Walmart’s Failure in Brazil: A Closer Look

This article is a summary of the YouTube video ‘Why Walmart Failed In Brazil?’ by CNBC

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Walmart struggled in Brazil due to ineffective strategies, failing to adapt, and competition from leaders like Carrefour and Casino in the cash and carry format, ultimately selling 80% of its business to Advent International.

Key Insights

  • Walmart is one of the most dominant retailers globally, but it has struggled to succeed in the Brazilian market.
  • Walmart entered Brazil in 1995 and rapidly expanded through acquisitions, reaching 558 stores at its peak.
  • However, Walmart Brazil faced financial losses, stagnant market share, and an inability to connect with local consumers.
  • The company didn't adapt to Brazilian shoppers' preferences, such as promotional sales and shopping at multiple stores for the best deals.
  • In 2018, Walmart Brazil closed 120 stores, mainly due to ineffective business strategies, inefficient operations, and uncompetitive prices.
  • Brazilians prefer cash and carry format stores like "at the Carreiros" over e-commerce shopping and hypermarkets.
  • Carrefour and Casino are leaders in the cash and carry format stores, outperforming Walmart Brazil.
  • Success in the Brazilian market is driven by lower operating costs, lower product prices, attractive promotions, and customer loyalty programs.
  • Walmart Brazil sold 80% of its business to Advent International in 2018, aiming to invest more in the "Atacadejo" model and cut costs.
  • Walmart will retain a 20% stake in the Brazilian market but expects a net loss of $4.5 billion.
  • Advent International aims to improve the performance of the remaining 438 stores without opening new ones currently.

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Transcript

Walmart is one of the most dominant retailers in the world. In 2017, Walmart ranked number one in revenue among all major retailers worldwide. Walmart operates over 11,000 locations under 55 banners across 27 countries. You can find a Walmart anywhere from Botswana to the U.K. to Costa Rica.

But despite its success abroad, the brand has struggled to stay afloat in one of the biggest markets in Latin America – Brazil. After years of hyperinflation and GDP growth of only 1.5 percent from 1980 to 1993, Brazil’s economy started rising. Brazil introduced economic reforms in the 1990s, attempting to transition from state-run monopolies to a free market. This presented an opportunity for brands like Walmart to expand their global reach in a rising emerging market.

In 1995, Walmart announced its entry into the Brazilian market, opening five stores by 1996. By 2000, Walmart had 14 stores in Brazil, and its growth continued. In 2004, the company acquired Bumpresso and its 118 stores for $500 million. The following year, Walmart completed a $757 million acquisition of Sonny’s 140 stores across Brazil. Walmart aimed to improve its position as a national retailer in Brazil, operating 295 stores in 17 out of Brazil’s 26 states.

However, understanding the local customers’ habits became a challenge for Walmart’s expansion plans. At its peak, Walmart Brazil had 558 stores across the country, including Walmart and Sam’s Club, as well as local brands like Bumpresso and Maxi. But by 2018, Walmart had closed 120 stores in Brazil. The company faced financial losses and minimal revenue growth. Operating inefficiencies, store locations, and uncompetitive prices contributed to operating losses for seven consecutive years, as reported by Reuters.

While Walmart’s competitors, Carrefour and Casino (French retailers), experienced an increase in overall retail market shares in Brazil, Walmart failed to connect with local consumers. The main reason behind this was Walmart’s failure to adapt to the local consumers’ needs and their spending habits. Brazilian consumers were less interested in Walmart’s everyday low prices and one-stop-shop business model. Instead, they preferred promotional sales but only if they were timely. Since Walmart offered low prices every day, Brazilians didn’t perceive additional value in their promotions.

Another aspect was the preference of Brazilian consumers for cash and carry format stores known as “atacados.” The rise of atacados in Brazil was tied to the economic crisis the country faced. These atacados, which combine cash and carry formats, attracted price-sensitive consumers looking for savings. Brazilians would even shop at multiple stores to find the best deals available.

In contrast, e-commerce shopping was not as popular among Brazilians. In 2018, Walmart Brazil announced the winding down of its first-party e-commerce business in the country. However, cash and carry format stores, such as Carrefour’s “atacado,” saw significant growth, while Walmart struggled to compete.

In 2018 alone, Walmart closed 60 stores in Brazil, trailing behind market leaders Carrefour and Casino in the cash and carry format. Carrefour raked in $16.5 billion in comparison to Walmart’s $6.7 billion revenue. Cash and carry stores traditionally offer lower prices due to lower operating costs. Between 2012 and 2017, warehouse clubs and cash and carry stores in Brazil grew by 99 percent, according to Euromonitor.

Despite Walmart’s efforts to acquire different banner stores in Brazil, such as the successful Maxi cash and carry format store, their presence was not enough to sustain their business. With multiple changes in leadership, closing stores across the country, and the decision to sell 80 percent of their business to private equity firm Advent International, Walmart hopes to refocus on the Atacadejo model to cut costs and seek new suppliers.

Although Walmart will retain a 20 percent stake in the Brazilian market and plans to give the remaining stores the best opportunity for long-term growth, the company expects a net loss of $4.5 billion. Advent International aims to turn around Walmart’s remaining 438 stores without opening any new stores at the moment.

This article is a summary of the YouTube video ‘Why Walmart Failed In Brazil?’ by CNBC