BOSTON -- Ciao Italia! Wal-Mart Stores may be about to come calling.
The Bentonville, Ark., discounter is said to have offered to purchase high-end Italian supermarket chain Esselunga, a privately held company with sales of $3.7 billion, according to reports circulating in an Italian newspaper.
A Wal-Mart spokesman did not return a call for comment.
If true, the move would be consistent with Wal-Mart's pattern of entering new markets through acquisition, a strategy employed successfully in the United Kingdom, Japan and Mexico.
Buying a native player hasn't always guaranteed success for Wal-Mart, however. After purchasing two small chains in Germany in the late 1990s (Wertkauf in 1997 and Spar in 1998), the retailer is still struggling to show a profit there after running into pricing and cultural hurdles. Wal-Mart derives 17% of its revenues from international sales, or about $38 billion annually.
In a research note about the potential acquisition, Merrill Lynch analyst Daniel Barry said Esselunga is "reputed to be a very efficient and well-run grocery chain" with a "sophisticated, Internet-based, home-delivery service."
Wal-Mart could potentially use Internet sales as "a strong platform upon which [to] expand into other areas of Europe," Barry continued.
In the highly fragmented Italian food market, analysts believe Wal-Mart would have a relatively easy time sopping up market share. Additionally, the purchase of a relatively small player (100-store Esselunga is the fifth-largest chain, according to Barry) would leave Wal-Mart regulatory room to buy a larger general merchandise player later on.
Charles O'Shea, a senior bond analyst for Moody's Investor Service, said the timing of the alleged offer is potentially strange, since the dollar is relatively weak against the euro. That would drive up the cost of the acquisition.
Nevertheless, it is "reasonable to assume they are looking for attractive acquisitions in countries where the population is dense, and it would be difficult to do green-field expansion," O'Shea noted.
What is potentially a stretch is how the two companies might fit together.
In merchandise and brand portrayal, the sleek Esselunga contrasts sharply with Wal-Mart's no-frills, often-hokey image in the United States. On its Web site, Esselunga touts its own organic food line, perfume counter, partnerships with big-name architects on store design, and award-winning ad campaign designs. A 2001 ad, for instance, shows a lemon wearing round sunglasses with the words "John Lemon" underneath.
In going after Esselunga, Wal-Mart "could be trying to bring their game up, just like they're already doing in apparel," speculated Gary Giblen, research director with C L King Associates. "They are trying to become a mainstream supermarket operator that offers quality instead of just price."
