beyondbrics

Brazil beckons. The lure of Latin America’s biggest economy is nothing new, but Chile’s Cencosud has become the latest group to put its money where its mouth is. Its $800m purchase of the Bretas supermarket chain now consolidates its position as the region’s biggest retailer by sales and confirms Brazil as a growing destination for Chilean investors.

The acquisition, Cencosud’s fifth in Brazil since 2007, doubles its size in the key market which has been tipped by some analysts to be the third-fastest growing retail market in the world, behind China and India, on the back of an economy expected to grow 7.5 per cent this year and a booming middle class.

The deal was announced after less than a month of direct talks between the two groups’ bosses, and will be finalised speedily. Cencosud has committed to opening eight new supermarkets by December.

La Tercera newspaper noted that Chilean firms have invested $10.6bn in Brazil since 1990, almost 20 per cent of all foreign investment. That is still behind Chilean investment in neighbouring Argentina – $16bn in the past 20 years – but Brazil was the top Chilean investment destination in 2009, and there are no signs of the pace letting up.

In August, Chilean airline powerhouse Lan announced a tie-up with Brazil’s TAM to create one of the world’s biggest airline groups. Forestry group CMPC last year made the biggest push into Brazil by a Chilean company, with its $1.43bn purchase of Guaiba from Brazilian giant Aracruz. Sonda, a Chilean information technology group, bought Brazil’s Kaizen for $6.7m in June.

Some 40 per cent of Chilean investments in Brazil are in the energy sector, 34 per cent in industry and 20 per cent in services.

The Cencosud deal, the second largest by a Chilean group in Brazil, consolidates its position as Brazil’s fourth-biggest supermarket chain and the company sees big room for growth: supermarket penetration in Brazil is only around 35 to 40 per cent, and less than 20 per cent in the areas where Cencosud operates, according to the group’s CEO.

Cencosud already owns Brazilian supermarkets chain GBarbosa, which operates in the relatively poor but fast-growing Northeast. Bretas operates primarily in Minas Gerais, closer to the economic centre in the affluent south-east.

Cencosud had planned to invest $800m in all of its businesses this year, but that figure has now doubled with the Brazilian deal. With turnover before the Bretas purchase expected to be $12bn this year, Cencosud is the region’s top retailer, ahead of Brazil’s Pão de Açúcar, Mexico’s Soriana, Casas Bahia of Brazil and Falabella of Chile.

With clouds on the horizon to doing business in Argentina – regular political turmoil and elections next year, energy shortages and questions over investment security, to name just a few – Brazil looks like a bigger, better and safer bet than Chile’s traditional backyard. Expect more deals to follow.

Additional reporting by Vincent Bevins.

Data provided by mergermarket.

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