Cencosud in the US: the doubts of the market that the Paulmann brothers seek to clear

Cencosud will place its flag in the United States. An unprecedented event for a Chilean supermarket company, which will reach the most competitive retail market in the world. Inside the company controlled by the Paulmann family there is trust.

The company – parent company of Jumbo supermarkets and with businesses in Chile, Peru, Argentina, Colombia and Brazil – will pay US$676 million for 67% of The Fresh Market chain, which has 160 stores in 22 US states.

As soon as the news was known, Diario Financiero made contact with a series of executives and directors of the national supermarket industry. And the doubt was repeated: how is the logistics of such a fragmented company handled? How does it manage to be profitable?

In Chile, and in other markets in the region, supermarkets such as Cencosud manage their own distribution centers, where they store part of the assortment that they then distribute to their stores.

The Fresh Market model is completely different. And it was explained by the general manager of Cencosud, Matías Videla: “Logistics is outsourced. In the United States it is different from how it is in Latin America.”

The executive elaborated: “Companies that do not have the scale of large companies such as Walmart or Costco have their logistics outsourced. In this case, this company (The Fresh Market) has several companies that do all the logistics in all the markets. These firms not only take a truck to a state where they have two or three stores, but also supply other competitors, other operators, and that makes logistics absolutely competitive because, otherwise, those stores would not exist.”

Thus, and because its stores are widely dispersed with one or two in a market, The Fresh Market relies on others for distribution.

“In this company there are one, two or three stores in a city, and that, as a scale, is little, but having outsourced logistics makes it very competitive because logistics costs, in a way, are more transparent for the market. Videla insisted.

The US firm that will become a subsidiary of Cencosud focuses on the marketing of fresh food and restaurant-quality meals, with stores that seek to appear like an “old world European market” with “high-touch customer service,” he said. the company in a presentation to the US regulator.

The firm was listed on the US stock market from 2010 to 2016. That year it was acquired by Apollo Global Management, which took it private, but a few months ago the same company had started a process to list its shares again.

The CEO of Cencosud has already clarified that there are no plans to continue with the process of going public, so for now the supermarket will remain closed, and with Apollo as minority partners. He also clarified that the current administration of the firm will be maintained. It will seek to maintain the distinctive seal of the company.

Executives from The Fresh Market have highlighted their model in the US media: “Our experience and daily effort consist of providing an excellent customer experience, which is why we have always outsourced distribution and logistics. Our merchandising team identifies the products we want to carry. The distributors transport them for us, store them, handle them, take ownership of them and then deliver them to our stores”, was the speech, which Cencosud will maintain as a distinguishing mark.

“Tremendously profitable”

The CEO of Cencosud, Matías Videla, highlighted: “With the Paulmann brothers we saw operations in the US and we found this company that has characteristics of interest. The first is its DNA, which is very strong in perishables, which is also Cencosud’s DNA. The level of customer service is truly memorable.”

And do you earn money? The executive stated: “(The Fresh Market) is a tremendously profitable company; it has almost US$ 200 million of Ebitda per year, which indicates that it has a cash generation that will allow it to make an important growth plan”.

For now, the executive said that the objective is to grow organically, with the opening of its own stores and not through new acquisitions. For now.

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