Controladora Comercial Mexicana, S.A. de C.V. History

Company Perspectives:

Controladora Comercial Mexicana is a leader in the retail industry in Mexico. It specializes in retail sales through various self-service store formats and restaurants, seeking to meet customer's needs and preferences. Key Dates:

Key Dates:

1932:

Guillermo Gonzalez Nova joins his father in running a Mexico City stall.

1962:

Comercial Mexicana opens its first self-service store.

1981-82:The company acquires a supermarket chain and opens its first restaurant.

1991:

CCM joins in creating Price Club de Mexico, a joint venture.

1994:

CCM passes Grupo Gigante to become Mexico's second largest retail chain.

1997:

CCM acquires Kmart Mexico , a hypermarket retail chain, for US$148.5 million.

Company History:

Controladora Comercial Mexicana, S.A. de C.V. (CCM or Comerci ) is the parent company of a group of Mexican hypermarkets, self-service stores, and discount warehouses offering both food and nonfood products; supermarkets that sell high-quality food products; and family-style restaurants. It ranks second in sales volume to Cifra, S.A. de C.V. among Mexican retailers.

Comercial Mexicana to 1995

Antonio Gonzalez Abascul was a Spanish immigrant to Mexico who sold fabrics and notions from a small stall in Mexico City. Carlos Gonzalez Nova, the second of his 12 children, left school in 1932 at the age of 15 to join his father. During World War II, when he became the main factor in the business, he bought raw cloth from textile firms and sold it in such countries as the United States and China. He also began to export goods to Central America. In 1946 father and son began to produce cloth of their own in Puebla, Queretaro, and Veracruz.

Comercial Mexicana, S.A. was incorporated in 1957. The self-service concept was beginning to take root in Mexico about this time, and in 1962 the company opened its first such store, in the southern part of Mexico City, with 12,000 square meters (about 130,000 square feet) of space. Comercial Mexicana opened three more Mexico City self-service stores in 1964 and later expanded not only in the metropolitan area but also into some of Mexico's 31 states. During the 1970s 20 Comercial Mexicana self-service stores were established. In 1977, among Mexican companies reporting their sales volume, Comerci ranked 21st, at 2.4 billion pesos (US$105 million).

In 1981 Comercial Mexicana acquired the Sumesa supermarket chain, and the following year it opened the first unit of its California restaurant chain. The company was renamed Controladora Comercial Mexicana (CCM) in 1988, when there were 103 units, of which more than 70 were Comercial Mexicana stores. CCM , in 1989, began operation of a Bodega chain of discount warehouses. Also that year, the company began leasing chattels and real estate, as well as investing in companies engaged in the purchase, sale, and distribution of groceries and general merchandise. CCM made its initial public offering of stock in 1991 and also issued its first company credit card that year. Its net sales came to 4.87 billion (new) pesos that year, or about US$1.61 billion.

CCM joined with Price Co. in 1991 to form Price Club de Mexico, a 50--50 joint venture that began establishing members-only warehouse stores in Mexico the following year, when it opened its first such store in Mexico City. These stores offered low prices on volume purchases of a limited selection of branded and private-label products. In 1993 Price Co. merged to become Price Costco Inc., and the following year split into two companies--Price Costco Inc. and Price Enterprises Inc.--which divided the 50 percent stake in this venture. Also in 1993, CCM initiated the first of its Mega hypermarket stores, in Guadalajara. The 1.4-million-square-foot store, in addition to offering a full line of groceries, clothing, and household items, housed a bank, pharmacy, optical center, and shoe-repair store. In 1995 CCM established a joint venture agreement with the French hypermarket chain Auchon. The partners opened a hypermarket the following year in Mexico City but terminated their pact at the end of the year, with the store continuing as part of the Mega chain.

CCM, in 1994, opened 19 stores: four Comercial Mexicana units, seven Bodegas, six Price Clubs, and two Mega stores. It also opened nine new California restaurants, including units in Acapulco, Guadalajara, Puebla, and Puerto Vallerta, plus two in Mexico City. The company now passed Grupo Gigante, S.A. de C.V. to take second place among Mexican self-service retailers. It was operating 142 stores and 29 restaurants, with a total of 154.79 million customers that year.

Still Growing Despite Recession: 1995--97

The good times came to an end with the capital flight of late 1994, followed by the devaluation of the peso and the consequent severe recession of 1995. CCM's sales dropped by 18 percent in 1995 and another five percent in 1996, Moreover, because of the devalued peso, the company's dollar-denominated debt of US$300 million now took on critical proportions. In order to make payments on the debt, Comerci had to lay off staff and scale back expansion plans. In order to cut costs, the Price Costco stores shifted their stock from about half domestic, half foreign goods, to 70 percent domestic, 30 percent foreign. Nevertheless, the company continued to add more stores and restaurants and in late 1996 was planning to spend US$260 million over the next two years to open 34 new stores. In 1997 Comerci purchased Kmart Mexico, S.A. de C.V. for US$148.5 million. This money-losing subsidiary of the giant U.S. retailer, in collaboration with the department store chain El Puerto de Liverpool, S.A. de C.V., had opened three large stores in Mexico City, one in Cuernavaca, and one in Puebla. The acquisition also included commercial sites near the stores, land reserves of more than 600,000 square feet, and an office building with 84,000 square feet.

In spite of the still-sour Mexican economy, Comerci remained profitable in every year following 1994. The 79 Comercial Mexicana stores in 1997 carried an extensive line of food and nonfood items, with the former including fresh, frozen, baked, and canned goods; prepared foods; delicatessen; and wines and liquors; and the latter, clothing and shoes; paper products and office supplies; books and magazines; health and beauty products; garden, automotive, and photographic supplies; electric appliances; sporting goods; toys and gifts; and numerous household items. Almost all units had one or more specialty departments, such as a bakery, tortilla press, or video rental shop. They averaged 69,000 square feet of selling space and were generally in neighborhood shopping centers with large parking lots.

The 23 Bodega warehouse stores offered mainly food items, pharmaceutical items, and general merchandise of the type sold in Comercial Mexicana stores, at discount prices and with less selection of brands and sizes of items. These stores also offered fewer amenities and product introductions. Because their customers generally did not have cars, they were within walking distance of residential areas or accessible by public transportation. They averaged 50,600 square feet of selling area. The 17 Sumesa stores were all in Mexico City. Developed as neighborhood stand-alone supermarkets, they averaged 8,600 square feet of selling area and emphasized sales of quality groceries and perishables.

Each of the 11 Mega units contained a bakery, pharmacy, video rental club, and separate specialty retail facilities leased to and operated by third-party tenants, such as banks, key makers, jewelry shops, shoe-repair stores, photo developers, and optical centers. They carried about 60,000 items and averaged 120,000 square feet of selling area. The five Kmart Mexico stores were given the Mega Supercenter name. They had an average selling area of 130,000 square feet.

The 14 Price Costco stores offered members low prices on volume purchases of a limited selection of some 3,000 branded and private-label products in a wide range of merchandise categories, including baked goods and a selection of high-quality perishables and meats. Membership was limited to businesses and professionals and members of their families, with a primary membership, including one affiliate membership, costing 177 pesos (US$21.95) a year. Price Costco stores averaged 100,000 square feet of selling area and were designed with minimal amenities and decorations.

Comerci owned about 70 percent of the land on which its store operations were located and the sites of 26 of its 32 California Restaurants, which were usually located in commercial areas near a Comercial Mexicana. Two-thirds of the company's net sales in 1997 came from food. In all, perishable goods accounted for 37.6 percent of sales; groceries, 29.7 percent; general merchandise, 26.7 percent; and clothing, 11 percent. Comerci offered 585 private-label products that year, primarily groceries.

CCM in 1998--99

CCM continued to make modest gains in 1998 and in 1999 had net income of 1.26 billion pesos (US$131.8 million) on net sales of 27.16 billion pesos (US$2.84 billion). The long-term debt was still 1.7 billion pesos (US$177.82 million) at the end of 1998, but the company reduced the dollar amount by 23 percent in 1999, to 1.31 billion pesos (US$137.03 million). It opened six new stores and three new restaurants in 1999 and remodeled nine stores and one restaurant.

Of Comerci's 158 stores at the end of 1999, Comercial Mexicana accounted for 80, with 53 percent of the company's net sales for that year. These stores were aimed at the middle and upper-middle class of Mexico and carried an average of 55,000 products. The 28 Bodega CM discount warehouse stores were aimed at the middle- and lower-middle income brackets and averaged about 30,000 products in stock. They accounted for 13 percent of sales. The 16 Mega hypermarket stores, catering to all income groups and carrying an average of 60,000 products each, accounted for 19 percent of sales. The 17 Sumesa supermarkets stocked about 8,000 high-quality food products each and were aimed at the middle-upper and upper income brackets. They accounted for two percent of Comerci's sales.

The 17 Costco membership warehouses were aimed at the middle and upper classes and carried about 3,000 branded and private-label products--including the chain's own Kirkland brand--each in high volume. They accounted for 12 percent of CCM's sales. Membership grew by 32 percent in 1998, after increasing by 38 percent in 1997. The name of the chain was scheduled to change from Price Costco to simply Costco in 1999.

The 39 California Restaurants chain offered Mexican and international cuisine in an informal family atmosphere. Comerci considered the main features of this chain, which was oriented toward the middle and upper-middle class, to be its all-included Superbuffet service, its gourmet-quality coffee, and innovative promotions. The restaurants had a total of 8,654 seats. The chain's sales--of which the Superbuffet accounted for 48 percent--came to one percent of the company total.

CCM's business was largely confined to the Mexico City metropolitan area and the central Mexican states, which (in 1998) accounted for 47 and 34 percent of the stores, respectively. Twelve stores were in the northwest of the country, eight in the southeast, seven in the southwest, and two in the northeast. Of the 35 California Restaurants, 22 were in the Mexico City metropolitan area, 11 in other parts of central Mexico, one in the northeast, and one in the southwest. Of CCM's 1999 sales, groceries accounted for 38 percent, perishables for 26 percent, general merchandise for 24 percent, and clothing for 12 percent. Private-label goods accounted for 11 percent. The company owned 91 of its 158 stores and leased 67; it owned 28 of its restaurants and leased 11.

Carlos Gonzalez Nova's brothers Guillermo and Jaime were chairman and vice-chairman, respectively, of Comerci in the late 1990s. His son Carlos Gonzalez Zabalegui was chief executive officer of the company. At the end of 1997 Carlo, Guillermo, and Jaime Nova owned two-thirds of the company's Class B common stock.

Principal Subsidiaries: Comerci, S.A. de C.V.; Comercial Mexicana, S.A. de C.V.; Contraladora Price Club de Mexico, S.A. de C.V. (50%); Hipertiendas Mexico, S.A. de C.V.; Price Club de Mexico, S.A. de C.V. (50%); Super Mercados, S.A. de C.V.

Principal Competitors: Cifra, S.A. de C.V.; Grupo Gigante, S.A. de C.V.; Organizacion Soriana, S.A. de C.V.

Further Reading:

• Fuentes, Rossana, 'CCM's Mexican Survival Kit,' Institutional Investor, May 1995, pp. 80--81.
• Hernandez, Ulises, 'Carlos Gonzalez Nova,' Expansion, May 20, 1999, pp. 45--47.
• 'Retail Dueling: Mexican Chain Gets Drop on Wal-Mart,' St. Louis Post-Dispatch, September 24, 1993, p. C1.
• Torres, Craig, 'Mexican Grocery Store Chain Comes to Market As Analysts Fret About Cash-Starved Shoppers,' Wall Street Journal, October 18, 1996, p. C2.
• 'Vamos: Kmart Exits Mexico; Canada in Question,' Discount Store News, March 3, 1997, pp. 3, 94.

Source: International Directory of Company Histories, Vol. 36. St. James Press, 2001.