Walmart's dominance makes goods more expensive in Mexico

26/11/2020

Walmart concentrates 87% of the self-service store market in Mexico, which prevents Mexican consumers from obtaining better prices on food and beverages, revealed Cofece.

Walmart concentrates 87% of the self-service store market in Mexico. Image: Wikimedia Commons
Walmart concentrates 87% of the self-service store market in Mexico. Image: Wikimedia Commons

With only three companies with a national presence: Walmart, Soriana, and Chedraui, in Mexico, there is a high concentration in the modern channel retail market, so it is imperative to eliminate local obstacles that hinder the expansion of regional chains, said the Federal Economic Competition Commission (Cofece).

In the "Study of Competition in the Modern Channel of Food and Beverage Retailing," presented yesterday, November 4, the antitrust agency also found that Walmart, the largest competitor in the warehouse, supermarket, hypermarket, and megamarket format (BHSM), is the agent with the least competitive pressure, since it operates as a monopoly in one out of every five of its stores.

In addition, he identified that 87% of the areas of influence with only one competitor correspond to Walmart and that the company "does not face competition in almost half of its stores established in undeveloped areas or in areas of lower density. As of July 2019, the US-capital chain had 40% of BHSM stores, twice as many as its closest competitor, Soriana (20%), and five times as many as its third competitor, Chedraui (8 percent).

In the Mexican market for self-service stores there are only three chains with a national presence, such as Walmart, Soriana and, to a lesser extent, Chedraui, which in some regions face competition from well-positioned local chains," said Cofece. According to the analysis, in 1,592 municipalities, where more than 17 million people live, it was verified that "there are no self-service stores and in 255 there is only one self-service store (without considering convenience stores).

For the market analysis, the study defined areas of influence for large stores, which were classified according to the number of inhabitants per hectare: the Mexico Valley Metropolitan Area; urban areas with above-average population density; urban areas with below-average population density; and the rest of the country.

"This lack of competitors is due, in part, to regulatory obstacles that inhibit their entry, through procedures and requirements that raise costs or, in their case, make the installation of self-service stores prohibitive," it said.

The Commission detected that only large national chains can overcome these regulatory barriers, since they have the economic capacity to form legal teams specialized in procedures.

Walmart punishes its suppliers that supply Amazon

Walmart in Mexico has penalized food companies that supply groceries to rival Amazon, a pressure that has forced some firms to withdraw products online from the world's largest retailer.

The tactics occur when the two giants fight for supremacy in one of their most important foreign markets, which currently dominates Walmart Mexico. The second-largest economy in Latin America is the largest overseas market for Walmart by the number of stores.

Last year, Walmart demanded discounts from food companies whose products were at lower prices on Amazon.com's Mexican website, the sources said, although suppliers had no say in the Seattle retailer's decision to lower the price of Walmart.

Two suppliers told Reuters that they quickly withdrew their brands from Amazon so as not to jeopardize their relationship with Walmart. The companies, which sell common pantry products, said that Walmart represents more than half of its supermarket sales in Mexico.

Walmart declined to talk about its competition with Amazon in Mexico or allegations with suppliers. The company told Reuters it has no interference with customers with whom it can do business with its suppliers, but acknowledged that it always pushes for lower prices, particularly if competitors are giving buyers a better deal.

In a recent statement, the company said its policy is "not to subsidize losses in some products with profits in others".

"We can never tell anyone that they can not sell to someone else," Ignacio Caride, head of e-commerce at Walmart Mexico, told Reuters. "If we believe there is an opportunity to improve our prices because we see better prices at other retailers, we will negotiate to access this."

Walmart is the largest retailer in Mexico, with almost 60 percent of supermarket sales in the country through more than 2,400 stores of Walmart, Superama, Sam's Club and Bodega Aurrera. Its online business in Mexico is growing rapidly, but it represented only 1.4 percent of revenues last year.

Amazon launched its Mexican website in 2015 and is now one of the largest online retailers in the country. It started selling groceries through its page in August.

Supermarket analyst Bill Bishop said Walmart wants to avoid repeating the experience it had in the United States, where Amazon quickly took the lead in online grocery sales. The Walmart unit in Mexico is its second-largest foreign market in sales after the United Kingdom, on a par with Canada.

The two Mexican suppliers who spoke with Reuters said they had been caught in the crossfire because although their wholesale prices were the same for both retailers, Amazon chose to sell their products to consumers at a cheaper price than Walmart. Instead of lowering retailer prices to match those of Amazon, Walmart penalized them, the same sources said.

Walmart adjusted its payments for the retail price difference, multiplied by the amount of inventory in its inventory, a measure that cost them tens of thousands of dollars collectively.

Both commented that they started conversations with Amazon shortly after to withdraw their products. They said they could not afford Walmart's financial demands or risk losing their biggest customer, despite the huge sales potential offered by the Amazon platform.

Playing with the devil

Experts say it is unlikely that Walmart's pressure on its suppliers in Mexico will have legal repercussions. Miguel Flores, a former member of Mexico's competition commission, said a government investigation into the abuse of dominant market power would be complex, long and difficult to prove.

Both Walmart and Amazon have been pushing suppliers to get the lowest prices on products from T-shirts to bicycles. And Walmart has spent a lot to catapult its shopping website, delivery system and network infrastructure to compete with Amazon.

Even so, Amazon is ahead in buying food online. Last year, it registered $ 3.4 billion in food sales in the United States, compared to Walmart's $ 2 billion in the same item in that country, according to the Boston-based research firm Edge by Ascential.

The selection of Amazon groceries in Mexico is currently limited to non-perishable products such as coffee, beer, pasta, and vegetable preserves. Walmart offers a wider selection, which includes fresh foods such as lettuce and chicken.

Walmart complained about the lower prices of its rival with several food suppliers in Mexico, including multinational firms, at the time that Amazon launched its food and beverage website, said two of the sources in the Mexican e-commerce industry who requested anonymity due to the sensitivity of commercial relationships.

Some of the larger firms discovered ways to appease Walmart, such as packaging their Amazon products in sizes different from those sold at Walmart. But many of the smaller companies lacked the necessary skills to negotiate.