The number of small supermarket chains is declining in Latin America, yet the size of the average chain is steadily rising. A core of family run businesses is faring well in the face of growing competition and they have put together the ingredients for long-term survival. Two small chains in Argentina, Aiello and Atamo Supermercados, stand out as companies determined to remain independent in spite of attractive buyout offers. Steve Lewis reports

Small supermarket chains are declining in number throughout Latin America. While the number of chains is on the decline the average size is steadily rising. However, a core of family run businesses is faring well in the face of growing competition. Two small supermarket chains in Argentina, Aiello and Atamo Supermercados, stand out as companies that are determined to remain independent in spite of attractive buyout offers.

Consolidation of the region's supermarket chains is taking place at two levels: national and international. A the national level, consolidation boils down to survival of the fittest. The 90's brought dynamic growth as consumers were weaned from their neighbourhood stores by the lower prices and better selection offered at supermarkets. Some chains were able to expand and remain profitable, but others were not. The chains that didn't adapt to the times either went out of business or were absorbed by healthier companies.

The arrival of international food retailers, including Carrefour, Costco, Disco, Jumbo, Sam's, and Wal-Mart put further stress on small supermarket chains. Most found their markets invaded by stores with much higher purchasing power and the ability to negotiate preferential terms with food suppliers. In addition to opening new stores, some international chains expanded through acquisition of existing chains. In Argentina for example, Disco/Ahold took over the Vea and Gonzalez chains.

Aiello Supermercados of San Luis and the Atomo supermarketss in Mendoza serve as examples of profitable family businesses. Aiello is one of the few supermarket operators in San Luis that adapted to the realities of today's marketplace. This was accomplished under the leadership of Carmelo Aiello and his three sons. At present, the chain accounts for 52% of supermarket sales in its local market of San Luis with 8,300 square meters of sales space and 340 employees.

According to Carmelo Aiello, the key to the company's success has been cautious growth with the support of local customers. During the past four years the company added onto existing stores and opened three new ones. When major competitors came to town, Aiello did not try to beat them at their own game of high volume purchasing. Instead, management decided to offer the best possible price while playing up the company's image as a supporter of the local community.

The survival strategy of the Atamo chain was somewhat different, although equally effective. It focused on catering to the needs of the lower-middle and low socioeconomic strata. The key to retaining customer loyalty was offering low prices on basic food items. This strategy paid off with strong customer loyalty and annual sales of US$120m.

The Aiello and Atamo chains run contrary to projections that small supermarket chains have no future in urban markets of Latin America. Certainly the ranks of small chains will thin out a bit more, but the survivors are stable and solvent. Rather than try to become major players themselves, they will focus their attention on offering the best possible service at the local level.

By Steve Lewis, just-food.com correspondent