Retailing in the Week Ahead, Week 3
Outside Brazil, few CPG companies are familiar with the Hypercash* format. One day, this might be a problem as you can be fairly certain that Hypercash is coming to a location near you in the not-too-distant future. So, allow me to acquaint you with some of the basics:
- Hypercash is neither big-box nor small-box – stores on average are over 4,000 square metres (45,000 square feet)
- Hypercash is highly profitable – EBITDA is typically above 7% (compared to a global average of 3% in grocery retailing in 2019)
- Hypercash is neither low margin nor high margin – gross margins hover around 15-18% - above wholesale margins, but well below typical hypermarket margins
- Hypercash is evolving rapidly
The two main players are European (sort of). Carrefour Brazil Group and Grupo Pão de Açúcar (GPA) are both publicly listed in Brazil, but boast minority investments from Carrefour and Casino, respectively. The two main formats they operate - Atacadão (Carrefour) and Assaí (Casino) - have their origins in European hypermarket retailing, but have evolved so fast and to such an extent it can be difficult to make the connection.
Figure 1: An example of marketing investments from Atacadão (Source: Atacadão Twitter)
This evolution has occurred around several elements of the model:
- Assortment. Atacadão has over 8,000 SKUs, Assaí carries over 7,000. However, both are rapidly moving away from non-food to a food-first model. In 2013, less than 20% of Assaí revenue came from food. Today, over 50% of its revenue is generated by food.
- Merchandising. When Carrefour acquired Atacadão in 2007, the original business model was ‘pure cash & carry’. Today, the model is far more nuanced with investments in merchandising, product displays and demonstrations, along with shelf-ready packaging.
- Marketing. Atacadão and Assaí have grown both the level of investment and the types of communication they pursue in their marketing budgets. The model remains relatively basic if compared to other CPG retail advertising. A good example of this “better marketing on a budget” can be seen above in Figure 1 where Atacadão’s seasonal campaign involved having staff members walk the floors in Santa costumes to engage shoppers, an initiative that was then parlayed into social media communication.
- Shopper. Over time, the model has been adapted to go beyond HoReCa clients and reach other types of businesses and, more importantly, everyday household shoppers.
- Location. Site selection in the early days required both Atacadão and Assaí to open in industrial zones with standalone concepts. Today, both are investing in co-location strategies in urban/suburban shopping zones. Much of their store count growth is coming from repurposing failing Carrefour or Extra hypers to these more profitable formats.
- Digital. Ecommerce is already over 5% of Carrefour Brazil revenues and growing rapidly. The company has bold ambitions to digitise Atacadão, and Assaí will most likely follow quickly.
The success of the Hypercash model in Brazil cannot be overstated. It has gone from almost nothing in 2008 to over 30% of total modern share. Both Carrefour Brazil and GPA would likely be plagued by debts and other problems had they not invested in Hypercash.
The next evolution of the Hypercash model is the ‘export’ function. With such great success in Brazil, it is inevitable that three things will happen:
- Carrefour and Casino will export the concept to more countries where they can – we have already seen test & learns in multiple countries in Europe, North Africa and Latin America
- Carrefour and Casino will remodel existing locations (such as hypermarkets or cash & carries) using lessons learned from the Hypercash success model.
- Other retailers will try to create their own version of Hypercash
With all of this in mind – we encourage you to do two things in 2020:
- Plan a trip to Brazil to see Hypercash yourself, first-hand (if you can’t, then reach out to a Brazilian colleague to become a pen pal and increase your understanding of the concept).
- Be on the lookout for Hypercash-style stores opening in your neck of the woods.
Below, you will find links to other interesting posts on Retail IQ that you may have missed over the past week.
Retail IQ Publications from Week 2
Now trending in fashion and beauty retail
Nordics market report
Alibaba: The five slides you need
Russian Retail Monthly Digest: December 2019
Marks & Spencer weathers the seasonal storm
Good luck in the week ahead.
Ray Gaul – Ray.Gaul@Kantar.com and @Kantar or @RayGaul on Twitter plus LinkedIn.
*In Brazil Hypercash is called “Cash & Carry”. Kantar believes this description is misleading and therefore you will not see us calling these stores by the title cash & carry in our written analysis of the format