Koba International Group S.A. (‘D1’) is the largest hard-discount retailer in Colombia, and the sixth largest food retailer in Colombia, with over 800 stores and 10 distribution centers. The hard discount model of grocery retailing has been successful in several developed and emerging economies and is based on offering a core assortment of staple, high-quality products at the lowest possible prices.
D1 has a strong local brand and the majority of its sales come from private label and exclusive products. According to a March 2016 survey, six of the top 10 most relevant consumer brands in Colombia belonged to D1.
D1 has a track record of superior execution and a solid management team that has demonstrated excellent cost discipline, an integral part of the hard-discount model. D1’s low capex per store and high negative working capital, characteristic of the hard-discount model, generate high return on capital.
At the time of our investment, the Colombian food retail sector had grown at an 8% CAGR over the prior three years and the market was underpenetrated in terms of stores per inhabitant. In addition to these industry tailwinds, D1 was at an important inflection point with strong momentum from recent store openings.