Chile Food and Drink Report Q2 2008

With Chile's population currently standing at just 16.3mn people, and a significant percentage of that number on very low incomes, many of the country's most successful companies are focusing an increasing amount of effort on expanding in surrounding countries to tap markets which are less mature or more affluent. This trend has been evident among the country's MGRs and food and drink producers for several years and has continued throughout the last 18 months. In 2007, Chilean retailer Cencosud, entered the Brazilian market for the first time and also secured a leading position in Peru. Meanwhile food producer Empresa Carozzi continues to make inroads throughout the region and wine producer Concha y Toro's Argentine subsidiary continues to go from strength to strength.

In 2007, Cencosud, which already has a sizeable operation in Argentina, won the race to takeover Peru's largest retailer Wong in a deal worth US$500mn. Wong operates around 40 stores and is by far the largest operator in Peru, with around a 69% share of the organised retail market. With its strong reputation for customer service Wong is one of Peru's best known brands and this takeover has received its share of criticism with a segment of the population worried about the gradual 'chileanisation' of Peru's businesses. However, with strong cultural and geographical ties between the two countries and Peru's relatively immature food and drink sector offering attractive opportunities, Peru is likely to remain a leading investment location for Chilean companies looking to take their first steps out of the saturated Chilean market. In addition to its moves in Peru, Cencosud also took its first steps into the highly competitive Brazilian market, snapping up two local supermarket chains for a total price of US$451mn.

Chilean Empresa Carozzi is one of Latin America's largest food companies, with production plants in Chile, Argentina and Peru. In 2007 the firm continued to expand in the region with the acquisition of Peruvian firm Aglisac, a producer of preserved fish, canned fruits and tomato sauce, for US$7.3mn.

Meanwhile, Chilean wine producer Concha y Toro continues to post strong results from its Argentine subsidiary, with revenues up 23.4% in 9M07. Almost all of this growth stemmed from increased local consumption, partly thanks to Argentine consumers' preference for Argentinean wine. This impressive growth rate highlights the success that Chilean companies can have using their existing expertise to manufacture products in neighbouring countries that appeal specifically to that particular market.

These examples illustrate the strength of Chilean companies internationally; however, for Chile's leading supermarket operator, Distribucin y Servicio (D&S), international success has been slow coming. D&S had based its international strategy on a merger with international department store operator Falabella.

This was seen as vital for international expansion, as not only would Falabella's international experience have been invaluable, it would have opened up a variety of possible tie-ups with Falabella's existing international department store locations. However this merger was rejected by Chile's competition watchdog, meaning that for D&S international expansion is likely to be a lot more difficult.