grocer to purchase items that they need immediately, while choosing a larger grocer for the weekly shop, due to the perception that the larger a grocery store is in terms of square footage, the better the price for the overall basket.
ALDI, a private firm, set grocery conventional thinking on its ear; they proved that a vast market in retailing was available through using a small format grocer to undercut large format stores by stocking shelves with primarily private label products. it is a glorious and timely concept, particularly in a consumer market concerned with food inflation and shrinkflation. Multinational food manufacturers have fully exhausted the patience of consumers by simultaneously raising prices and shrinking contents within packages; store brands and private label have legs as a result of a perception of “profiteering” by food manufacturers.
I have long wondered why other grocers were reluctant to mimic ALDI.
Chedraui now seems quite willing to follow suit and will be sharply accelerating their own local flavor on what is no longer a novel format, but rather, a disruptive one. The Q4 conference call indicates a corporate goal of quickly doubling the Supercito store count, yet again, after 2024 is complete. That, mathematically, indicates that as many as 400 Supercitos will be selling groceries in the mid-term, in Mexico.
Given the recent purchase of the massive centralized distribution center in SoCal and the lack of M&A in the US, it would seem entirely logical for Grupo Chedraui to also embark upon the mini-grocer rollout in California. ALDI is a major force on the US east coast and is moving west on a state-by-state basis. Grupo Chedraui, in response, could introduce the banner on the west coast and engage in a similar state-by-state rollout, with an emphasis on the southwest.
The CEO did indicate that M&A is top of mind, but they will not overpay, not even slightly.
Should a Mexican or US private grocer opt to sell out, Chedraui is now well known as a company with the capital to make a quick decision. The internal growth plan is not dependent on acquisitions, given the preliminary success of the newest banner and the existing growth trajectory of the existing banners.
The regular dividend rate for 2024 has been increased by roughly 30% above the 2023 payout.
Over and above that amount will be 2 smaller special dividends in the final quarter of 2024 which will result in an exact doubling of the 2023 payout on an MX peso basis. Special dividend payments should not be considered an ongoing feature of this equity and represents a novelty for the corporation.
https://www.alphaspread.com/security/bmv/chdrauib/earnings-calls/q4-2023
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