Avenida Brigadiero Luiz Antonio 3142
Company Perspectives:
The company's mission is to ensure the best shopping experience to al l our customers, in each of our stores.
Companhia Brasiliera de Distribuiçao (CBD), much better known as Grupo Pao de Açúcar or simply Pao de Aç&uacut e;car, vies with the Brazilian subsidiary of French-based Carrefour S .A. for the title of largest retailer in Brazil, operating more than 500 hypermarkets, supermarkets, and stores that specialize in furnitu re and electronic and home-appliance products. It has a close partner in a rival of Carrefour, Casino Guichard-Perrachon S.A.
Development of a Retailing Empire: 1948-89
Valentim Dos Santos Diniz, a Portuguese immigrant, arrived in Brazil in 1929. He established a pastry shop named Pao de Acucar (Sugarloaf) in Sao Paulo in 1948. By the end of 1952 he had added two branches, and in 1959 Pao de Açúcar acquired another chain, and w ith it, its first supermarket. There were 11 stores in 1965. The foll owing year the enterprise added its first store outside Sao Paulo, in Santos.
Pao de Açúcar established the first Brazilian around-th e-clock, 24/7 supermarket in 1969, in Sao Paulo. At this point it had 55 stores. The following year it was the first Brazilian retailer to open a store abroad, in Lisbon. In 1971 the chain opened the first B razilian hypermarket, called Jumbo, selling a variety of goods as wel l as food products. That year it also introduced its own private-labe l brands, beginning with a detergent, and launched auto dealerships a nd auto-parts stores under the Pao de Açúcar name.
Pao de Açúcar acquired a travel agency in 1972 and a se cond one in 1974. In 1973 it opened a Jumbo in Luanda, Angola, and ac quired the Carisma supermarket chain in Belém. The company ope ned Nell's, a restaurant chain, in 1974, and acquired the CompreBem s upermarket chain, consisting of 15 supermarkets in the states of Pern ambuco and Paraíba, in 1975. This raised the number of its sto res to 100. The following year the enterprise acquired Electroradiobr az, consisting of 26 hypermarkets, 8 supermarkets, and 16 department stores. With the acquisition of three chains in 1978, Pao de Aç ;úcar now had 236 stores. The following year it introduced Min ibox, a chain of no-frills stores for low-income shoppers, with a lim ited number of items and very competitive prices. At one point there were more than 300 Minibox units.
Pao de Açúcar began the 1980s by opening Sandiz, a depa rtment-store chain, and launching Superbox, a big food discount chain . In 1981 it merged the eight chains of the retail division of Grupo Pao de Açúcar into Companhia Brasileira de Distribui&cc edil;ao (Brazilian Distribution Company). Three more chains were acqu ired in 1983. The group had 657 units in 1985, 170 of them in greater Sao Paulo. In terms of sales, it was the largest nationally owned pr ivate enterprise in Brazil. By the end of 1986 there were 50 Pao de A çúcar stores in Portugal, making it the 22nd-largest en terprise in that country. In 1987 the company introduced First Expres s, a joint venture with Shell Brazil Ltda. that placed convenience st ores within Shell's service-station properties. It sold the Sandiz de partment-store chain in the same year. Also that year, the company bu ilt a $15-million supermarket in Moscow. By 1988 the Pao de A&cce dil;úcar group consisted of 22 enterprises with 55,000 employe es and $2.1 billion in annual sales. It had stores in all but fiv e Brazilian states. And in 1989 yet another chain--Extra--was introdu ced. This was a hypermarket chain offering a large variety of both fo od and nonfood products.
All was not well, however, within Pao de Açúcar's Diniz clan. The founder, now 74, had yielded day-to-day management of the group to the eldest of his six children, Abílio. His privilege d position was resented by Valentim's two younger sons, Alcides and A rnaldo. The Sandiz sale, which was Alcides' work and opposed by his f ather, brought in $60 million, some of which went to the children , but it left Alcides still unhappy. In 1988 he surrendered his 8 per cent holding in the group to his father. In terms of liquid net worth , this amounted to $21 million, but in an attempt to keep peace w ithin the family, Valentim awarded Alcides land, two enterprises, and cash that was valued in total at $120 million.
Retrenchment and Recovery in the 1990s
A severe economic recession forced Pao de Açúcar to res tructure its operations in 1990, a year in which it lost $60 mill ion. The enterprise was so short of ready cash that it was in arrears of its taxes and its payments to suppliers. Abílio Diniz went to London and offered the enterprise to the investment bank Morgan G renfell & Co. Ltd. for $400 million but was able to attract o nly half that as a counteroffer. To save itself from bankruptcy, Pao de Açúcar borrowed $120 million from banks and sold its headquarters building--dubbed the "Glass Palace"--for $55 mi llion. It closed many stores (including the Jumbo and Minibox chains) , fired workers, and disposed of its noncore businesses. The number o f outlets dropped to 233, the number of employees from 45,000 to 18,0 00, and the group fell to second place in Brazilian retailing, behind the French company Carrefour. By late 1992 Arnaldo Diniz, the younge st son, was ready to defect and sell his share of the family holding company, but he rejected the amount offered. The net worth of this ho lding company, Pao de Açúcar S.A. Indústria e Co mércio, had fallen by about half because of Brazil's hard time s. The dysfunctional family was again in the news in 1993, when Ab&ia cute;lio persuaded his father--over his mother's objections--to turn over enough of his shares to give him 51 percent majority control. Th e sale that year of Supa, the group's Portuguese branch, brought in & #36;300 million and allowed Abílio to buy out Arnaldo and two of his three sisters.
By this time the Brazilian economy had recovered, and Pao de Aç ;úcar had regained its stride. The Extra hypermarket chain, pu rsuing a policy of aggressive price cutting, was accounting for nearl y a quarter of the group's revenues. In 1994 Pao de Açú car equaled the peak revenue of $2.3 billion that it had attained five years earlier, although the number of its units had now fallen to 216. In 1995 it introduced the first electronic supermarket in Bra zil, Pao de Açúcar Delivery, which became Internet-acce ssible the following year. As CBD, the group went public in 1995, sel ling $112.1 million worth of preferred shares on the Sao Paulo st ock exchange. Two years later, CBD became the first Brazilian retaile r with a listing on the New York Stock Exchange, raising $172.5 m illion by selling preferred American Depositary Receipts--the equival ent of shares.
The Minibox format was reintroduced in 1998 as Barateiro (Cheap), the name of a chain, Rede Barateiro de Supermercados, that had recently been acquired by the group. Also that year, the group introduced, in Sao Paulo, Pao de Açúcar Kid's, an educational supermar ket. In 1999 Pao de Açúcar acquired two chains and leas ed three more. During the year Casino Guichard-Perrachon S.A., a Fren ch-based giant multinational retailer, paid more than $1.3 billio n for about 21.3 percent of CBD's voting capital, plus debentures con vertible within five years into a potential maximum of 40 percent of the voting capital. The money was earmarked to help Pao de Aç& uacute;car continue making acquisitions and to service its BRL 1.5 bi llion ($692 million) of debt.
"This is not the fall of the last Brazilian supermarket operator," Ab ílio Diniz told Geoff Dyer of the Financial Times. "We will continue to be a Brazilian company controlled by Brazilians." He said that the principal advantages would be technological, plus acce ss to a global system of sales. Casino--a principal rival of Carrefou r in France--was used to operating in markets that were extremely con centrated and competitive, and it had a large line of its own private -label products, a field in which Diniz acknowledged that Pao de A&cc edil;úcar was deficient. Casino also had lessons for its new B razilian partner in the fields of efficient operation of distribution centers and operating such other retail formats as convenience and d iscount stores.
Challenges of the 21st Century
Pao de Açúcar's acquisitions helped increase the group' s annual revenues to $3.2 billion. It was the first food chain to keep many of its stores open around the clock and the first to popul arize its own brand of food items. The stores in Sao Paulo's better n eighborhoods carried gourmet treats in the bakery sections; those in the city's Japanese and Jewish neighborhoods included ethnic fare. Ye t the company was still left second to Carrefour's Brazilian subsidia ry and apprehensive of the looming presence of Wal-Mart Stores Inc. I n 2000 it closed the gap on Carrefour by adding 80 stores, most of th em from five chains that it acquired. And the next year it purchased ABC Supermercados S.A. in the state of Rio de Janeiro, thereby adding another 26 stores. In 2002 Pao de Açúcar acquired the Sé Supermercados chain--60 stores in 16 cities of Sao Paulo st ate--for BRL 250 million (about $85 million). These additions ena bled Pao de Açúcar to pass Carrefour in sales volume bu t increased its debt-to-equity ratio to 50 percent, compared to only 15 percent after selling stock shares and debentures to Casino.
In 2003 Diniz relinquished his position as chief executive officer of the group, assuming instead the supervisory post of chairman of the board. He passed over Ana Maria, the oldest of his four children and vice-president of operations, selecting as his successor Augusto Marq ues da Cruz, administrative vice-president and chief financial office r.
Pao de Açúcar made another major transaction in late 20 03 by forming a joint venture with Grupo Sendas S.A., operator of 106 stores in Rio de Janeiro. Once the largest supermarket chain in Rio, Sendas had fallen on hard times and was operating in the red and hav ing difficulty paying its suppliers. Pao de Açúcar adde d its own Rio stores to those of Sendas and turned Sendas into a low- priced chain similar to its own CompreBem in Sao Paulo, reducing the number of items sold, selling one of the two Sendas distribution cent ers and its fleet of refrigerated trucks, but also providing a large infusion of funds for modernization.
Pao de Açúcar entered, in 2004, in an agreement with Ba nco Itaú S.A.--Brazil's second-largest private bank--to establ ish Financeira Itaú CBD S.A. The partnership was aiming to iss ue 9.3 million credit cards by 2014 to retail shoppers such as Pao de Açúcar's own customers. It also intended to offer othe r products, such as insurance and real-estate loans.
Casino raised its equity stake in Pao de Açúcar in May 2005, and took 50 percent of the common shares of a holding company t hat would partly own the enterprise. Casino and Diniz would have equa l membership on the boards of both bodies. The complex arrangement in cluded Casino's payment of BRL 1 billion (about $400 million) for 60 Pao de Açúcar real-estate properties. The infusion of funds was expected to enable the enterprise to pay down its debts and fund an expansion program aimed at opening 160 more stores in the next four years.
In August 2005 Pao de Açúcar unexpectedly announced tha t Cruz would be leaving the company. Although neither he nor Diniz wo uld speak candidly about the circumstances, the Brazilian business ma gazine Exame reported that associates of Cruz said that Diniz had continually interfered with Cruz's administration of the enterpri se, and that Casino was dissatisfied with the profits--even though ne t income increased by 51 percent between 2002 and 2004. A committee h eaded by Ana Maria Diniz was said to have narrowed the choice of Cruz 's successor to six, with the final decision to be made by her father .
Pao de Açúcar had five retail chains in 2005, with a to tal of 553 stores operating in 13 states. The largest, in terms of un its, was Pao de Açúcar, with 185 stores. It had a neigh borhood supermarket format and was aimed at higher-income consumers w ith a cosmopolitan lifestyle. CompreBem had 177 supermarket stores. I t was aimed at working women and emphasized low prices and fresh prod uce and meat. Sendas, with 66 stores, was very similar to CompreBem. By far the largest chain, in terms of selling space, was the Extra hy permarket chain, offering a large variety of food and nonfood product s at competitive prices. Extra's 75 stores had 578,208 square meters of selling space, or about half of the total in the group. Extra Elec tro (the successor to Electradiobraz) had 50 stores. It specialized i n electronic and home-appliance products but also sold furniture and bazaar items.
Pao de Açúcar's gross revenues came to BRL 15.3 billion in 2004, or $5.22 billion, based on the average value of the cur rency in relation to the U.S. dollar during the year. Of this sum, Ex tra accounted for almost half (48 percent), followed by Pao de A&cced il;úcar, CompreBem, Sendas, and Extra Electro. The net revenue (less taxes and returns) was BRL 12.57 billion ($4.29 billion), and the net profit BRL 369.83 million ($126.22 million). Although net revenue was up 18 percent from the 2003 total, Pao de Aç& uacute;car fell behind Carrefour's subsidiary, Carrefour Comér cio e Indústria Ltda., in sales.
Principal Subsidiaries: CBD Technology Inc.; Golden Auto Posto Ltda.; Sé Supermercados Ltda.
Principal Operating Units: CompreBem; Extra; Extra Electro; Pa o de Açúcar; Sendas.
Principal Competitors: Casas Bahia Comercial Ltda.; Carrefour Comércio e Indústria Ltda.
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