Avenida Presidente Eduardo Frei Montalva 8301
Quilcura 7490562, Santiago
Telephone: (56) (2) 200-5000
Toll Free: (56) (2) (600) 399-6666
Fax: (56) (2) 200-5100
Sales: CLP 1.39 trillion ($2.49 billion) (2004)
Stock Exchanges: Bolsa de Comercio de Santiago Madrid New York
Ticker Symbols: D&S; DYS (ADRs)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores; 522210 Credit Card Issuing; 531120 Lessors of Nonresidential Buildings
We will be the most innovative, most productive and most profitable firm in the industry. We will be the best distribution and retailing company in the region.
We believe that our duty is to serve God and our country. We will best accomplish this by providing a service that meets the basic needs of thousands of families at a low cost, with high quality and by providing job opportunities and the possibility for employees to grow with our company.
1893: The wholesale distribution business that eventually leads to D&S is founded.
1957: Manuel Ibáñez Ojeda opens an Almac supermarket in Santiago.
1966: With five units in Santiago, Almac is the largest supermarket chain in Chile.
1984: The company establishes a second supermarket chain called Ekono.
1987: The first Ekono hypermarket opens for business.
1993: D&S enters Argentina with an Ekono supermarket.
1995: D&S introduces its third chain, called Líder.
1996: The company goes public and also introduces its own credit card.
1998: Flush with cash from the sale of stock, D&S opens 17 stores.
1999: Too-rapid expansion results in red ink and the sale of the Argentine operation.
2001: The largest D&S hypermarket has a pharmacy and a music-and-entertainment mezzanine.
2003: All remaining Almac and Ekono stores are relabeled under the Líder name.
2004: D&S purchases all seven Carrefour hypermarkets in Chile.
Distribución y Servicio D&S S.A. operates a chain of supermarkets and retail food stores in Chile and is, in terms of revenue, the nation's largest retailer. Among its 75-odd stores are huge supermarkets, called hypermarkets, under the Líder and Líder Vecino names. They carry (aside from food) apparel, housewares and furniture, electronics and appliances, office supplies, sporting goods, auto parts, pet supplies, and toys. D&S also operates smaller Líder Express supermarkets, FarmaLíder pharmacies, LíderCafé and CafeBuffet restaurants, and shopping malls.
A Growing Array of Products: 1893-1996
D&S derives from Gratenau y Cía., an import and wholesale distribution company founded in Valparaiso by German businessmen from Hannover in 1893. Adolfo Ibáñez Boggiano joined this company in 1899, and it eventually became Ibáñez y Cía. The company's commercial retail activities began in the 1930s, with the opening of Depósitos Tres Montes outlets in strategic points of Santiago, the capital and chief metropolis of Chile. These were small warehouses selling coffee, tea, and maté. Under the management of Adolfo's son Manuel Ibáñez Ojeda, the Ibáñez stores became self-service in 1944. In 1957, he opened what D&S has called the first supermarket in Latin America, naming it Almac for Sociedad Comercial de Almacenes Ltda., which was the company name at this time. Located in Santiago's Providencia neighborhood, Almac's self-service format, combined with parking lots and a wide range of products, found favor and led to the replacement of the older, smaller Tres Montes stores by Almac supermarkets. There were five of these units in 1966, all in the Santiago metropolitan area, making Supermercados Almac the largest supermarket operator in Chile. They carried (in addition to complete lines of food) liquors, wines, hardware, toys, toiletries, glass products, and notions.
The first of a new supermarket chain, Ekono, was opened in 1984; it targeted the middle class with a marketing campaign based on low prices. Distribución y Servicio D&S S.A. was established in 1985 to act as distributor and service provider for the supermarkets, although its field of operation came to be widened. The business was conceived as a system of independent enterprises. Many of the stores were the property of an Ibáñez family group. Others were administered by D&S but belonged to outside investors, including stores operated as franchises. By 1997 D&S owned 27 of its 36 stores and 91 percent of its selling space and properties in Chile.
The first Ekono hypermarket opened in 1987; its larger sales space allowed the company to include more nonfood products. D&S entered Argentina with a half-share in an Ekono supermarket in 1993. By the end of 1996 the company owned three such stores, in hypermarket form, with annual sales of $120 million. In 1995 D&S introduced its first Líder store, with about 10,000 square meters (more than 100,000 square feet) of selling space. This store, with about 60 percent of the space devoted to such nonfood articles as clothing, electric home appliances, and housewares, represented a new, and soon growing, format for the company. The following year D&S took over the Fullmarket S.A. chain, consisting of two Santiago-area stores and real estate in Temuco, and the O'Clock bakery company. The number of its stores almost doubled between 1992 and 1996. During this period D&S more than doubled its operating profit margins and almost tripled its selling space.
Applying the Wal-Mart Model: 1997-2002
In 1997 D&S was Chile's largest supermarket operation, with Almac, Ekono, and Líder each holding roughly equal shares of the company's roughly 20 percent of this sector. Presto, the company's credit card, was introduced in 1996. D&S became a public company in December 1996, raising some $50 million by selling shares of stock on the Bolsa de Comercio de Santiago. By late 1997, when the company began issuing American Depositary Receipts (the equivalent of shares) on the New York Stock Exchange, its shares had doubled in value. This new offering, including parallel issues to European and Chilean investors, raised $227.7 million. Two more Ekono hypermarkets opened that year, in Iquique and Talca, and a third Ekono opened in a part of Santiago previously without a supermarket. A Fullmarket was converted to a Líder, as was an Ekono. The year ended with nine Almacs, 13 Super Ekonos, nine Hiper Ekonos, and six Líders in Chile and five Ekonos in Argentina. D&S also owned two shopping centers in Santiago.
Manuel Ibáñez's son Felipe Ibáñez Scott became president of the D&S board of directors in 1986. Manuel's son Nicolás Ibáñez Scott became general manager (the equivalent of chief executive officer) in 1994. Energetic and ambitious, he presided over D&S's expansion of the mid-1990s and was named the outstanding entrepreneur of 1997 by the Chilean business magazine Capital. Interviewed for the publication by Carolina García de la Huerta, he declared, "We want to compare ourselves with American and English companies, the most efficient in the world. ... So great is our ambition." Armed with the infusion of funds from stock sales he opened, at a cost of $400 million, 17 new D&S stores in 1998, including five in Argentina, where the number of Ekono stores now reached ten. But the recession that began in Argentina in 1998 resulted in a debt of $100 million and current-account losses of $2 million a month. Faced with a very low market share and poor prospects, D&S sold the Argentine operation to Disco S.A. in 1999 for $150 million. The company lost money that year, principally because of its failed venture.
The sale of the Argentine operation enabled D&S to reduce its debt, which reached $377 million at the end of 1999. The company maintained its policy of aggressive expansion within Chile itself, acquiring new land to build more stores and, it was hoped, fend off multinational competitors such as Carrefour S.A. by saturating the market.
In 2000 D&S introduced Líder Vecino, a format created by converting existing Ekono supermarkets. Within an average of only 3,800 square meters of space, a Líder Vecino held all the different sections of any existing Líder. In 2001 the company launched its newest hypermarket format, named Líder Mercado, with the opening of a store located along one of Santiago's major throughfares. This store offered the broadest assortment of products (50,000 storekeeping units), as well as a music-and-entertainment mezzanine, a flower shop, and a pharmacy inside the health-and-beauty area. This was the first of 19 FarmaLíders installed within the company's hypermarkets by the end of 2001.
By this time D&S had regained its equilibrium and impetus, but Nicolas Ibáñez had lost none of his drive to excel. He rose at six each morning and, after jogging for an hour, arrived at his gym for a little work on the machines and to "touch base" informally with his staff. He was at his desk at eight and expected everybody else at headquarters to be there also. Writing for Capital, Lorena Medel called the 44-year-old "a strange mixture of privileged child, pampered by his mother, and authoritarian and disciplinarian adult ... hyperkinetic as a monkey. ... He does things that no other entrepreneur would do in Chile, such as prohibiting women in his company from wearing pants. ... Many executives tremble and some don't even dare look him in the eye." Men were forbidden beards, long sideburns, or long hair, and women were not allowed to wear too much makeup. Smoking was prohibited inside offices, nor was anyone allowed to slip outside and smoke. Employees were required to attend "personal growth" sessions once a year at a mountain retreat in the nearby Andes. A dancing session was held the first Monday of each month, and attendance at the weekly mass given at a company chapel was "suggested."
One of the strengths of D&S was a high level of service with relatively low levels of inventory. The company built its own 60,000-square-meter distribution center in 1996 and, soon after, furnished it with advanced inventory-management software from Atlanta-based E3 Corp. By 2001 the company was using more than 1,800 vendors to supply its stores. D&S also put great emphasis on service to its suppliers. Nevertheless, it did not hesitate to leverage its leadership in groceries and perishables to extract maximum concessions from its suppliers, based on a model borrowed from Wal-Mart Stores Inc. In 1999 D&S extended its deadline for making payments to its vendors from the normal 30 to 60 or 90 days. Those refusing had their products banned from the supermarkets. In the same year a suppliers' group said the company was violating the intellectual property of its members by copying logos, images, and colors so that D&S private-label goods would resemble those of established competing brands. In 2002 Nestlé Chile S.A. publicly complained that D&S was demanding prices lower than those accorded to the competition.
Uncertain Direction: 2003-04
Following a year of lower profit margins, Nicolas Ibáñez suddenly departed D&S at the beginning of 2003 and was replaced by a cousin, Cristóbal Lira Ibáñez. Rumor had it that he did not leave of his own accord but had been told to depart, for a time, by his father. Medel, who interviewed Lira, described the atmosphere at company headquarters as "perhaps less tense ... more relaxed." The new general manager said the staff was not wearing neckties during the summer and laughingly denied that "our people are required to climb Aconcagua" (at 23,834 feet, the highest peak in the Western Hemisphere). A veteran D&S executive, Lira indicated that the company--with debts surpassing its net worth--would be passing through a phase of consolidation rather than expansion, with an emphasis on improving the distribution network, improving service to the customer, and repositioning the stores in the marketplace. D&S, in 2003, took a long-contemplated action when it converted its four remaining Almac and 23 Ekono stores into Líder Express supermarkets and Líder Vecino compact hypermarkets, respectively. The lone Líder Mercado became a Líder hypermarket.
Lira's stewardship proved to be only temporary. Despite increased sales in the first half of 2004, the company's profit margin fell precipitously. Ibáñez took up the reins of the company again at the beginning of September 2004. Earlier in the year, he had scored a coup by purchasing the seven Carrefour stores in Chile for EUR 100 million (about $124 million), traveling to Paris to outbid Chile's largest department store chain, Falabella. The French-based hypermarket chain had entered Chile in 1998 but had scarcely passed 3 percent of the market in its field. In August, D&S raised $250 million by selling stock in Chile and overseas. The funds from this sale, which reduced the Ibáñez Scott family's stake in D&S from three-quarters to two-thirds of the shares, were dedicated to paying Carrefour, augmenting the Presto credit card venture, and financing a 2004-05 expansion plan that called for seven new stores.
The strategy of D&S seemed to be based on Wal-Mart: namely, continuing to attract customers through everyday low prices and keeping costs down by economy of scale. Extracting maximum profit from the company credit card, Presto, which had a million holders, was part of the effort. D&S was about to issue Transbank, a credit card not tied to its outlets, and it had made an alliance with public-owned BancoEstado. In addition, the company seemed certain to establish a Banco Líder in 2005. For 2004 D&S recorded a paper-thin profit of CLP 5.31 billion ($9.53 million) on revenue of CLP 1.39 trillion ($2.49 billion). Its long-term debt at the end of 2004 was CLP 237.92 billion ($417.96 million). It held 33.5 percent of the supermarket sector in 2003.
In early 2004, D&S was operating 74 stores, of which about 50 were in the Santiago metropolitan area. Twenty-nine were Líder hypermarkets intended to be "one stop" shopping destinations modeled after European hypermarkets. Typically these stores occupied strategic sites at the intersection of major thoroughfares, thereby servicing various communities with one store. The Líder sites had ample parking spaces and were generally developed in combination with an assortment of complementary stores, including food courts, cinemas, and pharmacies. These stores ranged in size from 6,020 to 13,243 square meters, carried a large variety of nonfood items, and had 42 to 76 checkout counters. Six of them were Carrefour Chile stores acquired in January 2004.
The 20 Líder Vecino stores incorporated the characteristics of a Líder hypermarket in a smaller selling area, ranging between 2,400 and 4,720 square meters but typically offering the same items as the traditional hypermarkets. The 25 Líder Express stores were rebranded Almac and Ekono units, operated as traditional neighborhood supermarkets providing a friendly atmosphere and personalized attention and emphasizing food products. They averaged 1,532 square meters in selling area. The 42 FarmaLíder stores also were located in small retail spaces within the hypermarkets. The 24 LíderCafé restaurants and eight CaféBuffet restaurants were located in the hypermarkets. A few larger-format restaurants had been opened in certain Líder stores under the Revive name.
Groceries accounted for 47 percent of sales from retail operations in 2003, followed by perishables, with 34 percent. Apparel, with 6 percent, ranked third. Sales of the company's private-label products came to 14.6 percent of the total. Líder stores accounted for 60.5 percent of total net revenues, while Líder Vecino accounted for 21.1 percent and Líder Express for 12.7 percent. Credit card operations, logistics services, and real estate operations accounted for the remaining 5.7 percent.
D&S owned six shopping centers: four in the Santiago area, and one each in Antofagasta and Viña del Mar. These facilities were 64 percent rented by other merchants rather than the supermarkets themselves. Some 705 retail locations were being rented within the supermarkets. D&S owned 52 of its 68 stores prior to the Carrefour purchase. Its distribution center was in Quilicura, on the outskirts of Santiago.
Principal Subsidiaries: Administradora de Concesiones Comerciales de Hipermercados S.A.; Administradora de Concesiones Comerciales de Supermercados S.A.; Maquinsa S.A.; S.A. Inmobilaria Terrenos y Establecimientos Comerciales.
Principal Competitors: Cencosud S.A.; Supermercados Unimarc S.A.
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