Brazilian Retail News

Year 09 - Issue # 366 - São Paulo, November, 29th, 2010

Phone: (5511) 3405-6666

Retailers are optimistic for Christmas

Brazilian retailers expect to live the best Christmas sea-

son since 2007. A survey with 35 companies associated to
trade group IDV reveals the segment expect sales to rise
11.8% in November and 11.1% in December year-on-year,
leading total FY sales to a 7.8% growth, the best figure since
2007 and slightly above the 7.7% reported in 2009. Growth
shall be leveraged by durable goods segments, as furniture,
electronics, home appliances and building supplies.

Pão de Açúcar speeds up conversions to Extra Supermercado fascia

Pão de Açúcar, Brazil’s largest retailer, has gone forward in the expansion of its Extra Supermercado supermarket chain.
Last week, there were opened 16 stores, in a R$ 14 million (US$ 7.78 million) investment. Four shops in São Paulo were
rebranded from CompreBem fascia, while other 12 were Sendas supermarkets in Rio de Janeiro. Extra Supermercado
now has 72 stores in the country and the conversion plan counts on more than 170 stores until the end of the next year.

Consumer confidence goes all-time high in November

The Brazilian consumer confidence reached in November the highest level in the history, according to the FGV’s ICC
index, that rose 2.7% this month over October, to 125.4 points. FGV said Brazilians are more confident in the current
conditions and optimistic for the next six months.

Consumers support plastic bag replacement

A research Synovate did for Walmart and the Ministry of

Environment with 1,100 people in 11 large Brazilian cities
shows the population has a increasingly strong feeling that
sustainability in a no-return way. The study revealed 60% of
consumers agree with the idea of banning plastic bags, but
21% would not know how to discharge their domestic trash.
Other important findings: more than 70% of the interviewed
consumers dump batteries in the regular trash can; 66%
discharge medicine incorrectly; and 39% drop used olive
oil in the kitchen sink.

Brazilian Retail News 1 11/29/2010

Brazilian Retail News
Year 09 - Issue # 366 - São Paulo, November, 29th, 2010
Phone: (5511) 3405-6666

Fast Shop opens 22 Apple Shops in the

country

Electronics chain Fast Shop has opened 22 Apple Shop

stores in Brazil, making the company the owner of the largest
Apple exclusive stores chain in the country. The new units
are in several cities of the Southeast, South and Northeast
regions.

Puket changes stores and aims foreign expansion

Socks and underwear chain Puket will remodel its stores to improve visibility of its products. The company is also pre-
paring a foreign expansion, through franchising. The new shops will be opened in the new store model and more than five
years-old shops will be remodeled. The company plans to end 2011 with 90 stores in the country, adding 20 new shops in
the next 12 months. Internationally, the brand is in Venezuela and studies markets as Panama, Colombia, Mexico, Chile
and Argentina, as well as Arab countries.

Brazil already has more than 1 cell phone

per person

The Brazilian mobile phone base had in October an

1.55% growth month-on-month, according to the National
Telecommunications Agency (Anatel), adding almost 3 mil-
lion lines. Today, there are 194.44 million cell phones, or
100.44 to every 100 people. Of the total mobile accesses,
82.19% are pre-paid and 17.81% post-paid. In the year-to-
date, 20.48 million mobile phones have been added.

Walmart to double internet sales this Christmas

Walmart forecasts this Christmas season its sales will double over the same period in 2009, highly above the 40%
expansion predicted for the overall online retail. In the Distribution Centers dedicated to the online operations, Walmart
has increased in more than 50% its storage capacity.
IT and Telecom systems were also upgraded to
support sales growth. Product mix will be increased
from 50,000 to 70,000 SKUs to add seasonal goods.

Brazilian Retail News 2 11/29/2010

Brazilian Retail News
Year 09 - Issue # 366 - São Paulo, November, 29th, 2010
Phone: (5511) 3405-6666

Momentum
Increasingly global franchising – part 2
Marcos Gouvêa de Souza - CEO, GS&MD - Gouvêa de Souza

This article continues the one from last week, analyzing the deep transformation process that has been happening in the global fran-
chising segment due to changes in the business scenario, with significant impacts on the growth of the segment in Brazil.
Initially, we highlighted the impact of the growth of the emerging markets, with a faster and less risky expansion of retail through fran-
chising in these countries. The rise of the emerging economies, making the share of the richest countries in the global GDP drop from 75%
in 1990 to 66% in 2010, created a much stronger buzz for the expansion in emerging markets less competitive and consolidated and with
stronger growth opportunities due to younger populations more likely to try new products and services. As is the case of Brazil.
In this reality, franchising has been an interesting way to enter these markets, that use to demand a strong effort to adapt the models
operated in more mature markets and can speed up the process of expanding and exploiting these opportunities.
We also mentioned how there were created, in the most mature economies, rules aiming to protect small and midsize players, stimu-
lating franchising as an alternative for the ongoing expansion of retailers and service providers.
Another point was the increasing competitiveness of the global scenario, leading brands and suppliers to create exclusive sales and
relationship channels with consumers, mostly using franchising to better use the speed of expansion, lower risks and lower investments.
Another factor bringing more value to franchising is the rediscovery of this alternative of expansion and business diversification by
retail and services corporations, as a way to advance to new businesses, speed up expansion and, in some markets, allow for the growth
to continue, in spite of legal restrains.
In several countries, including Brazil with soft discount chain Dia%, Carrefour has been using this option to convert moms and pops
players into franchisees. In Spain there are three store formats offered to independent players become part of the business. In France, Casino
uses franchising to expand its Leader Price chain.
In the US, when Sears, increasing its services portfolio, entered the carpet cleaning and other home services business, formatted
the new business through franchising, offering services under the Sears brand, but with the experience provided by the independent players.
In Brazil, Pão de Açúcar group has in franchising one of the alternatives for its c-store format expansion. Still in the country, the ex-
pansion of franchising has been leveraged by the so-called emerging midclass, that in 2003 accounted for 50% of the total population and
in 2010 went up to 68.3%. A very fast growth, somehow not forecast in the scale and size it really occurred. Franchising was, in this aspect,
an interesting way to expand fast, nationwide, compromising less own financial resources and speeding up the occupation of new markets.
Cacau Show chocolate chain, who recently opened its 1,000th franchised store, is an excellent example of a company that was able
to use the forward wind to expand fast.
Another factor, in the Brazilian case, brings a new level of interest in the franchising model. With the lack of qualified personnel, bring-
ing difficulties to attract new professionals, leveling up salaries and making harder to retain the best, franchising can be an option to convert
independent in partners and franchisees.
In the retail globalization process, franchisors have been the Brazilian companies most willing to go overseas, combining long-term
view and boldness to expand in the country and in foreign markets at the same time, with new store formats, fascias and businesses.
Companies as Boticário, Via Uno, Spoleto, Bob’s, Localiza, Azaleia and Fisk, among others, using the flexibility the franchising concept
offers, have also been speeding up their foreign expansion, in an initiative that counts on the competence of trade group ABF, supported by
the country’s export agency Apex and the government.
These are some of the reasons, in a virtuous cycle, that have been stimulating banks and private equity funds to invest, as Bradesco,
Itaú, BTG-Pactual (who recently purchased drugstore chain Farmais), Advent (food service operations) and Carlyle (travel agency CVC
and underwear retail and industry), bringing in new resources, competences, management, ambition, long-term view and professionalism,
supporting Brazilian franchising’s global and local expansion, turning the sector into a worldwide benchmark due to its recent development.

Gouvêa de Souza & MD Desenvolvimento Empresarial Ltda.

Av. Paulista, 171 - 10º floor
Paraíso – São Paulo – Brazil – Zip Code: 01311-904
Phone: (5511) 3405-6666 – Fax: (5511) 3263-0066
E-mail: gsmd-de@gsmd.com.br
Home-page: www.gsmd.com.br

Brazilian Retail News 3 11/29/2010