Merger of Mexican Supermarkets Includes U.S. Stores

ELLIOT ZWIEBACH

MONTERREY, Mexico — Organización Soriana here said it plans to convert the seven Gigante USA stores in Southern California to one of its own banners in the first half of 2008 — the same process Gigante's 199 supermarkets in Mexico will undergo once the sale of Gigante to Soriana is completed.

Grupo Gigante, based in Mexico City, said earlier this month it has agreed to sell its supermarkets — Gigante hypermarkets, Bodega Gigante warehouse stores, conventional Super G stores and Gigante USA — to Soriana for $1.35 billion, subject to approval by Mexican authorities and a vote by Gigante shareholders.

Besides the supermarkets, the deal also includes 12 distribution centers and 80% of the stores' inventories; however, it excludes Super Precio, Gigante's 80-unit convenience-store chain.

Soriana is Mexico's second-largest retailer behind Wal-Mart de Mexico. It operates 245 stores and had 2006 sales of approximately $5.4 billion, compared with $3 billion for Gigante and $18.4 billion for Wal-Mart de Mexico.

Soriana operates three banners: Soriana Hypermarkets, Mercado Soriana and City Club, a membership warehouse format.

Roderigo Benett, investor relations manager, Soriana, told SN that his company plans to evaluate the U.S. stores.

“The U.S. is a completely new market for us, so we will be analyzing and learning about it, and in the future we will decide what will happen with those stores,” he said.

The names on the stores will be changed within four to six months, Benett said, although changing the layout and merchandising will take “a little longer” as Soriana determines whether they ought to operate as hypermarkets or supermarkets, based on size. Stores larger than 55,000 square feet will probably be converted to hypermarkets, he said, though he was not sure of the size range of the Gigante stores that are located in the U.S.

One major marketing difference between the two Mexican companies is that while Gigante stores do not offer a loyalty card, Soriana stores do — with 5 million cardholders who account for 80% of sales, Benett said — and that is likely to be incorporated as the stores are converted.

In Mexico, the deal will enable Soriana to expand beyond its Northern Mexico base, primarily into Mexico City, where it will add 47 Gigante locations to its single store there.

“That's one of the most attractive parts of the transaction,” a Soriana spokesman said. “This gives us access to the most important market in the country.”

The deal is also likely to enable Soriana to negotiate lower prices from suppliers to become more competitive with Wal-Mart, observers said.

The Soriana spokesman said the company expects to spend between $400 million and $500 million over four years to convert the stores to its merchandising programs and formats. Soriana may also close some stores and distribution centers, he said.

Gigante said the transaction is structured as an assets and rights transfer and does not involve the sale of any shares.

It also includes a labor agreement under which Soriana will retain Gigante's workforce of more than 25,000 at the stores and distribution centers.