Assaí kicks off the ‘Further package deal’ conversions

Assaí completed the first conversions of the 71 Extra hypermarkets that it purchased from Grupo Pão de Açúcar last October — the main project of the cash and carry chain at the moment, and an important part of helping it reach its guidance to earn BRL 100 billion in 2024.

Assaí completed two conversions in the last week of July, one last week, one yesterday and will do another three this week.

The expectation is to convert 40 hypermarkets into Assaí by the end of this year, and the rest during the first quarter of next year.

One of the stores that will open tomorrow is the Anhanguera unit, in the West Zone of São Paulo — a space of almost 9,000 square meters of sales area with 46 checkouts and 1,200 parking spaces.

CEO Belmiro Gomes said that the expectation is that this store will earn around R$ 500 million a year — making it one of the biggest in Assaí in terms of revenue. The company’s average is a revenue per store of R$ 200 million/year.

“This was the store that sold the most of the entire Extra, because the location is very good,” the CEO told reporters in a tour through the newly converted space. “But it was kind of abandoned and with a low sale.”

Assaí said he expects to triple store sales two years after the conversion. In a year, they should already reach the breakeven.

In the medium term, conversions tend to have a positive effect both on the company’s sales per square meter and on the EBITDA margin. As they are in good locations, within large centers, the EBITDA margin of these stores tends to be 150 bps above the average of the Assaí stores.

In the short term, however, accelerated expansion can be a margin detractor.

At the moment, Assaí has ​​8,000 employees already hired for 30 stores that are still pre-operational. According to Belmiro, this extra expense — which is not yet associated with any revenue — could lead to the company’s EBITDA margin falling to 7% this year, compared to the 7.5% the company made in 2021.

According to him, Assaí will report these pre-operating expenses separately from normal expenses in the third quarter because they reached a very high volume and to give investors better visibility about what the “normalized park” is.

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The new unit in Anhanguera has 10,500 SKUs, above the average of 8,500 in Assaí stores, and includes services such as butchers and bakeries, in addition to a wider assortment of products that go beyond food retail.

The renovation required BRL 50 million in capex and it took 150 days.

Despite betting on stores with more categories and services (in regions where higher incomes allow this), the CEO said that Assaí’s SG&A should remain stable in the short term, at around 9.5% of revenue – the same level of expense that the company has had since 2011.

“In mature stores, our SG&A is even lower,” he said. “There are some where it is around 8%.”

With the conversions and openings planned for this year, Assaí should reach December with 265 stores already operational.

In the second quarter, the company had annualized revenue of R$60 billion and expects to reach R$100 billion in revenue in 2024. (Coincidentally, this is exactly the same guidance that Carrefour has passed on to investors for Atacadão’s sales.)

Source: Brazil Journal