Required Report - public distribution

**Date:** 5/14/2004

**GAIN Report Number:** AR4027

AR4027

**Argentina**

**Retail Food Sector**

**Annual Report**

**2004**

**Approved by:**

![](media/image1.wmf)Robert Hoff

U.S. Embassy

**Prepared by:**

Ken Joseph/María Julia Balbi

**Report Highlights:**

In 2003, hypermarkets and superstores accounted for 35 percent (down
from 40 percent in 2002) of the total food and beverage (F&B) sales.
Their market share has dropped in favor of smaller supermarkets,
warehouse stores, and grocery stores, mainly because of very competitive
prices and proximity. Imported F&B are primarily sold through large
supermarkets. With the gradual recovery of consumption and consumers\'
purchasing power, some imported F&B are being added on to hyper and
supermarket shelves.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Buenos Aires \[AR1\]

\[AR\]

***INTRODUCTION***

The food and beverage (F&B) market in Argentina is expected to continue
its recovery in 2004, as a reflection of a stronger domestic economy.
After the devaluation in early 2002, the Gross Domestic Product (GDP)
fell 10.5 percent that year, grew 8.5 percent in 2003, albeit from a
very narrow base, and it is expected to grow similarly in 2004.

The retail market, as well as the economy in general, is coming back
into its place, but with significant changes that will remain for some
time. The main impact of the economic crisis in 2002 on the retail
sector was: higher food prices in peso terms; lower food prices in
dollar terms which encouraged many local processors to export; a steep
drop in domestic sales (measured in volume); a reduction in the size of
packages; disappearance of many lines of products; appearance of old,
discontinued brands; increased sales of basic foods; a drop in sales of
higher-value products, such as frozen foods and imported products; and
the increase of F&B sales in small grocery stores.

The Argentine retail sector, after the devaluation, lost much of what it
had gained in the past decade. However, there are now hopeful signs of
recovery. Following are the main trends for 2004:

-   stable prices

-   continued growth in sales

-   growth in sales of premium brands and high value products

-   purchases of imported F&B carried out by several different stores

-   consumers´ continued emphasis on price and "sales"

####### SECTION I. MARKET SUMMARY

-   Argentine total F&B retail sales for 2004 are estimated at roughly
    \$12 billion.

-   In 2003, hypermarkets and superstores accounted for 35 percent (down
    from 40 percent in 2002) of the total F&B sales; small supermarkets
    (including warehouse stores - locally known as *hard-discounts*) 24
    percent; and the balance was distributed primarily between grocery
    stores and kiosks. Gas marts, bars and restaurants together
    accounted for less than ten percent of the total share.

-   Hypermarkets and superstores are the retail formats which have most
    grown in the past decade. However, due to the economic recession in
    1999/02, their market share has dropped in favor of smaller
    supermarkets, warehouse stores, and grocery stores.

-   On the one hand, warehouse stores offer lower-price products, i.e.
    private labels and B-Brands and, on the other hand, grocery stores
    provide credit to less affluent consumers.

-   Many international retail companies are operating in Argentina: Wal
    Mart, Ahold, Carrefour-Promodes, Casino, Auchan, Makro. Coto, Jumbo
    and La Anonima are the only large retailers which still have local
    ownership.

-   Strong competition and concentration in Buenos Aires city and
    suburbs. However, during the past few years, hypermarkets and
    superstores have expanded into the interior of the country through
    the purchase of smaller chains. Disco supermarket, owned by Ahold,
    will be sold during 2004.

-   Warehouse stores continue to expand strongly, mainly because of
    competitive prices and proximity. Most large foreign retail
    investment is in this business.

-   Customers demand low prices and good value. As a result, large
    retailers continue to launch private labels, B-brands and other
    low-price alternatives with increasing popularity. Supermarket
    private labels for F&B products account for approximately 10 percent
    of the total supermarket sales. There is a wide variety of F&B
    products sold under private label. However, premium brands are
    coming back, as well as high value food products, such as frozen
    foods and non-essential products (biscuits, snacks, confectionery,
    beverages).

-   During the past few years, large retail companies had tremendous
    negotiating power, putting strong pressure on their suppliers, e.g.
    free stock for every new store inauguration, high slotting fees,
    financial support for marketing, longer payment terms, etc. Since
    the economic crisis, supermarkets have had to become more flexible
    since, after the devaluation, local manufacturers have become more
    competitive in foreign markets.

-   F&B sales in hypermarkets and superstores account for approximately
    73 percent of total sales.

-   Approximately 70 percent of all imported F&B are sold through
    hypermarkets, superstores and supermarkets. Overall, imported
    products include those commodities which are not domestically
    produced, such as canned palm hearts, tuna fish and pineapple, and
    also canned corn, peas and tomatoes, counter-seasonal fruits
    (bananas, kiwifruit, grapes, watermelon, melon), a few confectionery
    products, some sauces, and isotonic beverages.

-   After devaluation, F&B imports decreased drastically by
    approximately 65 percent, and the number of domestically-produced
    items decreased by 20 percent. Meanwhile, there was a gradual import
    substitution with locally-manufactured products. F&B imports are
    projected at \$500 million in 2004, 10 percent higher than the
    previous year.

*[Value of Imported Food and Beverage Retail Sales vs. Domestic Products
(in \$ billion]{.underline}**)***

  ------------------------------- ---------- ---------- ---------- ---------- ----------
  Retail Sales/Year               **1999**   **2000**   **2001**   **2002**   **2003**

  **Imported F&B\***              0.94       1.08       1.00       0.30       0.45

  **Domestic F&B**                20.5       21.3       20.9       7.0        12.0

  **Imp/Total F&B Retail Sales    4.6        5.0        5.0        4.0        3.8
  %**                                                                         
  ------------------------------- ---------- ---------- ---------- ---------- ----------

\* CIF value

### Trends in Distribution Channels

-   Large investment in the retail sector. Over 60 new stores are
    projected to open in 2004. Most are warehouse stores.

-   Opening of large stores will slow down.

-   Strong expansion of warehouse stores, especially in Buenos Aires
    city and in medium-sized cities in the interior. In 2003, the main 4
    companies totaled around 500 stores. This format addresses
    low-income customers, has a high percentage of private label items,
    competitive prices and most of them offer home-delivery service.
    Their market share could double in the near future.

-   Concentration through new openings, mergers and acquisitions is
    expected to continue but at a slower pace. Carrefour-Promodes now
    owns Norte, Tia, and Dia, with over 31 percent of total supermarket
    sales. Jumbo has shown interest in buying Disco, owned by Ahold.
    Together, they would account for 23 percent of total supermarket
    sales.

-   Wholesale clubs (Sam's and Makro's Kargo) have closed their stores,
    as the format did not \"catch on\".

-   Large retailers have modern centralized warehouses, whereas grocery
    stores and small supermarkets suffer from inefficient distribution
    and logistical systems.

-   With the growth in sales of small grocery stores, wholesalers have
    increased their market share. There are 5-6 solid companies that
    offer good service.

-   The upper/middle-up socio-economic strata usually buy in
    hypermarkets since they value variety and service. They also make
    small purchases of fresh products in nearby smaller stores. The
    middle class usually shop in small supermarkets and warehouse
    stores. Lower-income consumers typically shop in traditional grocery
    stores.

-   Supermarkets sell primarily non-perishable products, carbonated and
    alcoholic beverages, cold cuts, dairy products and cheese. Between
    40 percent of meats and poultry are sold in supermarkets and the
    balance in traditional/specialized stores, while supermarkets have a
    relatively small market share of fruits, vegetables and bread sales.

-   Internet and telephone sales are being used by a small percentage of
    more affluent consumers.

-   Home and office delivery by retailers was quite popular during the
    past few years. However, it is becoming more restricted as service
    loses importance in the local price-driven market.

-   A majority of consumers is expected to continue to value price over
    quality, though value is becoming increasingly important among
    consumers with a higher purchasing power.

-   Most purchases of domestically-produced items by hypermarkets and
    superstores are undertaken directly with processors, avoiding
    intermediaries.

-   Superstores purchase imported F&B directly and through local
    agents/representatives.

-   Imported F&B are coming back. Large supermarkets are buying again
    after liquidating stocks in 2002/03. In most hypermarkets, only 5
    percent of the F&B are imported.

-   F&B are imported primarily from Mercosur countries (Mercosur is
    composed of Brazil, Uruguay, Paraguay, and Argentina, and Chile,
    Bolivia and Peru as associate members) because of lower freight
    costs and zero tariffs for most goods.

-   Buenos Aires city and its suburbs represent roughly 44 percent of
    the country's F&B sales. The balance is distributed in the rest of
    the country, primarily in 10 large cities.

*[Number and Type of Food & Beverage Retail Outlets (2002)]{.underline}*

+---------------------+------------------+------------+---------------+
| **Type of Store**   | **Number of      | **% of     | **% of F&B    |
|                     | Outlets**        | Total      | Retail        |
|                     |                  | Outlets**  | Sales\***     |
+---------------------+------------------+------------+---------------+
| **Hypermarkets**    | 60               | 0.03       | 12            |
+---------------------+------------------+------------+---------------+
| **Superstores**     | 1,293            | 0.6        | 28            |
+---------------------+------------------+------------+---------------+
| **Small             | 12,683           | 5.5        | 22            |
| Supermarkets (incl. |                  |            |               |
| warehouse stores)** |                  |            |               |
+---------------------+------------------+------------+---------------+
| **Grocery Stores**  | 98,592           | 42.5       | 14            |
+---------------------+------------------+------------+---------------+
| **Convenience       | 4,753            | 2.1        | 4             |
| Stores**            |                  |            |               |
+---------------------+------------------+------------+---------------+
| **Kiosks**          | 79,516           | 34.3       | 11            |
+---------------------+------------------+------------+---------------+
| # Bars              | 16,449           | 7.1        | 3             |
+---------------------+------------------+------------+---------------+
| **Restaurants**     | 18,292           | 7.9        | 6             |
+---------------------+------------------+------------+---------------+
| **Total**           | 231,638          |            |               |
+---------------------+------------------+------------+---------------+

Source: ACNielsen

\* FAS estimate

### Trends in Services Offered by Retailers

-   Incorporation of home meal replacement services, such as hot and
    frozen meals.

-   A few hypermarkets offer some ethnic and kosher food, and organic
    products, and also have a special area devoted for imported
    products, currently with a reduced variety of items.

-   Home and office delivery has been decreasing. Office delivery is
    mainly provided by kiosks and convenience stores.

-   A limited percentage of more affluent consumers do their shopping by
    phone and the Internet.

-   During the past few years, there were some openings of other food
    and non-food businesses annexed to hypermarkets and superstores,
    such as movie theaters, food quarters, entertainment parks, etc.

-   In addition, inexpensive fast food restaurants were incorporated
    inside the stores.

### Outlook for U.S. Exports of Food & Beverage Products

Despite current economic difficulties which somewhat discourage imports,
below are the strength and weaknesses of U.S. F&B products:

  ----------------------------------- -----------------------------------
  **ADVANTAGES**                      **CHALLENGES**

  Argentine consumers think of U.S.   Mercosur preferential tariffs
  products as high quality and        encourage inter-regional trade.
  reliable.                           Brazilian competition is strong for
                                      many products.

  Many Argentines have traveled and   Relatively small initial purchases
  studied in the U.S., exposing them  by importers, which discourage U.S.
  to American culture and products.   suppliers and increase unit costs.
  Exposure is also expanding through  
  cable TV and the Internet.          

  Despite the current recession, most Large local supply of many F&B
  local retail chains want to carry a products.
  good variety of imported F&B on     
  their shelves.                      

  Most imported food from the U.S.    Large foreign investment in the
  and the E.U. is gourmet.            food industry during the last
                                      decade improved efficiency,
                                      quality, and competition.

  Efficiency, value and variety of    Higher distribution costs to reach
  U.S. F&B products.                  interior of the country and smaller
                                      cities.

  Hypermarket and superstore          Local importers perceive lack of
  expansion in the interior permits   flexibility and response from most
  good country coverage.              U.S. exporters.

  Large foreign retail chains have    Expand number of U.S. companies,
  more opportunities to deal with     which consolidate mixed containers.
  foreign suppliers.                  

  Good local cold chain. However, the High value of the dollar (vis-à-vis
  market is no longer receptive to    the peso), which makes imported
  these types of products.            products more expensive and prompts
                                      food import substitution.

  Better sanitary status compared to  Economic recession, weaker
  Europe.                             purchasing power and high
                                      unemployment rate limit sales.

  Greater exposure of local retailers Advertisement and marketing of
  to U.S. exporters and products      local brands are very effective
  through FAS activities.             

  Improved U.S. labeling and          
  packaging (better local             
  acceptance).                        

  A growing local F&B industry opens  
  new opportunities for imported food 
  ingredients.                        
  ----------------------------------- -----------------------------------

## SECTION II. ROAD MAP FOR MARKET ENTRY

## A. HYPERMARKETS OR SUPERCENTERS, SUPERSTORES AND WAREHOUSE OUTLETS

### Entry Strategy

The best method to import a product will depend upon the product, the
importer, and retailers. However, successful trade depends upon the
commitment of the exporter to devote the time and resources necessary
for building a market for his/her product(s). In general, imported F&B
come into Argentina through any of the following ways:

\- [Direct imports by supermarkets]{.underline}. Import or purchasing
managers of large retail companies identify good products in
international food shows, buying missions, etc. They establish a direct
contact with the foreign supplier or local agent and import the products
directly. Due to small initial volumes, it is common for them to use
large wholesalers or consolidators in the U.S.

\- [Local agents]{.underline}, who work closely with large retail
chains. Imports are done on behalf of supermarkets on commission basis.
They stay on top of the product to supervise its marketing and brand
development.

\- [Local food and beverage importers,]{.underline} who import products
at their own financial risk, and then market them in supermarkets and/or
HRI establishments. There are a few of these who have been in the market
for several years and have well-established brands. They mainly
specialize in gourmet foods.

[- Local processors]{.underline} (mainly subsidiaries of multinational
companies) such as Nestle, Kraft, Pillsbury, Cadbury, Heinz, Mars,
Danone, etc., who import and distribute products usually manufactured by
their sister companies. Imports through this channel have dropped
significantly with the economic crisis.

###### Market Structure

![](media/image1.wmf)

*[Company Profiles (2002)]{.underline}*

+-----------+----------+---------+------+--------------+------------+
| **Re      | **Own    | **Est.  | *    | *            | **         |
| tailer/** | ership** | F&B     | *No. | *Locations** | Purchasing |
|           |          | Sales** | of   |              | Agent      |
| **Mkt.    |          |         | O    |              | Type**     |
| Share     |          | **\$    | utle |              |            |
| (%)**     |          | Million | ts** |              |            |
|           |          | \***    |      |              |            |
+-----------+----------+---------+------+--------------+------------+
| **C       | French   | 1,200   | 365  | National     | Direct,    |
| arrefour/ |          |         |      |              | agent,     |
| Nor       |          |         |      |              | importer   |
| te/Tia/** |          |         |      |              |            |
|           |          |         |      |              |            |
| **Dia     |          |         |      |              |            |
| (31)**    |          |         |      |              |            |
+-----------+----------+---------+------+--------------+------------+
| **Disc    | Loc      | 800     | 237  | National     | Direct,    |
| o/Ahold** | al/Dutch |         |      |              | agent,     |
|           |          |         |      |              | importer   |
| **(18)**  |          |         |      |              |            |
+-----------+----------+---------+------+--------------+------------+
| **Coto    | Local    | 700     | 100  | Buenos       | Direct,    |
| (16)**    |          |         |      | Aires/       | agent,     |
|           |          |         |      |              | importer   |
|           |          |         |      | Large Cities |            |
+-----------+----------+---------+------+--------------+------------+
| **        | Fren     | 260     | 13   | Center-North | Direct,    |
| Casino/** | ch/Local |         |      | of Argentina | agent,     |
|           |          |         |      |              | importer   |
| *         |          |         |      |              |            |
| *Libertad |          |         |      |              |            |
| (6)**     |          |         |      |              |            |
+-----------+----------+---------+------+--------------+------------+
| **La      | Local    | 250     | 89   | Primarily    | Direct,    |
| Anonima   |          |         |      | South of     | importer   |
| (6)**     |          |         |      | Argentina    |            |
+-----------+----------+---------+------+--------------+------------+
| **Jumbo   | Chilean  | 220     | 12   | Buenos       | Direct,    |
| (5)**     |          |         |      | Aires/ Large | agent,     |
|           |          |         |      | cities       | importer   |
+-----------+----------+---------+------+--------------+------------+
| **Wal     | US       | 180     | 11   | Buenos       | Direct,    |
| Mart      |          |         |      | Aires/       | agent,     |
| (4.5)**   |          |         |      |              | importer   |
|           |          |         |      | Large Cities |            |
+-----------+----------+---------+------+--------------+------------+
| *         | Fren     | 150     | 3    | Province of  | Direct,    |
| *Auchan** | ch/Local |         |      | Buenos Aires | agent,     |
|           |          |         |      |              | importer   |
+-----------+----------+---------+------+--------------+------------+
| *         | Local    | 65      | 18   | S.E. Buenos  | Direct,    |
| *Toledo** |          |         |      | Aires        | agent,     |
|           |          |         |      |              | importer   |
|           |          |         |      | Province     |            |
+-----------+----------+---------+------+--------------+------------+

Argentina has mainly the following retail store formats:

-   Hypermarkets (+5,000 sqm., +25 checkouts, driving distance,
    delivery)

-   Supermarkets (400/5,000 sqm., 4/25 checkouts, walking distance,
    delivery)

-   Small supermarkets or superettes (-400 sqm., less than 3 checkouts,
    proximity, delivery)

-   Warehouse stores (-800 sqm, proximity, 2-3 checkouts, low prices, 65
    percent of private label products and B-brands, a few first-brands,
    500-1,500 products, delivery)

-   Buenos Aires city and suburbs are covered by all four above formats.

-   Larger cities (mainly provincial capitals) have primarily
    supermarkets and superettes, and several have hypermarkets.

-   Smaller cities (less than 100,000 people) have primarily superettes
    and some supermarkets.

-   Warehouse stores continue growing in popularity. In 2003, they
    totaled over 500 stores. Nowadays, approximately 5 percent of the
    upper class, 10 percent of the middle class and 10 percent of the
    lower class shop in these types of stores.

-   During the past few years, local hypermarket and superstore chains
    offered a limited selection of imported products due to recession
    and devaluation, mainly in stores located in the most affluent areas
    of Buenos Aires city and suburbs (where one third of the country's
    population lives, and almost half of the sales are done). However,
    with the gradual recovery of the economy and a more stable "peso"
    (Argentine unit of currency), they are re-building their lines of
    imported F&B.

-   Approximately 80 percent of the upper class, 65 percent of the
    middle class and about 55 percent of the lower class shop in
    hypermarkets and superstores.

## B. CONVENIENCE STORES, GAS MARTS, KIOSKS

*[Entry Strategy]{.underline}*

-   The best method for new-to-market exporters is to enter the market
    through importers who have their own distribution networks, and to a
    lesser degree, through wholesalers.

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-   It should be noted that participation in trade shows, especially
    SIAL Mercosur, and other professional trade shows foster contact
    between U.S. suppliers and importers primarily from the Mercosur
    region.

-   In general, a local representative is helpful in coordinating
    negotiations with retailers. Most food importers sell directly to
    this subsector.

-   Selling to gas-marts owned by oil companies should be done via their
    purchasing managers. In all other formats (convenience stores and
    kiosks), the decision is made by each owner.

### Market Structure

Please refer to flow chart in Section II. A.

### Company Profiles

+----------+---------+-------+------+---------+----------------+-----+
| **       | **Owne  | **F&B | *    | **Loca  | **Purchasing** | **M |
| Retailer | rship** | Sa    | *No. | tions** |                | kt. |
| Name**   |         | les** | of** |         | **Agent Type** | S   |
|          |         |       |      |         |                | har |
|          |         | **(\$ | **O  |         |                | e** |
|          |         | Milli | utle |         |                |     |
|          |         | on)** | ts** |         |                | **  |
|          |         |       |      |         |                | %** |
+----------+---------+-------+------+---------+----------------+-----+
| **Pet    | Br      | 30    | 360  | Nat     | Importer/      | 10  |
| robras** | azilian |       |      | ionwide | distributor    |     |
|          |         |       |      |         |                |     |
| *        |         |       |      |         |                |     |
| *(EG3)** |         |       |      |         |                |     |
+----------+---------+-------+------+---------+----------------+-----+
| **Esso   | U.S.    | 30    | 300  | Nat     | Importer/      | 18  |
| Shops**  |         |       |      | ionwide |                |     |
|          |         |       |      |         | distributor    |     |
+----------+---------+-------+------+---------+----------------+-----+
| **Repsol | Spanish | 90    | 1500 | Nat     | Importer/      | 50  |
| YPF**    |         |       |      | ionwide |                |     |
|          |         |       |      |         | distributor    |     |
| **(Fu    |         |       |      |         |                |     |
| ll/Servi |         |       |      |         |                |     |
| Co       |         |       |      |         |                |     |
| mpras)** |         |       |      |         |                |     |
+----------+---------+-------+------+---------+----------------+-----+
| *        | B       | 60    | 500  | Nat     | Importer/      | 18  |
| *Shell** | ritish/ |       |      | ionwide |                |     |
|          |         |       |      |         | distributor    |     |
| **(S     | Dutch   |       |      |         |                |     |
| elect)** |         |       |      |         |                |     |
+----------+---------+-------+------+---------+----------------+-----+

Source: FAS estimate

-   Gas mart chains or convenience stores (C-stores) started operation
    in the late 1980s as a separate division of oil companies, and they
    represent 30-40 percent of their total sales. Between 70-90 percent
    of these outlets operate as franchises, and between 50-80 percent of
    gas stations includes C-stores.

-   There are approximately 5,000 C-stores all over the country. In
    2002, they accounted for approximately 4 percent of the total retail
    sales of F&B.

-   They are typically located within gas stations either in cities or
    highways. They are open 24 hours a day and offer a wide variety of
    F&B products (approximately 2,000), such as frozen food, fast food,
    snacks, cookies, confectionery items, alcoholic and non-alcoholic
    beverages, dairy products, etc. They also include a gift area and an
    eating area with microwaves. Some gas marts have ATM machines.

-   During the past few years, they have been incorporating promotions
    based on price/value.

-   Curiously, C-stores do not compete with each other but primarily
    with grocery stores on proximity.

-   Customers of C/stores in cities, mostly teenagers, usually make
    impulse purchases (e.g. confectionery items), or because of their
    proximity and the fact that they are open 24 hours a day. Customers
    of C- stores in highways are primarily travelers.

-   24 hours service and their relative security are some of the major
    attractive features of gas marts.

-   C-stores are expected to continue expanding and represent a good
    channel for imported F&B since a high percentage of their customers
    belong to the more affluent stratum of society. Over 50 percent of
    C-store customers belong to middle class and 40 percent, to the
    upper/middle class.

-   Convenience stores located in Buenos Aires City and suburbs account
    for more than half of the total sales of this format.

-   Kiosks are smaller than gas marts. They primarily sell confectionery
    products, snacks, cigarettes, soft drinks, ice cream, etc. They do
    not have eating areas, and most of them are family-run. Some kiosks
    have become drugstores (maxikiosks), with self-service shelves and a
    wider product variety.

-   There are around 80,000 kiosks in Argentina.

-   In 2002, kiosks accounted for 11 percent of the total retail sales
    of F&B products.

-   Kiosk customers belong to all socio-economic classes. Maxikiosks are
    popular among workers, who purchase inexpensive food, and students.

-   Larger kiosks have incorporated vending machines.

-   Most imported items sold in C-stores and kiosks are chocolates,
    alcoholic beverages, and confectionery.

-   The location of C-stores and kiosks in Argentina is mostly related
    to consumption patterns. Buenos Aires City and suburbs show a higher
    concentration of outlets, followed by major cities such as Córdoba,
    Rosario, Mendoza, Tucumán, Mar del Plata, Bahía Blanca, Santa Fe,
    Paraná, Neuquén, and Salta.

**C. TRADITIONAL MARKETS - \"MOM & POP\" SMALL INDEPENDENT GROCERY
STORES (including small supermarkets)**

### Entry Strategy

-   The best method to enter the market is the same as for convenience
    stores (please refer to Section B).

### Market Structure

Please refer to flow chart in Section II. A.

### Subsector Profile

-   In 2002, traditional stores accounted for almost 46 percent of the
    total retail sales of F&B products, compared with approximately 35
    percent in 2003. Around 15 years ago, traditional markets comprised
    73 percent of the total sales of F&B products.

-   In the last decade, this subsector showed a gradual decline in favor
    of supercenters and superstores. However, as result of the economic
    crisis, sales in both grocery stores and small supermarkets are
    growing. Many customers prefer these due to their proximity, and to
    the fact that they make smaller purchases and many times with
    short-term credit. Moreover, prices at grocery stores have become
    similar to those in supermarkets.

-   Customers of traditional stores primarily belong to the middle and
    lower-middle socio- economic classes.

-   The growing penetration of the upper-middle class in this format was
    due to a change in consumer behavior, shifting from monthly to
    bi-weekly or weekly purchases. As of mid 2003, it has been noticed
    that more affluent consumers are resuming monthly purchases.

-   During the past few years, their market share went up slightly due
    to recession and growing unemployment, with more people buying with
    credit, which is generally granted by the owners of small grocery
    stores.

-   Only a small percentage of imported F&B is sold through traditional
    stores.

## SECTION III. COMPETITION

-   Argentina is essentially a food-producing country.

-   Of all retail F&B sold in 2003, only 5 percent was imported
    products.

-   Although volumes of imported F&B decreased significantly after
    devaluation in early 2002, during the past few months, supermarkets
    have shown interest in re-incorporating imported U.S. consumer-ready
    food products.

-   Highly-rated hotels in Argentina continued importing some premium
    products because of their high quality and variety, taking advantage
    of the fact that they operate in dollars.

-   Food products are imported mainly from Mercosur countries (primarily
    Brazil and Chile) due to two main reasons: proximity, reduced
    preferential import tariffs and favorable exchange rate. Imported
    products also come from Ecuador, European countries (especially
    Spain, France, Italy, and Germany) and the United States.

The following table lists the advantages and disadvantages of both local
and imported F&B products:

+--------------+-------------------------------+-----------------------+
|              | **ADVANTAGES**                | **DISADVANTAGES**     |
+--------------+-------------------------------+-----------------------+
| Locally      | *\** established products     | *\** not always the   |
| Produced     |                               | best quality          |
|              | \* established brands         |                       |
|              |                               | \* slower in          |
|              | \* established manufacturers  | introducing new       |
|              |                               | novelty products      |
|              | \* adapted to local           |                       |
|              | preferences                   | \* expensive slotting |
|              |                               | fees                  |
|              | \* fresher/longer shelf-life  |                       |
|              |                               | *\** limited          |
|              | *\** less expensive           | selection             |
|              |                               |                       |
|              | \* wide distribution          |                       |
|              |                               |                       |
|              | \* strong marketing support   |                       |
+--------------+-------------------------------+-----------------------+
| Imported     | *\** quality                  | \* significantly more |
|              |                               | expensive             |
|              | \* novelty                    |                       |
|              |                               | \* shorter shelf-life |
|              | \* availability (in case of   | (by the time it       |
|              | products with limited local   | arrives)              |
|              | production)                   |                       |
|              |                               | \* different taste    |
|              | \* variety                    |                       |
|              |                               | \* poor or no         |
|              | \* good image                 | marketing support     |
|              |                               |                       |
|              | \* improved and more          | \* distribution       |
|              | attractive packaging          | limitations (run out  |
|              |                               | of stocks)            |
|              |                               |                       |
|              |                               | \* import costs       |
+--------------+-------------------------------+-----------------------+

## The following is a brief description of the market per major retail product categories:

-   Snack food of U.S. origin has a very good reputation, but its demand
    has dropped significantly after the peso devaluation. The main
    market player in Argentina is PepsiCo, which holds over 70 percent
    of the Argentine snack food market. PepsiCo produces locally many
    U.S. brands.

-   Domestic production of breakfast cereals is also very significant.
    U.S.-owned companies established in Argentina (Kellogg's, Quaker and
    General Cereals) lead the market. However, some varieties are still
    imported, especially from Brazil. Consumption stopped growing after
    the economic crisis, and has been gradually recovering during the
    past year.

-   Argentina produces and exports large volumes of beef. Thus, imports
    are not significant although some sweetbreads were imported from the
    United States until early 2002, when Argentina established new
    sanitary regulations banning imports. Imported pork accounted for
    approximately half the domestic demand until 2001. However, the
    economic crisis has forced its reduction to very low volumes.
    Product comes primarily from Brazil. Although Argentina's poultry
    production is increasing sharply, some inexpensive products are
    imported from Brazil.

-   Argentina is self-sufficient in dairy production and exports high
    quality products to many markets. However, some imports of whey,
    special milks and specialty cheeses take place.

-   There are large imports of preserved fish and seafood specialties
    (primarily canned tuna), coming from Ecuador, Thailand, and Brazil.

-   Some fruits, which are not produced locally, are imported, such as
    bananas (Brazil and Ecuador) and kiwifruit (Chile and Italy). There
    are imports of canned fruits, especially pineapple from Thailand, S.
    Africa and Indonesia. Canned palm hearts are also imported in good
    quantities from Ecuador and Brazil.

-   Argentine imports of tree nuts (primarily almonds and walnuts) have
    dropped as a result of the economic downturn. Of the imported ones,
    Chile dominates the market by far, followed by the U.S.

-   Imports of soft drinks and mineral water have become insignificant.
    There are large local manufacturers, including Coca Cola and
    PepsiCo, which compete strongly in the market. Brazil continues to
    be the number one supplier of imported beer, but volumes have
    dropped dramatically after the devaluation. Quilmes, a local beer
    brand accounts for approximately 70 percent of the market. Wine
    imports almost disappeared after the devaluation but have recovered
    to some extent.

-   Argentina has expanded its pet food production, especially after the
    opening of several manufacturing plants owned by foreign companies
    such as Procter & Gamble, Nestle/Purina, Heinz, Mars/Effem and
    Colgate Palmolive, which have in the country in the last few years.
    However, some *premium* pet food is imported, primarily from the
    United States, followed by Brazil.

## SECTION IV. BEST PRODUCT PROSPECTS

The best product prospects for U.S. F&B in the Argentine retail market
are as follows:

  ----------------- ---------------- --------------- ------------- --------------
  **Product Type**  **Pcts Present   **Pcts not      **Pcts not    **Barriers**
                    in the Market    Present in      Present       
                    w/Good Sales     Significant     because They  
                    Potential**      Quantities but  Face          
                                     w/Good Sales    Significant   
                                     Potential**     Barriers**    

  Pork, frozen                                                     \*\*\*

  Chocolate                          X                             

  Canned Vegs.                       X                             

  Fruit & Nut Prep.                  X                             
  ----------------- ---------------- --------------- ------------- --------------

  ----------------- ---------------- --------------- ----------- ----------
  Sugar Confection.                  X                           

  Fresh Citrus                                                   \*\*\*

  Sauces & Prep.                     X                           

  Coookies/Snacks                    X                           

  Isotonic Bvgs./                    X                           
  Energy Drinks                                                  

  Fresh Stone                                                    \*\*\*
  Fruits                                                         

  Fr. Deciduous                                                  \*\*\*
  Fruits                                                         

  Alcoholic Bvgs.                    X                           

  Food Ingredients  X                                            

  Convenience Foods                  X                           
  ----------------- ---------------- --------------- ----------- ----------

\*\*\* Please contact our office for current phytosanitary regulations

####### SECTION V. POST CONTACT AND FURTHER INFORMATION

Office of Agricultural Affairs

U.S. Embassy, Buenos Aires

Avda. Colombia 4300

C1425GMN Buenos Aires, Argentina

Phone 54-11-5777-4844

Fax 54-11-5777-4216

E-mail: agbuenosaires@usda.gov

Homepage: http://www.fas.usda.gov