Cencosud - SWOT Analysis

CENCOSUD SA – Strategy Analysis

Prepared by Patricio Vallejo G

IG 200 Global Strategies – Strategic Management Module C

Professor Brett Sharman

Friday, April 24, 2015

Corporative Level Analysis

The Cencosud´s primary goal is to become in the most profitable and prestigious retailer in Latin America. To achieve this challenge, the company has established regional objectives focusing on five ways. These options are capitalizing on the infrastructure, efficiency and productivity processes, leveraging scale for foreign trade, Internet, and home delivery, and being number one in perishables (Cencosud Logistics, 2014, p.3). For a better understanding of the SWOT factors, it is necessary to consider three key points: segment, target group, and positioning (MBA Skool, n.d.). First, the segment of the company is related to people looking for multi-brand stores. Second, the target group is the urban middle and upper-middle class households. Finally, positioning is to have a great variety and excellent quality.

Strengths

• Cencosud is present in five of the largest markets in South America, and the company is regional market leader

The geographical diversification became Cencosud in the leader of multi-format retailers in the region, with operations in Argentina, Brazil, Colombia, Chile, and Peru. Diversification in various markets helps to protect from the impacts of any market where they operate in case of economic issues. Additionally, the most of Cencosud operations are focused in countries with an investment grade by main credit rating agencies.

• Highly-recognized brand portfolio

The consumer behavior has been the basis to build the brands. Personalized customer services, broad product range, attractive offers, and competitive prices, have helped to be a recognized company in the region.

• Multi-format strategy

The hub of the company's business is supermarkets area. The multi-format approach has allowed to increase the customer base through of products, prices, quality, and customer service. These factors base on customers’ needs in each country where Cencosud operates. As well, synergy among countries has enabled maximize and sustain operations margins and generate high cash flow.

• Proven success in acquisitions

Integration of acquired companies into regional platform has had good results. The key to achieve this success is to keep the brand names, key collaborators, and traditions of those companies. On the other hand, Cencosud focuses on improving factors they can improve, such as technology, marketing and operation management, quality of service, supply chain, within others.

• Income diversification

Cencosud involves operations of supermarkets, hypermarkets, distribution of building materials and home improvement, shopping malls, department stores, real estate management, credit cards, and insurance. This business diversification gives adequate incomes and cash flows.

• Diversity of funding sources

According the size and profile of the company, it is should not have significant difficulties in accessing the debt market or capital, both in Chile and abroad, in order to finance the Cencosud plans growth.

Weaknesses

• Need for growth

The market retail needs to access greater economies of scale to maintain its competitiveness. It should also be more complex operational and administrative processes resulting from a larger company. While Cencosud has been able to manage the exponential growth in recent years successfully, it needs to assess the medium-term group performance in this new phase of expansion.

• Growth is due to a series of significant acquisitions

An important component of growth in recent years has occurred through acquisitions. However, some of the principal competitors are larger than Cencosud, so they are best positioned to take advantage of strategic acquisition in the future. Likely, the Cencosud growth will be lower, so it can have an adverse effect on the company.

• Cencosud may not be able to generate or obtain the capital for

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