STABLE ECONOMY PROMPTING EXPANSION

MICHAEL KEPP

RIO DE JANEIRO, Brazil (FNS) -- Brazilian supermarket chains of all sizes are undergoing a major expansion push triggered by rising consumer demand that followed the government's economic stabilization plan. Major operators, including Carrefour, Pao de Acucar and Sendas, and smaller retailers such as Se and Candia are all taking steps to expand their businesses. The consumer boom started in July when the government introduced a new dollar-linked currency, the real, which forced inflation down from 45% per month in June 1994 to 1% in January 1995. The program also substantially reduced the cost of imports by overvaluing Brazil's currency in relation to the dollar. As a result, overall consumption has increased by 15% since the start of the program. Carrefour, which is the biggest food retail operator in Brazil, will build four hypermarkets in 1995, market sources said. The company, which is owned by the French hypermarket giant of the same name, normally builds about three hypermarkets here a year. Pao de Acucar, Brazil's second-largest supermarket chain, will open three stores in the states of Rio de Janeiro and Sao Paulo this year, as opposed to two last year, according to market sources. Moreover, the operator reportedly is studying plans to sell shares of the firm on Brazilian stock markets by late 1996, in a move that may be geared to raising funds for further expansion.

Sendas, the third-largest supermarket chain, in response to increased consumption is building a new hypermarket in Rio this year, its fourth in that area and the first since 1991. And the retailer will add one new hypermarket a year beginning in 1996.

Se, a small supermarket chain in Sao Paulo state with 15 supermarkets, has built six stores in the last four years. But Se will pick up the pace by building one more supermarket this year and two stores a year beginning in 1996.

"With consumption increasing, especially among the working class, we are gearing our expansion plans to meet the increased demand," said Andre Ciwinski, Se's director of expansions. "Doing so also increases our economies of scale."

Candia, another small supermarket chain in Sao Paulo state with eight supermarkets and two hypermarkets, will build one new supermarket a year until the year 2000, a move attributed to increased consumption that has boosted sales and profits, according to Flavio Escobar, Candia marketing director.

Some supermarket operators, such as the big Paes Mendonca chain, are choosing to expand existing units rather than construct new stores.

As chains chart expansion plans, many are monitoring the upcoming entry of Wal-Mart Stores into Brazil. The Bentonville, Ark.-based retail giant plans to open its first Sam's Club next month and its first supercenter later this year. It also plans a second Sam's Club next year. All the stores will be located in the suburbs of Sao Paulo, Brazil's largest city.

The specter of Wal-Mart has apparently influenced the growth decisions of some chains.

Sendas is constructing its first cash-and-carry discount club, called Send's Club, this year in Rio de Janeiro. The discount club's name is an obvious takeoff on the Sam's Club name.

Makro, a Dutch-owned cash-and-carry operation for nondues-paying members with 24 stores in Brazil (and the closest thing to a Sam's Club here) normally opens one store a year. This year Makro will open two new stores, one of them in Sao Paulo. Makro denied, however, that the new Sao Paulo store had anything to do with Wal-Mart's plans.

All of Brazil's operators are benefiting from the lower cost of imported goods. The government's economic program has allowed the market to set the commercial exchange rate (used by importers and exporters), which is currently about 0.85 reals to the dollar. That exchange rate makes the overvalued real worth 15% more than the dollar, causing dollar-based exports to be 15% more expensive and imports 15% cheaper.

Not surprisingly, Sendas has been making more space for imports, which accounted for 9% of the chain's sales last year, as opposed to 6% the year before. Makro is also boosting imports and expanding store space in some of its 24 units to make room for these goods.

But Makro and other operators have another reason to focus on imports. They will need to shore up their prices against Wal-Mart's Sam's Club operation, which plans to import about 50% of its goods, industry insiders said.