Going big in Brazil

Grocery shopping

For nearly 30 years, and through periods of great market volatility, Advent has maintained a continuous presence in Latin America. In 2014, the Brazilian market was turbulent. Our consumer team was intensively researching the grocery sector, given its non-cyclical nature. It was also a sector where we could leverage our experience from investing in other types of retailers, both in Brazil and globally.

We approached Walmart to propose a collaboration in their Brazilian business, but at that time they had little interest in a deal. The following year, they came to us to see if we were interested in their Brazilian e-commerce business, but this time, it wasn’t the right opportunity for Advent.

The right partnership, at the right time

Nonetheless, dialogue continued, enabling Advent to build a strong relationship with Walmart. When they began exploring a sale of Walmart Brazil in the second quarter of 2017, the team visited Walmart’s global headquarters in Bentonville, Arkansas to reignite the discussion of a potential partnership. By this stage, we had already done deep diligence on the market, and in close collaboration with members of our global consumer team, developed a clear growth plan for the Brazilian entity. Our scale and reputation also made us a strong partnership contender – Advent was one of the few financial firms with a dedicated team on the ground in Brazil to advise, as well as deep expertise in consumer businesses, and significant global resources.

Agreed in June 2018, the partnership saw Advent acquire an 80% stake in Walmart Brazil, with Walmart retaining the balance. Grupo Big (formerly Walmart Brazil) was then formed, combining a strong partnership between Advent’s deep expertise of retail in Brazil and Walmart’s worldwide retail experience. Grupo Big was the third largest grocery operator in the market, growing at roughly 6% per annum.

At the time of Advent’s investment, the business employed 55,000 people across its 438 stores, and owned 188 drugstores, 14 gas stations, and one of the largest e-commerce portals in the country. It had a diversified portfolio, including hypermarkets and supermarkets under the brands Big, Bompreço, Mercadorama, Nacional, and Walmart; proximity stores trading as TodoDia; the Maxxi Atacado cash-and-carry stores; and warehouse club Sam’s Club.

Combining the best ingredients

When Advent acquired the business, we recognized that there were several development areas that would need intensive focus, including carving out the IT system, revamping the e-commerce and logistics operations, and most importantly, tailoring the portfolio to the unique characteristics of the Brazilian market.

The most pressing task was to recruit the right team to undertake this ambitious business recovery. To lead the company, Grupo Big hired Luiz Fazzio, who brought with him a wealth of experience gained from 36 years in retail. Most recently CEO of Tok&Stok, Luiz had previously led Carrefour in Brazil, implementing an operational turnaround of the retail giant. Over the course of the next year, and with the backing of Advent’s Portfolio Support Group (PSG), the company reorganized the leadership team, hiring 49 new managers, which helped to run the company through to the sale.

Having had prior experience in corporate carve-outs, Advent knew the scale of the challenge ahead in terms of building the team, culture, and corporate infrastructure that would enable the company to flourish independently. One of the key initial recruits was a Chief Transformation Officer who would work with the CEO to drive this change. In partnership with Walmart and the new management team, we organized the governance of the company around our shared long-term goals, establishing committees to tackle logistics, IT, audit, and human resources. On the board and committees, we had members from Advent, Walmart, and independent members, each with significant experience to support the management team. This alignment gave all parties visibility on the progress of key workstreams and allowed us to back management with the financial and operational resources they needed to get the job done.

Adding some Brazilian flavor

A key element of our investment thesis was to reorient Grupo Big’s portfolio to meet the needs of the Brazilian consumer and fully reflect the regional diversity of the market. Advent knew the scale of the task and believed it could only be achieved if all the parties were aligned behind a clear plan.

From the outset, the team’s focus was to implement complex long-term operational improvements, rather than short-term financial or property engineering.

The first step on this operational journey was to reposition Grupo Big’s store portfolio to better meet the needs of the Brazilian consumer. Cash-and-carry formats occupy a uniquely important place in the hearts and minds of the Brazilian consumer, commanding ~45% of the total grocery market at the time. Grupo Big had some well-positioned locations in Brazil, but these were largely occupied by hypermarkets, with their promises of low prices. While these stores were organized and competitive on price, they did not offer the deep discounts on select products that are a key feature of Brazilian retail.

The team set about revamping the store portfolio, shutting under-performing locations, converting some to cash-and-carry models, and refurbishing other stores. Between 2018 and 2021, we renovated 86 hypermarkets, 98 supermarkets, and 73 cash & carry and club formats, while updating the real estate footprint to feature brands with more local resonance – including Maxxi, Big, Big Bompreço, and Nacional.

Another area of focus was the Sam’s Club wholesale format, which operates large, low-cost membership-only warehouse stores. Walmart had successfully established the business in Brazil, and it was performing well and was ripe for expansion. The team built on the offering, and between 2018 and 2021, the business increased in size from 27 to 40+ stores through the conversion of supercenters into Sam’s Clubs.

Making the product mix right

The second challenge was adjusting the existing product mix. Grupo Big developed a one-year project to adjust product mix and pricing strategy to address the needs of Brazilian consumers in different regions of the country. It was a complex task to adapt the product range to properly serve the wealthier regions of São Paulo and the poorer areas of northeast Brazil. The team structured local commercial cells throughout Brazil to source products from nearby suppliers and to ensure the right product mix in each store.

Selling the store

And finally, the team rationalized the business’ real estate portfolio. During 2019, a series of property transactions – including a sale of five locations, and the disposal of two non-operating distribution centers – resulted in a far more efficient real estate footprint.

A new strategy for online sales

Following our previous assessment of Grupo Big’s e-commerce offering in Brazil, we recognized that the platform was running as a nationwide, standalone entity, but what we wanted to do was sell online groceries from local stores. This would be faster and cheaper. In conjunction with the PSG team, the team started to build and test a new system in 2019.

The result was a brand new, time- and cost-efficient e-commerce system, up and running just before Covid-19 brought the retail world grinding to a halt and made the everyday act of buying groceries a frightening and difficult activity. When the pandemic hit, Grupo Big had a portfolio of clean, refurbished stores and a safe and effective online solution in place. This combination proved a strong differentiating factor for shoppers with understandable health concerns, and helped the company to grow its market share substantially during 2021 and prompted us to initiate the process of taking the company public.

The proof is in the pudding

Having observed all that the team had collectively done to transform the company and return it to growth, Grupo Carrefour Brasil (Carrefour Brazil), the largest grocery operator in the country, approached us during the IPO process with an offer to buy the business. We gave them time to do deeper diligence and eventually pulled the IPO to allow space for the negotiations to conclude. In 2022, Advent agreed to sell the business. Carrefour Brazil acquired a company with an enhanced management team, a rejuvenated store portfolio, and optimal operations and logistics. From the time of entry until the sale of the company, Advent and the Grupo Big management team had built an efficient e-commerce solution covering the majority of our 400 stores across 69 cities within Brazil. Most importantly, consumers were happy too – during Advent’s period of ownership, the company’s net promoter score increased from 20% to 80%.