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Wal-Mart stirs up Mexicos retail landscape

Wal-Mart stirs up Mexico's retail landscape

A spirited retail competition resembling a ruthless dog fight is underway in Mexico, as traditional Mexican supermarket chains seek ways to fend off advances from retail giant Wal-Mart Stores Inc. In just a little over 10 years, Wal-Mart has cornered the Mexican market, and it’s not stopping there.
Wal-Mart is now Mexico’s largest employer, with 103,000 people currently on its payroll, and new stores continuing to open.

What has stunned Mexican supermarket executives is the way Wal-Mart handles purchasing, as well as its application of advanced logistics in distribution to its stores, more than 200 Vips restaurants and a number of other retail outlets.
At the end of 2003, three Mexican national supermarket chains — Gigante, Comercial Mexicana and Soriana — pooled resources in an effort to counter Wal-Mart. The idea was to do bulk purchasing to lower costs, reflecting Wal-Mart’s methods.

The move immediately backfired as 43 large supermarket suppliers joined together to accuse them of trying to fix prices and destroy competition. The suppliers sued through Mexico’s Federal Competition Commission (FCC), charging the three chains with attempting to monopolize supplies and fix prices at will.

The chains claim their intent is to improve purchasing possibilities and distribution tactics, to economize on expenses in their stores, to upgrade their logistics, and to improve relations with suppliers as well as offering better customer service. They deny the charge of attempted price fixing. At the moment, the case is under FCC investigation with final ruling pending. Despite the unity shown for mass purchasing, the three chains remain dogged competitors.

“At Gigante, we reacted to aggressive pricing tactics only after Wal-Mart and Comercial Mexicana did so first,” says Manuel Cullen, investor relations manager for Gigante. “They made strategic changes; we did not.”

Wal-Mart’s main competitive weapon continues to be, as their motto says, “Always low prices.” Before Wal-Mart entered the Mexican market, national chains reigned with high prices bringing investors lofty profits. Not anymore.

“We are certain,” Cullen says, “that our low price strategy is correct, and that differentiates us from our competition as we deliver value to customers through constant discounts on shelf merchandise. Today, the onslaught represented by Wal-Mart, Comercial Mexicana, Soriana, or any other competing chain bringing their prices down forces us to be more competitive. So, apart from our logistics strategy, we must offer attractive prices.”

The one thing Mexican supermarket chains know for certain is that since Wal-Mart entered the market, rules of the game have changed and they now confront a kind of competition they never foresaw in their worst nightmares. Wal-Mart looks unstoppable and is looking forward to giving its competitors a run for the peso. LT

Keeping prices low in Mexico

Wal-Mart Mexico
Annual sales US$10.7 billion
Employees 103,000
Number of units 640*
Number of customers served 600 million
Number of SKUs 139,400
* as of Feb. 29, 2004

Logistics Today logo
April, 2004

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