Mexican Retailers Win Approval for Wal-Mart Fight
MEXICO CITY - The Federal Competition Commission, Mexico's antitrust agency, gave its conditional approval late last week for three of the nation's biggest retailers to merge some operations in their battle to wrest profits from mighty Wal-Mart de Mexico (Walmex).
Organizacion Soriana, Controladora Comercial Mexicana, and Grupo Gigante were given the green light to form an alliance for the purpose of lowering distribution and purchasing costs, according to published reports. The retailers said last month that they would join forces against Walmex, which currently sells as much merchandise as its three competitors put together. Mexican retailers have seen their profits stagnate since NAFTA, adopted in 1994, cut tariffs on imported goods and permitted more foreign investment.
This year the commission had previously prevented the three retailers from combining operations, citing complaints from suppliers including Coca-Cola and Kraft Foods. The joint company allows each company to remain independently owned and operated, but can’t be used to fix prices for other "practices contrary to competition."
"In order for the proposed alliance to be successful, it has to achieve more than consolidation of buying and distribution," analyst Richard D. Hastings of New York-based Bernard Sands told Progressive Grocer. "Without becoming one entity -- in which it could reduce a much greater degree of financial and operational redundancy -- this combo has limited positive impact. The other piece of the strategy has to be better merchandising and in-store experience to outstyle and outservice Walmex. But that costs money on the front end of the business, offsetting the cost reductions in the back end. In this game, it's who got in there first, not what you do about it later."
Organizacion Soriana, Controladora Comercial Mexicana, and Grupo Gigante were given the green light to form an alliance for the purpose of lowering distribution and purchasing costs, according to published reports. The retailers said last month that they would join forces against Walmex, which currently sells as much merchandise as its three competitors put together. Mexican retailers have seen their profits stagnate since NAFTA, adopted in 1994, cut tariffs on imported goods and permitted more foreign investment.
This year the commission had previously prevented the three retailers from combining operations, citing complaints from suppliers including Coca-Cola and Kraft Foods. The joint company allows each company to remain independently owned and operated, but can’t be used to fix prices for other "practices contrary to competition."
"In order for the proposed alliance to be successful, it has to achieve more than consolidation of buying and distribution," analyst Richard D. Hastings of New York-based Bernard Sands told Progressive Grocer. "Without becoming one entity -- in which it could reduce a much greater degree of financial and operational redundancy -- this combo has limited positive impact. The other piece of the strategy has to be better merchandising and in-store experience to outstyle and outservice Walmex. But that costs money on the front end of the business, offsetting the cost reductions in the back end. In this game, it's who got in there first, not what you do about it later."