""

Required Report - public distribution

**Date:** 11/7/2003

**GAIN Report Number:** CI3030

CI3000

**Chile**

**Retail Food Sector**

**Report**

**2003**

**Approved by:**

![](media/image1.wmf)Christine M. Sloop, Agricultural Attaché

U.S.Embassy Santiago

**Prepared by:**

Maria Jose Herrera M., Marketing Assistant

**Report Highlights: In Chile there is no of food warehouse outlets or
wholesale clubs. Most of the products sold through US-style mass
merchandisers are sold in the larger supermarkets and hypermarkets in
Chile.**

**The supermarket industry is constantly looking for new products to
satisfy upscale consumer demand. According to interviews with
supermarkets and suppliers, among the best prospects are condiments,
snack foods, sports bars, sports drinks, diet and health foods, prepared
frozen foods, edible nuts, and tropical fruits and juices.**

Includes PSD Changes: No

Includes Trade Matrix: No

Trade Report

Santiago \[CI1\]

\[CI\]

Table of Contents

[I. Market Summary 3](#i.-market-summary)

[II. Road Map for Market Entry 5](#ii.-road-map-for-market-entry)

[A. Supermarkets and Hypermarkets 5](#a.-supermarkets-and-hypermarkets)

[a) Market Structure 5](#a-market-structure)

[b) Entry Strategy 6](#b-entry-strategy)

[c) Company Profiles 8](#c-company-profiles)

[d) Distribution Channels 10](#d-distribution-channels)

[B. Convenience Stores, Gas Marts and Pharmacies
11](#b.-convenience-stores-gas-marts-and-pharmacies)

[a) Entry Strategy 11](#a-entry-strategy)

[b) Company Profiles 11](#b-company-profiles)

[C. Traditional Markets, Small Independent Stores, Kiosks and Liquor
Stores
12](#c.-traditional-markets-small-independent-stores-kiosks-and-liquor-stores)

[a) Entry Strategy 12](#a-entry-strategy-1)

[III. Competition 12](#iii.-competition)

[A. Sectors 13](#a.-sectors)

[a) Health Foods, Grain Mill Products and Dry Goods
13](#a-health-foods-grain-mill-products-and-dry-goods)

[b) Snack Foods and Confectionary Goods
13](#b-snack-foods-and-confectionary-goods)

[c) Prepared Meals, Canned and Frozen Foods
14](#c-prepared-meals-canned-and-frozen-foods)

[d) Sauces and Condiments 14](#d-sauces-and-condiments)

[e) Dairy Industry 14](#e-dairy-industry)

[f) Carbonated Beverages, Fruit Juices and Bottled Water
15](#f-carbonated-beverages-fruit-juices-and-bottled-water)

[g) Alcoholic Beverages 15](#g-alcoholic-beverages)

[h) Seafood 16](#h-seafood)

[i) Red Meat 16](#i-red-meat)

[j) Poultry 16](#j-poultry)

[k) Fruits and Vegetables 16](#k-fruits-and-vegetables)

[B. Labeling and Marketing Requirements
17](#b.-labeling-and-marketing-requirements)

[a) Labeling 17](#a-labeling)

[b) Marketing Requirements: Processed Foods
17](#b-marketing-requirements-processed-foods)

[IV. Best Prospects 17](#iv.-best-prospects)

[A. Imported Products in the Market with Good Sales Potential
18](#a.-imported-products-in-the-market-with-good-sales-potential)

[B. Products Inhibited by Market/Trade Barriers
18](#b.-products-inhibited-by-markettrade-barriers)

[V. Post Contact and Other Information
18](#v.-post-contact-and-other-information)

# I. Market Summary

-   In 2001, Chile imported US\$ 484 million of consumer-oriented food
    products, with US\$ 33.9 million (approximately 7%) imported from
    the United States. In 2002, imports from the U.S. were US\$ 25.2
    million.

-   Total consumer-oriented retail food sales in 2002 exceeded US\$ 5
    billion (47% of this sold in the capital, Santiago), representing
    over 30% of total commercial sales in Chile.

-   Chile's consumer-oriented retail food sector continues to have
    significant growth potential given the relatively low penetration of
    supermarkets, which is currently 60%, compared to 80% in more
    developed countries. Supermarkets are classified as stores with
    three or more check-outs.

-   In 2002, fifty new supermarkets opened, bringing the total number of
    supermarkets and hypermarkets in Chile to 671, amounting to over one
    million square meters (over ten million square feet) of retail
    space.

-   There are 34 supermarket chains, with over 90% of the sector
    dominated by 10 principal chains.

-   The supermarket industry is constantly looking for new products to
    satisfy upscale consumer demand. According to interviews with
    supermarkets and suppliers, among the best prospects are condiments,
    snack foods, sports bars, sports drinks, diet and health foods,
    prepared frozen foods, edible nuts, and tropical fruits and juices.

-   Consumer prices (inflation) during 2002 increased 3.2%, slightly
    higher than forecasted, but acceptable considering the struggling
    economies of neighboring countries such as Argentina and Brazil. The
    economic decline and the resulting currency devaluation in these two
    countries against the Chilean peso has made Argentina and Brazil
    imports more attractive to Chilean distributors.

-   Due to a weaker Chilean peso against the dollar, growth in Chilean
    wholesale prices increased dramatically, from 3.1% in 2001 to 10.4%
    in 2002.

-   For U.S. exporters the target population is concentrated in the
    capital city of Santiago, and the port cities of Concepción and
    Valparaiso-Viña del Mar.

-   In Chile there is no of food warehouse outlets or wholesale clubs.
    Most of the products sold through US-style mass merchandisers are
    sold in the larger supermarkets and hypermarkets in Chile.

+-----------------------------------+-----------------------------------+
| **Advantages**                    | **Challenges**                    |
+-----------------------------------+-----------------------------------+
| The U.S.-Chile Free Trade         | Until the FTA is adopted          |
| Agreement has set the stage for   | (possibly by January, 2004)       |
| elimination of import duties on   | Chile's flat import tariff rate   |
| most consumer-oriented food       | is currently 6% makes U.S.        |
| products from the United States.  | imports less competitive with     |
|                                   | local production and other        |
|                                   | countries with which Chile has    |
|                                   | free trade agreements.            |
+-----------------------------------+-----------------------------------+
| Recent studies have shown that    | The average Chilean consumers is  |
| per household total food          | very price sensitive.             |
| purchases average US\$330 dollars |                                   |
| per month.                        |                                   |
+-----------------------------------+-----------------------------------+
| Chile is considered to have the   | In 2002, the Chilean peso         |
| highest per capita GDP            | suffered an 8.6% devaluation      |
| (US\$14,000), adjusted for        | against the dollar, decreasing    |
| purchasing power, in South        | consumer buying power for         |
| America.                          | products imported from the U.S.   |
+-----------------------------------+-----------------------------------+
| Workers in Santiago create a      | Chile enforces very strict animal |
| steady demand for                 | and plan quarantine regulations   |
| consumer-oriented retail food     | that in some cases create         |
| products, since 70% of them eat   | non-tariff barriers to imports of |
| out for lunch, often buying       | consumer-oriented retail foods.   |
| ready-to-eat items in             |                                   |
| supermarkets and convenience      |                                   |
| stores.                           |                                   |
+-----------------------------------+-----------------------------------+
| The Consumer is well acquainted   | The market for imported,          |
| with imported food products, many | consumer-oriented food products   |
| of which are considered high      | is fairly small. Only the upper   |
| quality, luxury goods. The        | and upper middle class population |
| nation's growing retail industry, | segments in Chile are considered  |
| supported by a culture eager to   | to have the sufficient disposable |
| try new, higher quality products, | income to purchase these          |
| has proven a successful market    | products.                         |
| for imports.                      |                                   |
+-----------------------------------+-----------------------------------+
| The nation's capital, Santiago,   | The market for imports of most    |
| accounts for 47% of total grocery | consumer-oriented food products   |
| sales.                            | is too small to support full      |
|                                   | container shipments               |
+-----------------------------------+-----------------------------------+
| Technological infracstructure,    | A common concern of both          |
| domestic transportation and       | consumers and buyers of U.S.      |
| communication systems in Chile    | consumer-oriented food products   |
| are efficient.                    | is food spoilage.                 |
|                                   |                                   |
|                                   | Currently, the leading retail     |
|                                   | chain do not import directly and  |
|                                   | the importers of                  |
|                                   | consumer-oriented retail foods    |
|                                   | tend to be small and fragmented.  |
+-----------------------------------+-----------------------------------+

  ---------------------------------------- ------------------------------
  **Major Cities**                         **Population**

  Santiago Metro                           6.2 million

  Concepcion-Talcahuano                    966,000

  Viña del Mar-Valparaiso                  911,000

  Antofagasta                              260,000

  Temuco                                   250,000

  Source: INE 2002                         
  ---------------------------------------- ------------------------------

#  

# II. Road Map for Market Entry

![](media/image2.wmf)

## A. Supermarkets and Hypermarkets

## 

### a) Market Structure

In little more than a decade, the Chilean supermarket sector has rapidly
taken over food retailing in Chile. According to AC Nielson, in 2002
supermarkets represented roughly 60% of all retail food sales, and are
fast becoming the main retail buyers in the supply chain of retail
foods, maximizing their economies of scale. Supermarkets have moved far
beyond their original niches (upper-income, highly populated areas) and
have spread to the middle and working-class market segments, both in the
capital and in medium-sized cities and towns throughout Chile. The
chains are managed professionally, and the selection of food is as
varied in scope to the choice of products found in the US. All stores
have incorporated cutting-edge technology such as electronic price
marking devices and specialized weighing systems. Generally,
hypermarkets and supermarkets maintain a relatively high standard of
hygiene with cold counters for meat, fish, produce and dairy products.

The hypermarket sector in Chile, representing 37.8% of supermarket
industry sales and growing, is arguably among the most developed in the
world, with the Chilean companies D&S (Lider), Cencosud (Jumbo), and
Carrefour from France, dominating the market. There are currently 37
Chilean hypermarket format stores averaging over 10,000 square meters
(107,600 square feet) of floor space and more than 25,000 products. The
growing trend for Chilean consumers is their preference to shop at the
larger hypermarkets, versus smaller grocery stores, due to the wide
variety, product diversification and lower prices. The leading
hypermarket chains have incorporated different product lines to
reinforce the marketing strategy "one-stop shop,\" where customers are
able to find almost everything they need in one store. In addition to
traditional food items, hypermarkets carry non food items such as home
appliances, electronics, hardware, sports equipment, toys, textiles and
articles for the home. In general, the hypermarket stores devote 50% of
the total selling space to food items (groceries 25% and perishables
25%) and the remaining 50% devoted to non food items. Most of them also
have family style cafeterias and deli's. Hypermarkets and supermarkets
still have underdeveloped "health-food" sections. The extent of most
supermarket health-food sections does not reach much further than such
products as whole grain cookies, adult cereals (with less sugar), sugar
free cookies, and in some cases diet mayonnaise.

While the industry has experienced great success with the hypermarket
format, the majority of the retail food stores in the country remain in
the traditional supermarket format, averaging between 3,000 and 6,000
square meters (32,280 and 64,560 square feet) of floor space and
carrying 1,500 to 10,000 products. There are currently 634 supermarkets
throughout Chile, of which 205 are located in the Metropolitan
Region/capital city of Santiago. The major supermarket chains are Ekono,
Almac (D&S); Santa Isabel (formerly Dutch Ahold, currently being bought
by Cencosud); Unimarc (Supermercados Unimarc S.A.); and Montserrat
(Supermercados Montserrat S.A.C.). The supermarket stores place an
emphasis on the food products offered, which include a broad assortment
of quality perishables and groceries. They are marketed as a convenient
alternative to small, family-owned grocers and informal markets with a
price/quality ratio that appeals to the middle and lower-middle classes.
Therefore, in the face of a recovering economy, the supermarkets are
well positioned to benefit from the increasing purchasing power of
Chile's lower socioeconomic classes.

There are important differences between the products carried by both
hypermarkets and supermarkets in the low versus mid to high
socio-economic segments. The stores located in low-income areas normally
carry a limited number of specialty items (usually higher-priced
imported goods), apart from the items destined for massive consumption.
Hypermarkets and supermarkets in the mid to high-income areas carry a
varied assortment of specialty items with a relatively high degree of
imported products. A rise in consumer sophistication in the mid to high
socio-economic areas, in terms of products, brands and price, has
resulted in increased demand for imported food products. Nevertheless,
despite the increasing selection of products and advances made in the
super and hypermarket sector as a whole, compared to the US, the
selection of specialty imported products is still limited.

### b) Entry Strategy

To achieve success in the Chilean market, a supplier must offer
world-class products, aimed at satisfying the needs of a small, price
conscious consumer base. Chilean importers of retail foods focus on
acquiring low cost goods that offer a high profit/price ratio, from
serious manufacturers who compete globally, or are capable of doing so.

Many foreign companies have found that Chile, with its small population,
relatively low per capita income, and borders so open to foreign trade,
is an undesirable market. Others see success here as a stepping stone
toward achieving growth and market share in the rest of Latin America.

Because supermarkets and hypermarkets are such an overwhelmingly major
force in the Chilean retail food sector they present the best
opportunity for U.S. retail food exports. They are a means for exposing
the consumer market to imported goods in all socio-economic segments, in
both the large cites and urban areas. If the current consolidation trend
continues one can expect that in the near future three to four chains
will command up to 60% or more of all retail food sales in Chile. The
local market niches are slowly disappearing under the pressure of this
wave, and the distinction between imported retail foods and traditional,
domestic foods is following suit.

For U.S. companies wanting to sell consumer-oriented retail food
products to the large supermarket chains they should contact them
directly to identify the distribution channel the dealer prefers (i.e.
direct import, from a commissioned agent, or a local
importer/distributor). (See Distribution Channels below) Personal
relationships and a high level of communication are key, as Chilean
business people are accustomed to \-- and frustrated by \-- foreigners
who arrive on a whirlwind tour and promise things they then do not
deliver. Generally speaking, higher priced, specialty retail foods are
imported through a third party. It is more likely that supermarkets
would have a greater interest in directly importing retail foods with a
broader appeal and higher volume.

For suppliers, supermarkets and hypermarkets are a challenging client,
often times requesting payment for shelf space and extensive
merchandising support. The supermarkets' procurement practices - quality
and safety standards, packing and packaging requirements, costs,
volumes, level of consistency, and payment practices - have all made a
significant impact on the retail food import sector. While these
standards and requirements tend to differ by company, their procurement
systems are always aimed at facilitating the growth of key food markets.

***Pricing Products***

In 2003, a 6% tariff is levied on the CIF value of all imported food
products. This tariff and a value-added tax of 18% (moving to 19% on
October 1, 2003) are paid by the importer and not by the supplier.
Imports from countries with which Chile has bilateral trade agreements
are covered by different, preferential tariff schedules. Despite the
fact that imports from Argentina and Brazil are cheaper because of the
exchange rate advantage, the final price for mass-distributed U.S.
retail food products should be competitive with imports from these
countries, especially after the FTA goes into effect (possibly by
January, 2004). Gross margins for consumer-oriented retail food products
are generally 30-50 percent or more for direct sales to consumers, or
20-30 percent each for the importer/distributor and the retailer when a
third-party distribution chain is in place. As most of these products
are higher-priced items they must identify niche market segments to
prosper.

***Private Labels***

Hypermarkets and supermarkets are increasingly focused on private label
brands. In total private label brands (both grocery and non-grocery) are
currently estimated to represent 5% of supermarket sales (US\$ 200
million). The development of private label brands has been a success in
the supermarkets and this segment of the market is expected to grow to
represent an estimated 10-15% of supermarket sales by 2005. Supermarkets
D&S were among the first to focus significant resources on private
labels in the late 1990's and the other chains are following. In several
cases third party companies will manufacture under the chain's own label
while in other cases, the chain will vertically integrate to incorporate
its own manufacturing arm. The impact of the private label brands and
the trend towards lower prices is expected more in the mature grain
mills and dry goods subsectors rather than in subsectors such as health
foods and children-oriented items where brand recognition is extremely
important. Examples of private label goods include tea, sugar, spices,
rice, frozen vegetables and canned foods.

### c) Company Profiles

A good example of the fierce competition between the hypermarkets can be
seen with the entrance of Carrefour in Chile in 1998. Carrefour,
extremely experienced in overseas expansion and with a firm foothold in
Latin America, now has five stores in Santiago and another two planned
for opening by the end of 2003, each to cost US\$ 15 million. Their
success, however, has further exacerbated competition within the
industry.

Distribution and Services S.A. (D&S) currently has 35 Lider hypermarkets
throughout Chile in the Lider, Lider Vecino and Lider Mercado formats.
In addition, the group owns 23 Ekono and 4 Almac supermarkets (in some
cases the Ekonos are big enough to be hypermarkets). With 62 stores and
control of over 30% of the market, D&S currently dominates the other
chains in both size and reach and continues with its own aggressive
expansion plans. The three distinctly branded, demographically targeted
store formats plan on capitalizing on the rising purchasing power of
Chile's middle and lower middle classes by marketing many of its private
labels to communicate an enhanced image based on a new \"fresh and
clean\" look. Private labels currently contribute to about 10% of sales,
but D&S is intending to increase its share of private labels to 20% as
early as the end of 2003.

The company has also reported plans to merge its Lider, Ekono and Almac
grocery chains (which currently operate independently) into one unit,
Lider, in an attempt to cut costs as competition among the market
players grows. The move is to be completed by mid 2004. In 2003 the
group will invest US\$50 million by opening two more Lider hypermarkets
and adding pharmacies to its current stores in its alliance with
Farmacia Ahumada. By the end of 2002, 19 D&S stores had added pharmacies
to their formats (Farma-Lider). D&S reported profits of US\$ 34 million
in 2002, down 41.3% from 2001, and a 10% increase in revenue. The
decrease in profits was attributed to additional costs incurred with the
opening of eight new stores (US\$90 million), greater competition
driving down prices, a slow economy and sluggish consumer spending.
However, company officials are forecasting that 2003 profits will rise
by more than 50% on the back of new store openings and an increase in
consumer spending. In 2002, D&S direct imports totaled US\$ 98 million
(57% from China, 23% from Brazil, and only 0.03% from the U.S.).

Jumbo, the hypermarket "sister" chain to the Easy Homecenter stores,
both owned by the Paulmann Group (Cencosud), is beginning to reap the
benefits of its aggressive investment plan, with profits increasing 17%
in 2002 to US\$60.6 million (for both Jumbo and Easy). According to
Jumbo's Country Manager in Chile, Claudio Haase, around 90% of this
increase is a result of the Jumbo/Easy strategic alliance with the
Ripley department store chain involving the use of Ripley's credit card.
The remainder of the increase came from the two new Jumbo's that were
opened in 2002, bringing the total to seven in Santiago and another two
in the surrounding regions. Jumbo's physical presence with Easy as the
anchors of several malls is a big part of its success. In 2002, Jumbo's
direct imports were US\$ 19 million (33% from Paraguay, 17% from China,
13% from Brazil and only 3.2% from the U.S.).

In addition to its current expansion plans, Jumbo is also looking to
move more into the traditional supermarket sector. Parent company
Cencosud is currently in the process of buying the Chilean operations of
the supermarket chain Santa Isabel from embattled Disco Ahold
(Dutch/Argentine supermarket conglomerate). Santa Isabel is the third
largest food retailer in Chile controlling 9.6% of the market between
its Santa Isabel and Tops supermarkets. The purchase of the chain's
Chilean operations would be significant, giving Cencosud control of
close to 20% of the supermarket industry. In 2002, Santa Isabel directly
imported US\$ 3.6 million in goods (57% from China, 9.1% from Spain and
only 2.6% from the U.S.)

It is important to point out that China's strength as an exporter to the
Chilean supermarkets and hypermarkets is not in the food sector but
rather in the clothing and other non-food lines.

Chilean grocery operation Unimarc, with 3.5% market share, reported
losses of US\$ 441,000 for 2002. Although the company made public last
year that it had abandoned its efforts to sell the supermarket chain,
Unimarc is still in a difficult position. Unimarc has around 30 stores
throughout Chile and directly imports nothing from the United States.
For 2003, the company plans to regain market share by improving its
pricing scheme. Both Unimarc and Santa Isabel saw their market shares
decrease significantly in 2002 due to strong price competition from
rival hypermarkets.

Chilean owned supermarket chain Montserrat has 21 stores, all located in
Santiago. The company emphasizes its market niche as serving the middle
and lower income neighborhoods in the capital city. The chain controls
2.6% of the Chilean supermarket industry and has maintained its hold as
one of the top five supermarket chains for the past decade. Company
financial information is not available. Montserrat imports nothing
directly from the US.

According to reports in the local press, Chilean department store chain
Falabella, with 32 department stores in Chile, is planning to expand its
interest into the domestic supermarket sector by the end of 2003 or the
beginning of 2004. In addition to the successful department stores,
Falabella has branched out into the pharmacy business through a stake in
Farmacias Ahumada and continues to expand on its financial services
business (banking and insurance). If Falabella were to enter into the
retail food sector the company would have the local market experience
and financial resources to become a major player.

+-----------------+-----------+-------------+-------------------------+
| Retailer and    | Ownership | Number of   | Purchasing Agent Type   |
| Type            |           | Outlets     |                         |
+-----------------+-----------+-------------+-------------------------+
| D&S: "Lider"    | Local     | 62          | Direct, Third-Party     |
| hypermarkets,   |           |             | Distributor, Agent      |
| "Ekono" and     |           |             |                         |
| "Almac"         |           |             |                         |
| supermarkets    |           |             |                         |
+-----------------+-----------+-------------+-------------------------+
| Cencosud:       | Local     | 9           | Direct, Third-Party     |
| "Jumbo"         |           |             | Distributor, Agent      |
| hypermarkets    |           |             |                         |
+-----------------+-----------+-------------+-------------------------+
| Royal Ahold:    | \*Dutch/  | 77          | Direct, Third-Party     |
| "Santa Isabel"  | Argentine |             | Distributor, Agent      |
| and "Tops"      |           |             |                         |
+-----------------+-----------+-------------+-------------------------+
| Carrefour:      | French    | 5           | Direct, Third-Party     |
| "Carrefour"     |           |             | Distributor, Agent      |
| hypermarkets    |           |             |                         |
+-----------------+-----------+-------------+-------------------------+
| Montserrat:     | Local     | 21          | Third-Party, Agent      |
| "Montserrat"    |           |             |                         |
| supermarkets    |           |             |                         |
+-----------------+-----------+-------------+-------------------------+
| Unimarc:        | Local     | 30          | Direct, Third-Party     |
| "Unimarc"       |           |             | Distributor, Agent      |
| supermarkets    |           |             |                         |
+-----------------+-----------+-------------+-------------------------+
| \* As of July   |           |             |                         |
| 2003 Cencosud   |           |             |                         |
| was still in    |           |             |                         |
| negotiations to |           |             |                         |
| buy Santa       |           |             |                         |
| Isabel chain    |           |             |                         |
| from Royal      |           |             |                         |
| Ahold.          |           |             |                         |
|                 |           |             |                         |
| Source: ASACH   |           |             |                         |
| (Chilean        |           |             |                         |
| Supermarket     |           |             |                         |
| Association)    |           |             |                         |
| and Store       |           |             |                         |
| Chains.         |           |             |                         |
+-----------------+-----------+-------------+-------------------------+

![](media/image3.wmf){width="6.041666666666667in" height="3.125in"}

### d) Distribution Channels

Currently, over 3,000 importers operate in Chile in the
consumer-oriented food sector; some of them also act as export agents.
Most are small-to-medium size firms. Several large firms handle
different lines of products and are large wholesalers. Almost all the
firms have their main offices in Santiago. The larger ones have branch
offices throughout the country, including in the free-trade zones. Other
firms employ specialized traveling salespeople.

The traditional method of entering the large chains through third-party
distributors or commissioned agents is still recommended in most cases.
The advantages of third-party distributors and commissioned agents are
many. Most have established relationships with product buyers throughout
the industry, from supermarket chains to local distributors to
restaurants and hotels. Third-party distributors will assist U.S.
exporters with all aspects of importation, distribution, sales and
marketing of their products. This includes receiving, transportation,
storage, distributing, pricing, packaging and labeling, and advertising
(often times subcontracted to an advertising agency). Commissioned
agents will assist with the importation and distribution logistics, but
will not be as "hands on" as a third-party distributor will be.
Depending on the product, the standard mark-up on imported
consumer-oriented food products is 30-50%. The mark-up covers some of
the costs incurred in the process and includes the 5-10% earned by the
distributor or agent. Labeling, advertising and other unforeseen cost
are not usually included in the mark-up. In addition, suppliers are
providing more and more "promotoras" or specialized sales people to
stand in the aisle to hand out samples and promote the product.

Third-party distributors emphasize the need for exporters to be
financially committed to their products and the market they are
entering. It has been said by many within the industry that U.S.
companies like to sell but do not like to export. The financial
resources dedicated to an exported product are often the difference
between success and failure.

Chilean supermarket industry e-marketplace has become very popular in
the industry because it allows distribution centers to better manage the
arrival of merchandise. The online dispatch notification service
integrates supermarket suppliers in a community where they can exchange
all the documentation involved in procurement - purchase orders,
dispatch orders, receipt orders, payments, catalogues, and sales
reports - for greater efficiency and transparency. In 2002, the
e-marketplace saw a greater use of the service by supermarkets, a larger
number of suppliers becoming affiliated with the site, and an increase
in the use of electronic documents in the industry. It has about 910
suppliers and is currently working with 12 supermarket chains that
represent 63% of the industry. The company calculates they are moving
US\$ 2.8 billion a year in the form of purchases from their suppliers.
The supermarket chains participating in the e-marketplace are: D&S,
Jumbo, Santa Isabel, Montecarlo, Economax, Montserrat, Rabie, Bryc de
Curico, Alvi, Rendic, Carrefour and Unimarc.

## 

## B. Convenience Stores, Gas Marts and Pharmacies

The convenience stores, gas marts and pharmacy chains have been steadily
expanding their presence in the upper and middle class neighborhoods of
Santiago. They are, on average, around 1,000 square meters (10,760
square feet) in floor space and offer between 400 to 1,500 products.
Impulse buys make up a high percentage of these stores' sales. Their
marketing strategy is to project the store's image as a high quality,
personable and convenient outlet.

### a) Entry Strategy

Independent distributors are best suited to ensure that imported
products are available in the market. Most of these stores sell limited
quantities of imported candies and snacks, with little presence of U.S.
products. In general, they purchase from local distributors.

### b) Company Profiles

***Convenience Stores***

These small stores in high-traffic residential zones have emerged as an
alternative to the supermarkets, carrying smaller quantities of a
selected variety of items. The target market is clientele with little
time and looking for "necessary" purchases. Food products sold at the
convenience stores include snacks, candy, and alcoholic and
non-alcoholic beverages, as well as ready to eat prepared food, and some
necessity items such as breads and milk. Chains such as Big John, Almac
Express, Castaño and Fuchs are the most prevalent in the capital city of
Santiago.

***Gas Marts***

The "gas mart" concept is fairly new to Chile, introduced to the country
by the larger multinational gas chains in the mid-1990s. In Chile there
are 1,506 gas stations with four chains being the major distributors:
Esso, Copec, Shell, and Repsol YPF. In 2002, there were over 260 gas
stations with gas marts, or around 18%. Prices are usually higher at
these stores, but hours are extended to serve late-night clientele. The
product mix of consumer-oriented food items at these gas marts consists
mostly of a varied assortment of snacks, drinks, alcohol,
confectionaries and pre-made foods. Many of these chains have
incorporated deli's and restaurants in their formats; hooking-up with
fast food chains such as McDonalds to provide clientele with food
alternatives. The gas marts and food offerings often generate as much or
more income as the sale of fuel with profit margins between 8-10
percent.

  ------------------------------ --------------- ------------------------
  **Retailer**                   **Ownership**   **Number of Outlets**

  Pronto                         Copec           80

  Select Mart                    Shell           74

  On the Run & Tiger Mart        Esso            105

  AM/PM                          Repsol YPF      N/A
  ------------------------------ --------------- ------------------------

***Pharmacies***

Chilean pharmacy chains have undergone significant growth and
consolidation in the last five years, resulting in Farmacias Ahumada,
Salco Brand, and Cruz Verde as the three most dominant, controlling 90%
of the market. At the end of 2002 there were a total of 1,608 pharmacies
in Chile, with the three leading chains combining to open 170 new
outlets. This rapid expansion has quickly brought the sector to maturity
and created a price war between the chains. These chains are not big
importers but rather source the majority of their products through their
own drug companies (which focus on the production of both branded and
generic drugs) and purchase name-brand toiletries, cosmetics, and foods
through an importer or the local representatives of the international
brands (e.g., Johnson & Johnson, Clairol, etc.).

Pharmacy chains have realized double-digit growth and their aggregate
turnover rose by 12% year-over-year in 2002, despite reduced overall
domestic demand. Drugstores have expanded by widening their product
range to include the most common groceries as well as healthcare,
cosmetic and personal hygiene products. In effect, these stores are
becoming more like convenience stores, competing with supermarkets and
kiosks.

## 

## 

## C. Traditional Markets, Small Independent Stores, Kiosks and Liquor Stores

In terms of presence, traditional markets, small independent stores,
kiosks and liquor stores ("botellerias") constitute a large share of the
retail food sector, but only a nominal share in terms of sales volume,
and they import minimal food products. According to AC Nielson, in Chile
there are 87,485 stores that fall under the category of traditional
markets, kiosks and liquor stores, representing 84% of the total points
of sale for consumer foods in Chile but only 22% of total sales. Most of
these stores carry a smorgasbord of goods, but very little stock with
minimal imports.

In the past decade Santiago has seen the birth of specialty wine stores
that specialize in mostly Chilean wines, but do offer a varied selection
of imported wines from around the world. The Wine House (first of this
kind, 1993), El Mundo del Vino, Vinoteca and Vinópolis are the principal
chains.

### a) Entry Strategy

The traditional markets and small independent stores have been affected
most by the burgeoning hyper and supermarket industry. Many of the
traditional markets and independent stores have joined associations in
order to negotiate lower prices from suppliers. As a means of survival,
many of the small stores have moved away from selling groceries, fruits
and vegetables and concentrate on niche-markets such as prepared
lunches, snacks and alcohol. Local distributors supply these venues.

# III. Competition

Because price is often the determining purchase factor for most
Chileans, this can present a problem for U.S. exports as the domestic
market is very capable of producing many products and offering them at a
lower cost to the consumer. The following are some of the primary import
categories for Chilean consumer-oriented foods. Under a U.S.-Chile Free
Trade Agreement scenario many U.S. exports of these goods will be better
able to compete with products from other countries.

### 

## A. Sectors

## 

### a) Health Foods, Grain Mill Products and Dry Goods

The size of the "health and natural consumer products" market in Chile
is estimated at US\$ 80 million at the beginning of 2002, having grown
30% over the last five years. The majority of this market (approximately
80%) is comprised of vitamin and dietary supplement sales, with the
remainder including other natural health products. Although the number
of health-food products is limited and these items are generally
considered more expensive, the selection is growing and the purchase of
these products, which carry the labels "light", "diet" or "whole
grains", etc., constitute around 6% of the average Chilean household
food budget.

"Power Bars" (acquired by Nestle in 2001) or just "sports bars" vitamin
protein enriched snacks are sold in many gyms but distribution and brand
recognition is limited, and the time seems right to enter with a small
assortment of health supplement, diet, or sport/energy consumer products
to be distributed in pharmacies, supermarkets, and gyms (note
restrictions on amount of supplements before considered pharmaceutical).

The domestic production of milled grain products for human consumption
is a growing industry in Chile. As consumers become more health
conscious the demand for grain milled products will increase.

The Chilean market for breakfast cereals, though still targeting
primarily children, is rapidly expanding with many multinational
companies leading the charge. The primary breakfast cereal suppliers are
Nestle, Kellogs and Quaker Oats. The U.S. is the third largest supplier
of breakfast cereals to Chile and its share of Chile's US\$7.7 million
import market averaged 20% from 1999-2002. U.S. exports of breakfast
cereals were US\$1.3 million in 2002. With the U.S.-Chile Free Trade
Agreement breakfast cereals imported from the United States will gain
preferential access as tariffs will be immediately eliminated, thus
allowing U.S. products to expand and compete against Chile's largest
suppliers (note information on restrictions on "fortified" cereals).

Chile is about 35% self-sufficient in rice. In 2002 the U.S. share of
rice imports was 85%, or US\$ 208,314.

Top domestic producers of pastas are Luchetti, Carozzi, Taliany and Don
Vittorio.

### b) Snack Foods and Confectionary Goods

The Chilean snack foods and confectionary goods market has been very
accepting of imported labels, with many of the gums and candies being
imported from Spain and Brazil. The sale of ice cream, candy and baked
goods, items generally viewed as "not so healthy" continue to find
consumer demand.

The Chilean snack foods market is primarily controlled by three
multinational companies: Nestlé, Unilever and Evercrisp. These companies
have processing plants in Chile and manufacture and distribute chips,
nuts, popsicles, cookies and crackers under many of the same name brands
that are found in the U.S. such as Lays and Tostitos.

There are four primary manufactures of confectionary products in Chile:
Nestlé, Costa (Carozzi), Industrias Ambrosoli and Arcor. These companies
dominate the confectionary market in Chile, manufacturing and
distributing the whole gamut of confectionary goods and some snack
foods. Chile's developing confectionary market has traditionally
preferred sugar confectionery, for their ease of manufacture,
transportation and shelf-stability. However, new product categories like
snack bars are becoming increasingly popular. The Chilean chocolate
confectionery category is fairly small, which is typical of most Latin
American countries. Boxed chocolates and candy bars have enjoyed the
greatest growth. Gum makes up only a small part of the Chilean
confectionery market but has significant potential due to low per capita
consumption, with sugar-free varieties and whitening properties being
the latest trend. Hard-boiled sweets, medicated confectionery and mints
attract the greatest revenue.

The U.S. share of Chile's US\$ 2.1 million tree nut import market, which
includes almonds, hazelnuts, pistachios and walnuts, averaged 90% from
1999-2001. Competitors include Iran, with 5% of the import market, and
Brazil.

### c) Prepared Meals, Canned and Frozen Foods

Sociodemographic changes involving an increase in the number of working
women, new active lifestyles, and a growing segment of young
professionals have been the catalyst behind an increasing trend towards
consumption of ready made or prepared foods. The market for pre-prepared
food is growing at an exceptional pace as an estimated 70% of all
workers in Santiago eat out at least once a day, mostly at lunchtime.
Many of the convenience stores and minimarkets, as well as the
supermarkets and hypermarkets, now offer ready-to-serve meals
(precooked) to their customers.

There are an estimated 10 local manufactures of prepared foods in Chile.
Many of the locally owned chicken, beef, pork and seafood processing
companies manufacture prepared foods in the related categories. These
items include sandwiches, frozen pizzas, Chilean-style frozen
casseroles, meat and chicken dishes, and Italian dishes. Additionally,
most of the supermarkets and hypermarkets have "gourmet" food sections
and deli's in their stores that prepare "take-out" food under their own
private label. All of these prepared foods have to be tuned to local
tastes and, in general, Chileans do not like spicy foods. There is
significant potential for microwavable items as an increasing number of
Chileans have microwaves in their homes.

### d) Sauces and Condiments

In 2002, Chile imported US\$ 2 million in sauces and condiments
including ketchup, mayonnaise, mustard, soy sauce, salad dressings and
tomato sauce. Argentina is Chile's largest supplier of sauces and
condiments. The U.S. share of Chile's sauces and condiments market was
an estimated 40% in 2002. However, with the Free Trade Agreement, import
tariffs will be eliminated on sauces and condiments from the U.S. The
only exception is tomato sauce in which the 6% tariff will be phased out
over four years.

### e) Dairy Industry

The Chilean dairy industry is controlled by two major international
companies, Soprole (New Zealand) and Nestle (Switzerland), controlling
24% and 21% of the dairy market, respectively. Other major dairy
producers are Colun 16.7%; Loncoleche 14.4%; and Parmalat 6.7%. The
industry includes the production of milk (condensed, pasteurized and
evaporated), cheese, yogurt, margarine and butter. Many of the larger
dairy companies, specifically Nestle, manufacture a wide range of
dessert lines such as ice cream and manjar (a caramel-like sweet).

Due to the preponderance of local manufactures, domestic prices for
dairy goods have been depressed and imports reduced. Currently all U.S.
dairy products face a 6% tariff and are at a disadvantage to those
products from Argentina and Uruguay due to lower transportation costs
and existing trade agreements with Chile. The major dairy products Chile
has imported in recent years are nonfat dry milk, whole milk powder,
cheese, and whey powder. Argentina and Uruguay generally supply half to
two-thirds of Chile's dairy product imports. In 2001, Chile's imports of
these products from all countries totaled just over 20,000 metric tons
valued at US\$ 36 million. A major supplier of cheese and whey, the U.S.
share of Chile's total dairy product import market averaged just under
5% from 1999-2001. To date U.S. dairy products have been restricted due
to differences in inspection regulations and grading standards. However,
these recent issues have been resolved and market opportunities should
increase.

With the U.S.-Chile Free Trade Agreement the current 6% tariff on U.S.
dairy products will be eliminated in 4-8 years depending on the product.
Chile will phase-out its tariffs over four years on cheese, butter and
butterfat, whey products, and yogurts, and over eight years on liquid
milk and cream, and condensed and evaporated milk, which include both
whole milk powder and nonfat dry milk. Chile now recognizes the
authority of the Food and Drug Administration (FDA) to approve plants
eligible to export to Chile.

### 

### f) Carbonated Beverages, Fruit Juices and Bottled Water

Chile has one of the highest per capita of cola consumption rates in
Latin America, particularly in terms of the Coca-Cola brand itself,
which remains the longstanding favorite of the Chilean beverage
consumer. In an attempt to gain market share in the carbonated beverage
category many of the larger supermarket chains have increased the number
and variety of carbonated drinks under private label and secondary
brands, with new flavors such as grapefruit and apple being introduced.
Private label and secondary brands have had moderate success as cheaper
alternatives to the international brands. For example, in 1998, there
were practically no secondary products available in Chilean
supermarkets, and private labels accounted for just over 1% of volume
sales. In 2002, practically all of the major supermarkets sold their own
private label carbonates, and there are more than 20 different B-brands
active in the market. This trend is expected to continue as retailers
offer special promotions in order to keep up sales volume

Other products, such as fruit juices, bottled water and sports drinks,
have slowly increased their share of the market. It is likely that more
expensive products, such as fruit juices, will have a more significant
presence. In the last few years, manufacturers such as Watts and
Coca-Cola have invested heavily in promoting the image and availability
of fruit juices, thereby placing them in more direct competition with
carbonates. Nectars are projected to eventually become more important as
trends continue towards healthier consumption patterns. Similarly,
bottled water also is forecast to benefit from these trends, and
experience stronger growth over the longer-term.

### g) Alcoholic Beverages

The Chilean import market for alcoholic beverages is estimated to be
approximately US\$ 25 million per year. The distilled spirits market in
Chile is well developed with over 30 brands present. The national
liquor, Pisco, is the most widely consumed alcohol. The top five
imported brands to Chile are: Johnny Walker, Bacardi, 100 Pipers,
Ballantines and Chivas Regal.

Increasing consumer sophistication and diversity of products in both
hyper and supermarkets has led to a steady increase in the import market
for alcoholic beverages, amounting to around 16% growth over the past
four years. England (56%), Mexico (10%) and the U.S. (8.5%) are the top
three suppliers of distilled spirits to Chile.

  ----------------------------------- -----------------------------------
  **Differentiated Taxes on Alcohol** 

  Non-alcoholic drinks, natural or    13%
  artificial                          

  Wine, Champaign, chicha, cider, or  15%
  beer                                

  Grape Pisco and similar beverages   27%

  Liquours, including cognac, gin and 28%
  liqueur wines similar to vermouth   

  Whiskey                             30%
  ----------------------------------- -----------------------------------

### h) Seafood

With 4,200 kms of exposed coastline and 30,000 kms of canals,
archipelagos and fjords, Chile is situated in one of the five most
productive marine areas in the world. The fisheries and aquaculture
industry plays a major role in Chile's export-led, resource-based
economy. By year-end 2002 aquaculture was the country's fourth largest
exporter, representing approximately 5.5% of the total value of Chilean
exports. Although domestic consumption of seafood has been increasing
during the past few years, there is still not a significant demand for
imports. This is due to the fact that fish in general is less popular
than red meat and poultry, and because domestic production is able to
supply almost every species of seafood in demand.

### i) Red Meat

U.S. Chile's major beef suppliers are Brazil, Argentina, Uruguay and
Paraguay. To date, these countries have had a comparative advantage over
U.S. beef imports due to inspection regulations, transportation costs
and existing free trade agreements. Chile imported 102,000 tons of beef
in 2002 totaling US\$ 174 million. The U.S. share of Chile's beef import
market averaged close to 1% in 2002. There were an estimated 350,000
tons of beef consumed in Chile in 2002, of which 80% (280,000 tons) was
sold through supermarkets or "carnecerías" (specialty meat stores).
However, changes in the entry requirements and preferably market access
under the FTA should improve the competitive situation for U.S. imports.
U.S. fresh and frozen beef products tariffs will be reduced over four
years and then eliminated.

Also, with the U.S.-Chile Free Trade Agreement both governments will
immediately recognize each others' grading systems. It is expected that
U.S. beef exports will find their niche in the high-end Chilean beef
market.

### j) Poultry

Imports of unprocessed poultry from the United States are currently
prohibited. Domestic production supplies most of the demand for poultry
products in Chile; Super Pollo and Ariztia are the largest domestic
poultry producers. With the U.S.-Chile Free Trade Agreement tariffs on
poultry imports will be completely liberalized over 10 years, beginning
in year two with an 8,000-metric-ton tariff-rate quota, a 5% annual
growth factor, and a linear phase-out of the out-of-quota tariff rate.
U.S. and Chilean technical experts currently are discussing the
appropriate sanitary requirements for market access in their respective
countries.

### k) Fruits and Vegetables

The agriculture industry is one of the staples of the Chilean economy,
with roughly US\$ 4 billion in agriculture exports annually. Imports are
only around US\$ 1 billion annually. Imports face tough competition from
domestic producers. However, until recently market access was seriously
restricted. Successful technical discussions have lead to new access for
stone fruit, apples, pears, cherries, kiwis, grapes, raspberries,
strawberries and citrus. Frozen and concentrated tropical fruits and
vegetables currently are Chile's main imports, mostly coming from Brazil
and the U.S.

## B. Labeling and Marketing Requirements

### a) Labeling

All canned or packaged food products imported into Chile must be labeled
in Spanish. The label must display the country of origin, ingredients
(including additives), manufacturing and expiration dates, and the name
of the producer or importer. All weights and sizes must be converted
into the metric system. Labeling and fortification standards often
differ from U.S. standards and some U.S. processed foods must be labeled
and/or formulated especially for Chile. For more information about
general labeling provisions review the main food law at the Chilean
Ministry of Health website
<http://www.sesma.cl/sitio/pag/alimentos/indexjs3alimentosnorm001.asp>
in Spanish or the unofficial translation at the U.S. Embassy, Santiago
website [www.usembassy.cl](http://www.usembassy.cl/) (under Food and
Agriculture).

### b) Marketing Requirements: Processed Foods

All products categorized as "processed food" must be tested and found in
compliance with government health regulations. The Chilean Health
Services officer at the port of entry will approve the import of
processed food products on a case-by-case basis. There is no blanket
approval process for permitting identical products into the country
until they have been approved by the authorities. Meeting the labeling
and marketing requirements to enter a product into Chile can be
cumbersome. The overhead cost incurred during the approval process of
new products, unless otherwise prearranged, is paid for by the exporter.

# 

# IV. Best Prospects

Opportunities in Chile's retail food sector exist for the smallest
supplier to the largest food manufactures. Consumer demographics play an
important role in the potential success of imported consumer-oriented
food products. The nation's capital, Santiago, accounts for nearly 40%
of the population and 70% of supermarket sales. The upper and upper
middle class population segments in Santiago, representing around 9.5%
of the population, have the sufficient disposable income/purchasing
power to buy imported retail foods. AC Nielson reports that 86% of this
segment purchases their goods at supermarkets chains Lider, Jumbo,
Ekono, Carrefour, and Montserrat.

Therefore, the target markets for U.S. exports of consumer-oriented
foods are high-end, value added products (see list below) at the five
aforementioned supermarket chains. However, as living standards and per
capita income (purchasing power) continue to rise in Chile, imports of
retail food products from the U.S. will have better sales prospects as
they will become more accessible and affordable to other demographic
segments. Consumption patterns will likely be impacted by economic
conditions. Many consumers will probably continue seeking special
promotions or less expensive products, particularly those in the middle
and lower income segments.

####### Consumer Demographics in Santiago, 2002

  --------------------- ------------------------ -------------------------
  **Socio-economic      **% of Homes in          **% of Expenses on
  Class**               Santiago**               Groceries**

  Upper & Middle Class  9.5%                     13.80%

  Emerging Middle Class 44.50%                   49.00%

  Poor                  46.00%                   37.20%
  --------------------- ------------------------ -------------------------

## A. Imported Products in the Market with Good Sales Potential

-   Snack Foods: salted nuts, popcorn, granola bars, chocolates

-   Sauces, salad dressings, marinades, mustard, peanut butter,
    cranberry sauce, jams and jellies, spices and other condiments

-   Canned Foods: soups, tomatoes, beans, peppers, canned meals, tuna
    and sardines

-   Breakfast cereals (currently the market is directed towards
    children)

-   Mixes: cake, muffin, pancake, waffle, cookie, puddings, jello

-   Health and diet foods, organic products (i.e. specialty products in
    line with wellness trends. Examples would include organic and
    sugar-free items.)

-   Sports and energy drinks

-   Dried and smoked meats

-   Dairy Products: nonfat dry milk, whole milk powder, cheese, and whey
    powder

-   Tropical fruit juices; frozen and concentrated (the minimal supply
    of tropical fruits will provide a good platform for exporters of
    these juices and concentrates)

-   Liquors: beer and whiskey

-   Frozen French fries

-   Legumes (off season)

-   Cooking and Olive oils

The following products offer particularly good prospect for U.S.
exporters under a free trade scenario.

-   Red Meat

-   Pork

-   Off season fruits and vegetables (Chile has a fairly sophisticated
    local market for agri-food production and has access to good quality
    products).

The U.S. is well respected in Chile for the quality of its products. In
this context, given the variety and quality of their products, many U.S.
agriculture and agri-food sector exports are well situated to benefit
from the U.S.-Chile Free Trade Agreement.

## B. Products Inhibited by Market/Trade Barriers

Fresh poultry, red meat based "wet", pet food, and "fortified" cereals
or snack bars remain restricted.

# V. Post Contact and Other Information

**American Embassy Santiago, Office of Agricultural Affairs**

Mailing Address: Office of Agricultural Affairs, Unit 4118, APO AA
34033-4118.

Tel.: (56-2) 330-3704

Fax: (56-2) 330-3203

E-mail: fas_stgo@rdc.cl

For further information, check the \"Agricultural Affairs\" home page on
the U.S. Embassy Santiago web site
([www.usembassy.cl](http://www.usembassy.cl/) ).

**Chile\'s Food Sanitation Regulations.**

Decree #977 of August 6, 1996: Covers labeling, packaging, additives,
contaminants, microbiological criteria, irradiated, dietetic, infant,
and frozen foods and specific product requirements, including those
pertaining to non-alcoholic beverages. (Spanish
<http://www.sesma.cl/sitio/pag/alimentos/indexjs3alimentosnorm001.asp>
and unofficial English versions of Decree \# 977 are on the U.S. Embassy
website [www.usembassy.cl](http://www.usembassy.cl/) ).

**Chilean Supermarket Association (ASACH)**

Address: Av. Vitacura 2771, Las Condes, Santiago

Tel.: (56-2) 236-5150

Web Page: [www.asach.com](http://www.asach.com/)

E-Mail: <asach@entelchile.net>