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The One-Dollar Solution
Waldo’s Mart, a scrappy Mexican discount chain, is thriving in Mexico’s sluggish economy, while Wal-Mart, the behemoth of retail, is suffering. Does the upstart know something the world’s largest retailer doesn’t?
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If you take a bus from the main terminal in Puebla, Mexico, about two hours southwest of Mexico City, you will see, in the shadow of a sprawling Sam’s Club, a 99 cent, or 11 peso, discount store called Waldo’s Mart. It’s an improbable upstart in a country dominated by big, multinational retailers, and it has taken Mexico by storm, opening 200 stores in the past five years. It is a privately held company with a total of 246 stores in Mexico, and according to company officials, it is poised to reach a half-billion dollars in revenues in 2007. Waldo’s might seem like a chihuahua yapping at the heels of the world’s largest retailer, but it might also have figured out how to beat Wal-Mart at its own game. The company was hatched in 1999, when Saad Nadhir and Scott Beck — both recovering from the 1998 implosion of their family-style food chain, Boston Chicken — started a chain of dollar stores in Chicago and Detroit. Almost as an afterthought, they opened a single store in Tijuana to test the Mexican market. To their surprise, this store outperformed all the others. The company soon abandoned the U.S. market altogether and moved all its stores south of the border.
Discount retailers like Wal-Mart and the Mexican food retailer Chedraui already were well established, but Waldo’s was the first to introduce the dollar-store format. And Mexicans took to it right away. Its “Todo a un precio” (“Everything at one price”) slogan has attracted many a Mexican housewife, who can stretch a family budget to buy anything from diapers to coffee creamer for 11.50 pesos, or just over one dollar. That kind of extreme value, as it’s called in retail terms, was the key to Waldo’s success. Even now — as family budgets are starved of remittances that once flowed from the U.S. construction boom, and the sluggish U.S. economy seeps across the border and drags consumption in Mexico down — sales at Waldo’s are up. This year’s same-store sales jumped by 12 percent compared with last year, and overall revenues have risen 35 percent, according to company officials. “In my opinion, Waldo’s is really focusing more on convenience and value,” says Hugo Del Pozzo of Bravo Equity Partners, which invested in the discount chain back in 2001. “‘This is what I need, it’s a good value, it’s the right size,’ rather than, ‘I don’t really need this but I’m going to buy it anyway because it’s a dollar.’ ”
Ironically, Wal-Mart, whose greatest marketing strength in the U.S. has been its incredibly low prices, has been unable to capitalize as much as Waldo’s on Mexico’s current economic situation. Because it is so ubiquitous — 910 stores in 239 cities as of April 2007 — Wal-Mart is a pretty good indicator for the health of the Mexican economy and its sales have suffered accordingly. Same-store sales at Wal-Mart de Mexico, or Wal-Mex, were down 2 percent in July 2007 compared with an increase of 4 percent in July 2006, according to investment bank Actinver.
Perhaps it’s a testament to just how successful Waldo’s one-price model has been that Wal-Mart started copying it in 2003, adding a one-price department called Prichos, short for the Spanish capricho, meaning caprice or whim, to its Wal-Mex and Bodega Aurrera stores. The name hints at a brand of bargain hunting more suitable to U.S. citizens — fishing for cheap and whimsical knickknacks — than Mexican shoppers, who seek more basic goods like weekly supplies of milk and toilet paper.
This miscalculation might explain why Ricardo Viso, Waldo’s marketing director, says he’s not worried by the competition. The Prichos departments are “not really affecting our sales in any way,” he says. “It’s another department in the store, it’s not a concept. They’re not doing anything to build the brand of Prichos.”
Names aside, the little chain has taken after its giant neighbor in other ways as well. Waldo’s tends to devour rather than destroy smaller companies that set out to copy the one-price model. It bought the only major competitor, Sólo Un Precio, in 2005 from Mexican billionaire Carlos Slim. And just as Wal-Mart stores became a Friday-night hang-out in rural America, Waldo’s green-and-red storefronts have gained enough cultural capital as a playground for teenage pranksters to appear on You Tube.
While Waldo’s relies on a team of Mexican managers to navigate the local consumer psyche, there is a gringo boss at the helm of the company. Scott Beck, who ran the ill-fated restaurant chain Boston Chicken with Mr. Nadhir in the late 1990s, is the largest stockholder and chief executive officer. Mr. Nadhir is no longer involved in the day-to-day operations of the company.
Beck has orchestrated the dollar store’s expansion from the offices of Waldo’s Holdings LLC in Denver. And he’s done it by taking the best of Wal-Mart’s strategies and making them more palatable to the Mexican market. As discount retailers, both Wal-Mart and Waldo’s scour the globe for cheap goods, but Wal-Mart has caught heat in Mexico, as it has in the U.S., for squeezing suppliers in its pursuit of ever-lower prices and driving competitors of equal size to do the same. Waldo’s says it takes a different tack with its suppliers. While acceptable entry margins are a must to appear on Waldo’s stores’ shelves, Viso says Mexico’s scarce credit options allow the company to negotiate longer credit terms with suppliers rather than squeeze them down to margins they can ill afford.
Waldo’s also is trying to reduce its imports from the U.S. and China and increase its number of Mexican suppliers, which began to slip after the company began sourcing products globally. “Almost 40 percent of our products come from Mexico. We’ve been trying, because we want to help . . . Mexican companies. So every time we have an opportunity to build a new vendor in Mexico, we do,” Viso says. The “Hecho en Mexico” (“Made in Mexico”) philosophy harkens back to Wal-Mart’s patriotic “Buy American” slogan of the 1980s, in a time before globalization and free trade agreements made the sirens of cheaper labor impossible to ignore. The link to North America also is key to Waldo’s marketing strategy. Most Waldo’s products carry English labels, because “Mexicans trust in one way or another, everything that’s American. They really don’t like it, but they trust it,” Viso explains.
Does Waldo’s see its success in Mexico as a first step in a march across Latin America? Maybe, but for now, the chihuahua has to be careful not to underestimate the competitive power of the top dog. Management is settling for saturation of the Mexican market. “Of course we keep an eye every single day on what they’re doing,” Viso says. “Wal-Mart is Wal-Mart.”
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