A Vision of Value: Planting roots in Mexico Evan Benkert, Kristen Busby, Isa Eugenio Hunter Gray, & Joey Padgett
Dollar Tree should enter Mexico through a joint venture with Calimax Approach Partner Position Prosper Profitably increase market Rollout multi-price point Partner with Calimax share over 3 year period stores in the Baja region Bottom Line Dollar Tree could realize profits of approximately $190K and capture 18% of Baja’s discount store market in 3 years, setting up a possible buyout of Calimax 2
Partner Position Prosper Profitably increase market Rollout multi-price point Partner with Calimax share over 3 year period stores in the Baja region 3 Partner Position Prosper
Dollar Tree has experienced successful growth and expansion Number of Stores Open 5000 190 Deals stores 2012 year end 4000 140 Dollar Tree Canada stores 3000 2012 year end 2000 Expand into 1000 Mexico 4 0 2008 2009 2010 2011 2012 Source: Dollar Tree Partner Position Prosper
Low labor costs & fast retail industry growth makes Mexico attractive for expansion Hourly Compensation Wages, 2012 Retail Industry Growth, ‘09-’16 $160 Norway Switzerland $140 Germany Canada $120 United States United Kingdom $100 Billions of USD Singapore Argentina $80 Portugal Slovakia $60 Brazil Estonia $40 Taiwan Hungary $20 Mexico Philippines $0 0 10 20 30 40 50 60 70 2009 2010 2011 2012 2013 2014 2015 2016 5 Source: U.S. Bureau of Labor Statistics, International Labor Comparisons, August 2013 Source: USDA Foreign Agricultural Service, 2010 Partner Position Prosper
Joint venture presents optimal entry into Mexican market Acquisition JV Greenfield Total Control DT can gain from market knowledge Gains Local Knowledge and risk mitigation in a new environment Share Risk Gov. Restriction JVs can decrease capital requirement while creating Risks Share Profit better government relations Initial Investment 6 Source: Deloitte Partner Position Prosper
Dollar Tree should Partner with the small grocery store chain Calimax Industry selection Grocery store selection Retail Value division opportunity Small to medium size chain Consumer products 1. Convenience stores 2. Department stores 3. Grocery stores ì Small to medium Willingness to work with a US Company 7 grocery store chain Source: Team analysis, Company websites Partner Position Prosper
Calimax de Valor adds value by combining strengths of each company Current Position Within Mexico Established Brand Real Estate Knowledge Supplier Network Distribution Network alor de Access to Capital Economies of Scale “Menos es mas con Valor” “Dollar” Industry Experience Infrastructure 8 Source: Dollar Tree; Calimax websites Partner Position Prosper
Position Partner Prosper Profitably increase market Rollout multi-price Partner with Calimax share over 3 year period point stores in the Baja region 9 Position Partner Prosper
Calimax de Valor should adopt a multi-price point strategy Value based costing to Price products differently to Use precision to reduce satisfy different preferences reach 3 price points perceived cost Calimax % Eight Case Studies Testing: Offer multiple price Waldo’s de Valor Undercut “Charm” Prices vs. Rounded points 9.95 13.60 27% vs. $10.00 $9.99 More product Result: “Charm” Prices 50% 29.60 14.95 diversification Sales 39.95 59.00 34% Satisfy more 24% customer preferences 10 Source: Waldo’s website & Facebook page, Book: Priceless by William Poundstone, Cornell, Bain Position Partner Prosper
Baja California’s maquiladora economy offers a large, low income target market % of Baja Population Supported by Maquiladoras 4000000 40% 35.5% % Supported by Maquiladoras 3500000 35% Baja California Population 700+ maquiladoras 3000000 29.2% are Baja’s primary 30% employers 2500000 24.9% 25% 2000000 20.76% 20.6% 20.5% 20% 1500000 11 1000000 15% 2006 2008 2010 2012 2014 2016 Source:Journal of Borderland Studies, INEGI, CBRE Position Partner Prosper
Dollar Tree should concentrate store rollout in Baja California 5 1 5 2 Mexicali Tecate Tijuana 1 San Luis Rio Colorado Rosarito 5 Store allocation to each city determined by Ensenada GDP, population, and poverty level 1 San Felipe 12 Sources: “International Market Expansion … ”, Baja.gov, BajaCalifornia.gov Position Partner Prosper
Dollar Tree should utilize high growth with fewer initial stores to test markets Calimax de Valor Store Rollout 70 16 Dollar Tree 14 60 Growth: Canada is 12 ~30% on average 50 Openings and we assume 10 Stores 40 similar rate 8 30 6 Payless Case 20 4 Study : 10-20 initial stores allows 10 2 scalable potential 0 0 to be investigated 2014 2015 2016 2017 2018 13 # of Stores Openings per year Sources: Dollar Tree, Payless Shoesource, Wright.edu Position Partner Prosper
Prosper Partner Position Rollout multi-price point Profitably increase Partner with Calimax stores in the Baja region market share over 3 year period 14 Prosper Partner Position
Dollar Tree should focus on three key location pools in the first five years 2017 2018 2014 2015 2016 Construction & Hiring TIjuana Promotion & Training Opening Construction & Ensenada & Mexicali Hiring Promotion & Training Opening Colorado, Rosarito, Tecate, San Felipe Construction & Hiring Promotion & Training San Luis Rio Opening Key: Ke Setup Re-Evaluate Current Promotion Operations Concentrate on Growing 15 15 Execution Begin to expand Markets & Consider beyond Baja Calimax buyout Sources: Reuters; Forbes Prosper Partner Position
Calimax de Valor would hold approximately 30% of the Baja discount market by 2018 100% 90% 80% CAGR: -33.4% 70% % Market Share 60% 50% 40% CAGR: 30.0% 30% 20% 10% CAGR: 3.4% 0% 2013 2014 2015 2016 2017 2018 Waldo's Calimax de Valor Other 16 Source: McKinsey, Waldos, and USDA Foreign Agricultural Service Prosper Partner Position
Buying out Calimax after three years could provide long-term benefits at short-term costs Dollar Tree Net Income w/o Dollar Tree Net Income w/ Buyout Buyout $8,000 $4,000 $6,000 $3,000 Net Income ($1000s) $4,000 Net Income ($1000s) $2,000 $2,000 $1,000 $- $- 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 $(2,000) $(1,000) $(4,000) $(2,000) $(6,000) $(3,000) Worst Expected Exceptional Worst Expected Exceptional Expected potential NPV in Expected potential NPV in perpetuity of $16M perpetuity of $31M 17 Source: Dollar Tree, CBRE, Bloomberg, CMO Survey Prosper Partner Position
Appendix Position Partner Position Prosper Framework Grocery Low Income Market Entry Dollar Tree 5 Forces: Dollar Options Shoppers Failure Growth Tree Past JV Product Population Financial SWOT: Dollar Success in Alignment Concentration Assumptions Tree Mexico Don’t Acquire Walmart Price- Need for Value Projected Sales SWOT: Calimax Waldo’s Based Costing Stores Post-Entry Multinational Convenience Projected Net Expansion STEEP: Mexico Suppliers Shopping Income Speed McDonald’s Payless Transportation Market Share Expansion Partnership Infrastructure Analysis Speed 50/50 JV has Price Point best chance Validation JV’s make use of Synergies 18 JV & Collaboration
Grocery stores considered for partnership -More than 606 stores -183 stores -Holding company with 200 stores in -57 branches -Grocery and -Publicly traded Mexico department retail Mexican grocery -One stop shop chain store and department -Owns 50% of Costco store chain de Mexico through JV Emphasizes that it Aprecio focuses on is Mexican-owned providing the best Presence of Food Family run and operated, prices for low Club and Top Care business, already Mercado Soriana purchasing power lines target lower has four store offers low pricing consumers through income spenders formats scheme a narrower range of products 19 Source: Company websites
Joint ventures in Mexico have proven successful - Joint venture with Grupo Axo - Greenfield venture in Canada - Expect to open 41 stores in - Joint venture in Mexico with Mexico within first 3 years Home & More - 300 stores long-run - 50% equity holder - Past success with - Kept Home & More name for partnerships in 10 other Latin over 2 years then rebranded American countries stores to Bed Bath & Beyond 20 Source: Payless Source: Bed Bath & Beyond
Dollar Tree should not acquire Waldo’s to enter Mexico Potential for local resistance to Dollar Tree’s takeover Large capital Acquisition of all stores investment (~150M, would not allow for which is 3X the cost of gradual entry Canada acquisition) Dollar Tree should not acquire Waldo’s Waldo’s pricing strategy Would miss out on is set at multiple price cultural knowledge from points insiders Government intervention and regulations 21
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