Chile Deal Spices Up Wal-Mart

In today's print edition of the Journal the offer by Wal-Mart to buy D&S (Distribución y Servicio) is advertised.

Buying D&S will give Wal-Mart an instant hold on 33% of Chile's grocery market, which can be linked to Wal-Mart's existing distribution chain running from Argentina to Mexico.

Instantly, it'll have a third of the market. More, Wal-Mart will use its existing distribution chain, which should reduce per unit costs.

D&S operates through a variety of store sizes, including smaller locations to compete with local shops in underdeveloped regions. Wal-Mart has experience with a similar model in Mexico, where it operates through 68% subsidiary Wal-Mart de México, known as Walmex. As it did with Walmex, Wal-Mart is only buying a majority stake in D&S. The family that now controls the retailer will keep a minority stake, which means Wal-Mart has an experienced local connection in the company.

Wal-Mart is everywhere

In side-by-side stories on page B3, below the fold, in today's print edition of the Wall Street Journal the reach of Wal-Mart is displayed. One story is about its intention to buy Chile's largest retailer, D&S; the other is about discount prices for prescriptions filled with generic drugs.

Wal-Mart looks to Chile's D&S, whose holdings include Lider, to expand its international presence

D&S's controlling shareholder, the Ibáñez family, has agreed to tender at least 23% of its D&S shares. The family plans to enter into an agreement with Wal-Mart in which the chain would operate with its current management, workers and store brands.

Santiago-based D&S is Chile's largest grocery chain, with more than 140 locations. It posted net income of 52.7 billion pesos ($82.9 million) last year, up 24% from 2006.

People familiar with the deal said the company's various supermarket formats and a credit-card business fit Wal-Mart's strategy of buying established national companies to quickly gain market share, a plan it has executed in Brazil, Japan and China. Wal-Mart said the offer most resembled its acquisition of a majority stake in the Central American Retail Holding Co. from Guatemala's Paiz family earlier this decade, which eventually turned Wal-Mart into Central America's largest retailer.

It has the bank account to simply buy market share by acquiring companies, not needing to bother building its own market share by competition. International growth is declared to be its largest capital expenditure target over the next five years. Wal-Mart can't grow much domestically.

But it can do things to gain market share where it doesn't have a commanding presence; its $4 generic prescription plan introduced in 2006 was such a step. The Journal story points out Wal-Mart's $4 plan generated competition.

Retail pharmacy generic discount programs have proliferated since Wal-Mart Stores Inc. introduced $4 generic prescriptions for one-month supplies of hundreds of unbranded drugs in 2006, and mass merchandisers and grocery stores responded with their own versions.

"Wal-Mart's move was very significant because they were going after a core source of profits for retail pharmacy," said Adam Fein, president of pharmaceutical supply chain consulting firm Pembroke Consulting Inc. in Philadelphia. While offers such as Wal-Mart's have hurt independent pharmacies and regional drug-store chains more, Mr. Fein said, national drug-store chains face significant pressure as well.

Wal-Mart has hurt independent retailer in many industries. Prescriptions is just another market that the behemoth wants to dominate.