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Walmex to Go Head to Head With H-E-B

NEW YORK - Wal-Mart de Mexico SA (Walmex), after gaining about half of supermarket sales in the Mexico City area, has announced plans to expand into northern Mexico -- where it will come up against San Antonio-based H.E. Butt Grocery Co., which first opened shop there seven years earlier and is now planning to add 20 more stores, Bloomberg reports.

H-E-B has battled Wal-Mart in Texas for more than a decade by slashing costs and providing a wide variety of ethnic items. After increasing sales 50 percent in five years, the family-owned company wants to double its Mexican units and compete with Wal-Mart's supercenters, according to c.e.o. Charles Butt.

"We're fully committed to continue growing in the northern part of Mexico because it's one of the most affluent areas of the country," Walmex spokesman Raul Arguelles told Bloomberg. "Now that the American economy is moving and the Mexican economy is also growing again, the numbers clearly show the north is pulling the country ahead." Walmex is seeking growth in all parts of Mexico, Arguelles added.

Wal-Mart may have to look for poorer areas and smaller towns around the affluent northern Mexican city of Monterrey, however, since H-E-B already has captured the most attractive markets with its focus on food sales, according to Joaquin Lopez Doriga, an analyst at Deutsche Ixe LLC in New York. Organizacion Soriana SA, the largest retailer in Mexico's north, holds the rest of those richer markets in Monterrey, Lopez added.

Both H-E-B and Wal-Mart built wholesale distribution centers in Monterrey in the past year to strengthen their supply system for local stores.

Walmex has plans to open an additional 63 stores in Mexico by June 2005. Thirty-eight of them will be Bodega Aurreras, smaller stores that carry a limited range of cheaper goods for poorer neighborhoods. The company has told investors it wants a presence in each of the 180 towns with 50,000 or more people where it doesn't yet operate.

When Wal-Mart opened some of its first supercenters in the nation in southern Texas in the early 1990s, H-E-B was forced to cancel planned investments in Mexico. Today H-E-B competes with 180 Texas supercenters, more than in any other state. Cost cutting by H-E-B and Soriana over the past decade has made the two companies tougher to beat on price than Wal-Mart's rivals in central Mexico, according to Deutsche's Lopez. "Wal-Mart will have to be very aggressive with pricing," he said.
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