After announcing in June that Wal-Mart Stores’s (NYSE:WMT) Wal-Mart de Mexico unit was looking to sell its Vips restaurant chain, The Wall Street Journal reported Wednesday that the retailer has finally secured a deal with Mexican restaurant operator Alsea for 8.20 billion Mexican pesos, or $626 million. Wal-Mart de Mexico has been under close speculation ever since last year when reports of its bribery charges took shape, and now, the division is reportedly ready to focus on its retail operations and allow Alsea to take over its restaurant portfolio.
Alsea has been called an “icon” in the Mexican restaurant industry and thus it didn’t come to a surprise to analysts when the company became the front runner for Vips. Other chains like Grupo Gigante and Advent International were also in the running, but Alsea ultimately won out with a bid of 8.20 billion pesos, reflecting a value almost double that of what some analysts pegged the portfolio to go for.
According to The Wall Street Journal, Alsea manages popular franchises like Domino’s Pizza (NYSE:DPZ), Starbucks Coffee (NASDAQ:SBUX), Burger King (NYSE:BKW), and California Pizza Kitchen in Mexico, but has yet to focus on the middle class segment that Vips chains of 362 restaurants currently serve. Unlike Alsea, Vips offers mostly Mexican fare. Therefore, the deal will undoubtedly benefit Alsea, which can now add some “homegrown flavor” to its case of otherwise international brands.
It is now an especially lucrative time for the Mexican restaurant industry because as the country’s economy grows, so too does disposable income and consumers’ likelihood to spend. As cultural habits evolve and more of Mexico’s women seek employment opportunities, more and more Mexicans are eating out and placing takeout orders — and restaurant chains are benefitting.
In addition, because Wal-Mart’s Mexican unit is the country’s biggest retailer and many of the Vips restaurants are either situated in good locations or coexist with Walmex stores, Alsea stands to significantly profit from Walmex’s reputation and the increased likelihood that consumers will decide to eat out after a long day of shopping.
Walmex has benefitted from its own restaurant business in the past, posting earnings before taxes last year of around $74 million, but because the retailer has had to tighten its internal controls in the face of bribery charges and corruption allegations, it is now more important for Walmex to focus on its retail division rather than that of its restaurant business. It will still surely take Alsea years to pay back the loan that is necessary to finance the considerable Vips price tag, but the successful restaurant business is confident that its investment will soon pay off.