Brazil’s second-largest food retailer is seeking to recover share in the premium segment
09/29/2022
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Marcelo Pimentel — Foto: Carol Carquejeiro/Valor
In his first interview since taking over Brazil’s second-largest food retailer GPA (Grupo Pão de Açúcar), six months ago, CEO Marcelo Pimentel has a clear perception that there is a short window open for the group to start changing its numbers and start presenting better results to the market.
Mr. Pimentel says that the attention of investors right now is on the opportunity to monetize the Colombian group Éxito, a business that is part of GPA today but is likely to be spun off. This buys GPA time to put the house in order.
GPA seeks to regain the market lost in the premium segment in recent years, in addition to trying to accelerate the occupation of spaces in minimarkets, a terrain of strong competition. “Today, the focus of expansion is 90% in Pão and Minuto Pão de Açúcar,” he said. Of the 300 stores to be opened by 2024, 250 will be of brands such as Minuto and Mini Extra.
Between April and June, GPA posted R$4.4 billion in gross sales, up 4.6%. Margins fell and the R$65 million profit a year earlier turned into a R$135 million loss in the second quarter.
Besides the announced plan to spin off Éxito, there is still information in the market about the possibility of the controlling shareholder Casino getting rid of assets in the world, including Brazil. GPA has already manifested itself about it week ago, denying knowing anything like that. “The agreement I have with the board and with my peers is of total transparency about everything we have done. We have been careful to talk to the team beforehand and explain the reason for each movement, including showing the future path”, he says.
Read below the main excerpts from the interview.
Valor: What is the biggest challenge of the group today?
Marcelo Pimentel: I started talking to the group in December 2021 and the main issue was to understand the decision of leaving hypermarkets, an extremely brave decision and a turning point for us. Extra was a model that generated cash flow, but not results, and the decision was to focus again on our DNA. My mission at the new GPA is to focus on proximity stores, supermarkets, and multichannel, digital sales. I say it is like a plane with two wings, with the Pão de Açúcar and Minuto Pão de Açúcar chains on one wing. And the Minuto is no longer something disconnected, but something complementary to Pão, and the message of both must be the same. It has to have the same convenience DNA, the quality of the products.
Valor: And what about the other chains in the group?
Mr. Pimentel: On the other side of the wing of this plane are our mainstream brands: Mercado Extra, Compre Bem, and Mini Extra. But in the short term, looking at two to three years, our focus is absolutely on rescuing Pão de Açúcar [supermarkets]. This is where we need to get back to being a reference in the premium market for the upper classes, and Minuto talks about this with Pão de Açúcar. We are not actively focused on Mercado Extra and Mini Extra. And how are we going to do this? We have reviewed, in the last five months, since I joined the company, everything that was happening. All the strategic vision and, in practice, all the projects.
Valor: Can you give examples?
Mr. Pimentel: I came in and asked to make an inventory of all the projects that were happening in the different areas, and the fact is that we were with a lot of things in this process of trying to win, and in the best of intentions, we were trying to create solutions. The fact is that we canceled all the projects and decided what the strategic priorities would be. Today there are six strategic pillars, and under them, we have at most 25 projects. So, the first step is to say what we are not going to do so that we can be clear about what we are going to do. The first of the six pillars is the return of sustainable growth, of sales in trademarks, and especially in Pão.
Valor: What do you call sustainable growth?
Mr. Pimentel: As sustainable growth, I cite three points. We are finishing a project with the consulting company Bain & Company to align the ideal assortment. A lot of what happened recently was the insertion of an assortment without the coordinated control of category management so that the setup talked to the client’s needs. And working on the on-shelf availability, and the supply chain of the product, with our team and suppliers. We have to make sure that the product is there, that the customer finds it and comes back next week. This was one of the points of complaint from our customers, and it affects our NPS [a kind of store satisfaction score]. Inconsistency leads to doubt in the experience. The third point is the increase in the share of perishables [vegetables, fruits], which has always been a strength of the chain. Perishables have lost share, and one of the 25 projects is to resume the share of perishables in the total sale.
Valor: What is the share of perishables today and what is your goal?
Mr. Pimentel: Our ambition is, in the next two years, to reach more than 50% of perishables in the total sale of the store. It is around 41%, [it was below 40% at the time when the company operated Extra]. And it brings better margin, recurrence, and experience expectations because we will focus on improving product quality. The second part of sustainable growth is to recover premium customers, through a work of intelligence and segmentation to ensure that we do not just bring new customers, but increase the portion of premium customers, which have a much higher purchase frequency and profitability. To achieve this, we have to work, for example, on the queue experience at the checkout. Pão has lost the excellence of the experience, our clients do not want to queue up. We have already trained 100% of our employees so that all of them know this last semester how to operate the cash register. We already see an improvement in NPS in this.
Valor: What about the other points?
Mr. Pimentel: The second point is to improve specialized services, such as fish markets, butcher shops, and bakeries. And the third pillar is multichannel. Today we are already leaders in digital food in Brazil, if we look only at food, based on Ebit data [Carrefour is the leader in total online and leader if you include the cash-and-carry arm Atacadão].
Valor: What else is being done to try and turn the results around?
Mr. Pimentel: One of the things we have done is to integrate everything that was happening. There are many good things in Pão, but we have to organize them. Our app needs to be a big hub for connecting the retail experience. Part of what we do today already has a very good experience, but there are still some friction points. For example: if you go to pay with Stix [a loyalty program platform], you are directed to the app. If you want to know more about our store brands, there is a store brand website. James Delivery had its own app. In November, we will launch a new app to connect everything, to be one big integrated food hub. It’s not a super-app because I’m not going to sell everything there. By integrating, we want to go, in James, to an 80% delivery rate of same-day purchases after November from 40% now.
Valor: The point is that you compete with other apps which are more agile and competitive.
Mr. Pimentel: And they are getting faster. Our ambition is to have all this running in a more integrated way after January and February 2023, in the first quarter, running completely, and we are testing this.
Valor: Which other pillars are a priority?
Mr. Pimentel: They are the NPS level, multichannel, store expansion, profitability, and culture/ESG. We need to strengthen the vision of multichannel and the role of the store. Today more than 40% of our digital sales are made in the click-and-take-away model. In other words, it starts in the digital channel and ends in brick-and-mortar stores. Today, a project in the rollout phase is to place an “aquarium” for customers to take their orders, in front of the stores, to reduce friction and improve fluidity. We have 50% of our 1P sales [of items in the chain’s stock] and 50% are from partners, so we tested new things like the opening of the first dark store [an area that works only for online delivery] with iFood in the Morumbi store [in São Paulo] for express delivery. And in 30 stores we are also having express delivery, in 30 minutes, with iFood. In these stores, sales more than doubled. Self-checkout accounts for more than 35% of sales and is present in 91% of our stores.
Valor: You have already mentioned to analysts that you do not expect EBITDA at double-digit levels this year. As for sales, the market calculates, excluding Éxito, something between R$19 billion to R$20 billion in 2023, and smaller annual investments, in the range of R$600 million to R$700 million. What are the numbers of this new company?
Mr. Pimentel: Pão needs to recover sales, which it still hasn’t been doing, and grow more than inflation. We believe that in two to three years we will get closer to the inflation rate. But not yet above it. It will be one step at a time. One reason for the focus on Minuto is because it shows growth above inflation.
Valor: How is the plan to invest again?
Mr. Pimentel: The company has been organizing itself to increase its investments and this includes the conversions of 24 Extra stores into Pão de Açúcar, Mercado Extra, and Compre Bem supermarkets. And that was concluded in the third quarter, and in the fourth quarter, we will benefit from that. This year we have already transformed more than 40 stores to Generation 7 of the Pão [new store model], which are performing above the company’s average. What we want is to accelerate by 2023 to have 100% of the Pão stores converted to G7. The G7 model we are talking about now is from 2019.
Valor: The new generation has gained relevance in your plan, but there has been a slowdown in the transformation of old stores into G7. By 2020, the group had only 25% of the total stores in the model. Could the slow transition be affecting the growth rate today?
Mr. Pimentel: Not all stores were remodeled for Generation Seven. We will finish that next year, in the new generation model of 2021, already with adjustments from the previous model. Looking at the total chain is important because, really, if you start mixing generations, you can’t have a view of what was done. Today we have around 60 stores in the G7 that consistently perform better in all fundamentals.
Valor: When will adjustments reach a normalized level?
Mr. Pimentel: The first quarter of 2023 will be the moment. We are making an effort to finish 2022 this work with costs, which is in progress, to have a normal year in 2023. It is a work of reviewing operational expenses, of logistic optimization. And we will soon show the improvement in losses, or products thrown away, lost. That affects margins. We have had three quarters with lower losses. And there is still the negotiation with the industry, of rethinking logistics, because we closed four distribution centers [after selling Extra] and we have 12 centers now, and there is a new logistic network being created. This has advanced in the physical arm, it is a little better, but it is a process. We are close to the end, but there are still adjustments in the logistic network to ensure fluidity.
Valor: About the opening plan announced a few days ago, to 300 stores from 200 by 2024, how is it being planned?
Mr. Pimentel: The previous plan was to open 100 Pão stores, including the 24 conversions, and 100 proximity stores. I wanted to give myself the right to see if that would make sense for the current moment. Looking at the real estate opportunities, access to a more cost-effective plan, and focus on certain markets, I realized that it would make sense to focus on Minuto. So, we reduced the opening of 100 Pão stores to 50, and these 50 will be in São Paulo, not in the capital, besides Rio de Janeiro and the Northeast region. But where we already have a brand presence. We are not going to break new regions, trying to gain space where we would have to start building the brand. The conversions in new squares were done because it was Extra’s store that was converted into Pão.
Valor: From this forecast of 100 stores to be opened in 2023, and 125 in 2024, how is the division between brands?
Mr. Pimentel: There are 12 Pão and 88 Minuto stores, and in 2023, the proportion is similar.
Valor: In this new phase, which projects have been put on the back burner or canceled?
Mr. Pimentel: I will cite examples. The plan with James Delivery we didn’t cancel, but we are using it for the greater good. I stopped focusing on it as a separate thing and integrated it into the food hub. We have suspended internal real estate projects because it is not core. We didn’t move ahead with the Fresh model, but I will keep stores. We halted a lot of things. We had hundreds of projects distracting our focus.
Valor: You have mentioned in conversations with analysts the issue of the culture of the new company after the end of Extra, to change the mindset and not lose the commitment of the team. What do you do to maintain this?
Mr. Pimentel: We are going back to face-to-face work. Although it is not a popular decision, we are in a turnaround, and you must have people here. We have been working with transparency, to understand where we are, share the pillars, see what is going well, and change what is not. On Mondays, we have a meeting with the leadership team in the auditorium. This used to be more random and with a smaller audience. And we have created “coffee with the president” rituals, where once a month I have coffee with teams. And every Friday, we have “Viva Loja,” where the office team goes out to the store. We also instituted a monthly results meeting, which also did not exist.
Valor: Transitions always create insecurity in teams, because the doubt remains: will the company continue, or will it find another way? How to deal with this together with the team, and even deal with their limitations, since the decisions about the future of the company are the controlling shareholders’, not yours?
Mr. Pimentel: The agreement I have with the board and with my peers is of total transparency about everything we have done. For all the movements that have been happening, we have been careful to talk to the team beforehand and explain the reason for each move, including showing the future path. One reason for coming here is to have an incredible belief in the potential of Pão and because this brand has a connection that no other has, and we are going to rescue it. I have been very careful to have this transparency, that this is not an overnight project. And part of my agreement is that this is a medium and long-term project. And as you said, what is not in my hand, well, it is not in my hand, there is no point.
Valor: There is no point in asking you if the controlling shareholder will sell the company, as it is not up to you…
Mr. Pimentel: There is no point in worrying about it now. What I can say, however, is that all the interaction I have with the board of directors is focused on recovery and strategic plans. At no time have I spent time talking about anything else but this. And that is exactly what I will continue doing.
Valor: The market seems to be giving the company some time. Because there is an agenda of monetization with the Éxito spin-off, which is the focus of investors today. There is a short window for the company, and that it needs to take advantage of it to show improvements. Do you need to take advantage of this window?
Mr. Pimentel: That’s it. Absolutely. And the focus of the market at this first moment is on the great opportunity of monetization of Éxito with enormous value generation to be done. In this context, we have to be wise in using this time, in doing the basics well and let’s remember that the back to basics of the Pão is a more premium back to basics, and we have to be clear about this. I understand that the market has this expectation and I understand that it has been said before because we are talking about retail. There are no great inventions. What is needed is consistent execution of a value proposition offered, which in the case of Pão needs to be rescued.
*By Adriana Mattos — São Paulo
Source: Valor International