Auto Service Stores Industry in Mexico, Theory of Industry Applied to the Acquisition of Giant Stores

Business, Management and Economics
Research
ISSN(e): 2412-1770, ISSN(p): 2413-855X
Vol. 2, No. 6, pp: 104-113, 2016
URL: http://arpgweb.com/?ic=journal&journal=8&info=aims
*Corresponding Author
104
Academic Research Publishing Group
Auto Service Stores Industry in Mexico, Theory of Industry
Applied to the Acquisition of Giant Stores
José G. Vargas-Hernández* University Center for Economic and Managerial Sciences, University of Guadalajara, Periférico Norte
799 Edif. G201-7, Núcleo Universitario Los Belenes, Zapopan, Jalisco, 45100, México
Carlos Daniel University Center for Economic and Managerial Sciences, University of Guadalajara, Periférico Norte
Ávila Zepeda University Center for Economic and Managerial Sciences, University of Guadalajara, Periférico Norte
1. Introduction
An industry is a group of companies or companies with similar goods or engaged in the same business twist.
The industry can be a monopoly, oligopoly, perfect competition or duopoly this by the number of companies that
compete in it (Peng, 2012). Companies also are distinguished by being more cost-effective than others because from
the beginning what is sought is that, profitability, the industry will demand many companies as product support. A
product being new can exercise monopoly power in consumers as the demand curve slopes downward remains.
However, as are generated products like, more firms enter the industry and demand will be more elastic and profits
tend to zero (Varian, 2010). The capacity and influence of the industry and its effects on society will be influenced
largely by the agreements of the firms in the economic sector (Spulber, 2005).
Companies are set in a competitive market in which to obtain benefits and survive require adapting and
implement strategies which according Learned, Christensen, Andrews and Guth (LCAG), defined as the essential
concept of how companies interact in their environment (Learned et al., 1969). A company is part of an industry
which to interact with other companies that make the sector, use strategies to ideally develop economic and
operational areas of the firm.
Joe Brian says that the behavior of the firm depends on the structure of the industry, as it is the collective
behavior of the companies that form that determine how the firm will act (Bain, 1968). The firm according to LCAG
has its tools to make decisions about the strategies to follow which can be internal factors of the company, such as
the strengths and weaknesses, and external opportunities and threats. Porter (1983) notes that there are several tools
which can be used to measure and predict the impact of the strategies followed and that should be considered before
taking any course of action.
2. Diamond of Porter
The experience curve is a strategy of analysis that should be applied carefully and that does not consider the
experience curve of competitors, as there are various factors affecting the market, not only experience. Porter (1980)
suggests that not all industries can be analyzed by the experience curves, but resort to this only when information
among competitors is complete and reliable, i.e. in cases where information asymmetry is not a relevant or as
marked factor could be resorted to this type of analysis.
Porter states that any analysis of the industry must take into consideration the social and the economic aspects.
The industry structure highly influences in setting the rules of the game in which are designed the strategies to be
Abstract: Mexican supermarket industry is mainly characterized by a variety of types of consumers, mainly
marked by differences in purchasing power. Mexican industry self serves the needs of different consumers
through: (i) modern formats such as supermarkets, warehouses, hypermarkets and membership clubs; (ii)
traditional formats such as small independent sundries; and (iii) informal, such as farmers' markets and local street
vendors. This paper analyzes retrospectively the acquisition of the Gigante stores by Soriana from the theory of
industry, resources and capabilities, reviewing the situation of both companies in the diamond industry by Porter,
SWOT analysis themselves that theory.
Keywords: SWOT; Gigante; Soriana; Industry based theory.

Business, Management and Economics Research, 2016, 2(6): 104-113
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raised, and it should pay special attention to the external factors of the company and those are the really determining
which are skills and competence and with what will confront the company.
2.1. Intensity of Rivalry among Competitors
The supermarket industry is on a high degree of rivalry, although companies that make up the industry self-
service stores (supermarkets) are only seven, Wal-Mart de Mexico, Soriana, Grupo Gigante, Casa Ley, Controller
Commercial Mexicana, Chedraui and Costco Wholesale Group Corporation. These are the leading companies and
major market holders. These are only a few competing in the market and are constantly generated in non-cooperative
games, and price wars with big advertising campaigns, besides that the 7 companies competing in the industry are
large companies with large resources
2.2. Threat of Potential Entries
This point is almost nonexistent because it requires a large investment to enter and compete in the industry.
Besides, the amount of the investment companies that are currently in the controlled market and entry barriers, with
costs below of what the average consumer could get, also the companies have exclusive contracts with certain
suppliers and its own brands of products.
2.3. Bargaining Power of Suppliers
Suppliers have a little power. Self-service companies usually handle very rigid policies towards their suppliers.
They are "tied" to payments of goods handled as credits for the purchase of goods, long-term between 60 and 90
days. Also, the contracts of purchase-sale with suppliers usually is a very strict procedure and in which suppliers
often invest a significant amount of time and money as they commonly must be adapted to the requirements of self-
service stores.
2.4. Bargaining Power of Buyers
Consumers have a relatively high bargaining power, given how competitive the market is, which leads to have
strong price wars, and advertising campaigns in order to attract a larger segment of the market. Suppliers
continuously place bids in which they compared prices between them and provide payment of the difference plus a
bonus which makes consumers choose among those that generate higher profits.
2.5. Threat of Substitutes
As for self-service industry, the threat of substitutes is great as companies that compete in it tend to have similar
products and price promotions. In order to stand out and excel in the service sector Organization Soriana implement
services that generate a value added, such as the agreement with Banamex that provides financial products through
SoriBan, optical services, medical clinics, private label generic drugs, etc.
3. SWOT Analysis of Grupo Gigante
Porter dynamics usually is considered static and impractical for future planning, and does not consider the risk
factor which is clearly a less controllable and measurable variable (White, 2004).
The firm has LCAG as tools to make decisions about the strategies to follow which can be internal factors of the
company, such as the strengths and weaknesses, and external opportunities and threats, as shown in figure 1.
Figure-1. Factors of decision making.
Source: Industrial Organization and the Evolution of Concepts for Strategic Planning: The New Learning (Porter, 1983)
3.1. Weaknesses
The company Grupo Gigante (Giant Group) began a campaign of remodeling and opening of accelerated and
excessive branches in which it invested about 48% of the assets of the company to carry out. Likewise, there was the
opening of branches which generated 37,200 m2 of new floor of sales. Additional to it, the company faces a debt of
nearly 45% to end 2006.

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According to the annual financial report 2006 sales and administration of the company have resulted in low
profits of 3.1% (Grupo, 2007). These results depend heavily on its key members, senior executives and directors
which may represent major risk factor in the time when these cease to provide their services to the company, in
addition to credits for financing that the company is supporting on payment and compliance with the commitment to
mortgage of real property. Such loans are amounting to 2,700 million pesos.
3.2. Opportunities
The growth of self-service companies like Wal-Mart, Grupo Gigante and Comercial Mexicana, Casa Ley, is
encouraging some investment funds to put their money in real estate. Grupo Gigante analyzes the idea of dealing
with the Secretaría de Hacienda y Crédito Público (Ministry of Finance and Public Credit) authorization to open a
separate bank thus further diversify the areas in which her company has presence. The company has achieved
success so the implementation of the system SAP in all companies can provide greater control and access to
company information. Also, it has national coverage with presence in 90 cities, in 32 states, plus has begun a process
of internationalization with 7 outlets in Los Angeles, California (Grupo, 2007).
3.3. Strengths
Redefinition of formats, the company has remained in constant innovation to maintain VRIO within their stores,
and has invested significantly more efficient in promotional campaigns. Also, it is committed to expanding the scope
of pricing strategy and gets more market share and involvement. It has sought lower prices in order to attract more
buyers. There has been a minor decline that the industry average in 2006 and has invested in the development of
private label products with greater quality control, in addition to the procedures for trademarks and patents to ensure
the inimitability of these products.
Similarly, another strength that the group has is the fact that it takes much to pay and little to regain the
customer portfolio base, which gives it sufficient liquidity to meet its financial commitments and liquidity ratio is
1.11 / 1 is that for each dollar of debt there is $ 1.11 of assets to pay which is good although low, the optimum would
be 2/1.
3.4. Threats
Soriana has a lower borrowing than Gigante and has higher working capital which enables it to generate more
profits and pay additional taxes. Additional to this, the ANTAD member stores reported a 0.3% drop in April and
1.3% in May 2006; the US chain Wal-Mart de Mexico reported an increase of 4.1% and 3.4% in the same months.
Supermarkets self-service industry has a high level of competition at the level of prices basically where the most
common is a war of prices and offers, where the main competitors such as Soriana, SA de C.V., Wal-Mart de
Mexico S. de RL de C.V. and Controladora Comercial Mexica S.A. de C.V. (Mexican Commercial Controller), have
kept strategies of the price war which increases the pressure on operating margins of the company.
In 2006, Wal-Mart launched an aggressive expansion plan, opening 120 stores in the country in a single year, in
addition to market share decreased from 16.5% in 2001 to 9.7 in 2006, according to the companies listed on the
Stock Exchange.
4. SWOT Soriana
4.1. Strengths
Presence in almost the entire country, the company Organization Soriana has 234 stores in 112 cities and 29
states. The company has maintained a steady increase in profits. In 2006 increased 14.8% and from 2006 to 2007,
increased 12.38%. It is also implemented a marketing program, which resulted in a growth of 14.7% of customers.
The company has a policy of reinvesting most of the profits generated.
In 2006, Soriana had an investment of 4,517 million pesos from equity which is reflected in the debt ratio of
44% for 2006 and 55% in 2007. The company has diversified its products by offering a range of services that give
added value, solid financial ratios and give favorable results for the company, in 2006, with suitable and stable levels
of solvency.
4.2. Opportunities
The company has developed a chain of services that generate added value and diversified its operations and
making inroads into several new markets, including financial advice in coalition with Banamex. Among other
strategic alliances that allow it to compete on the market with Wal-Mart, and Grupo Gigante (Giant Group) among
others, it has invested significantly in the development and growth of sales floor. So that to end 2007 achieved an
increase by 20% to a total of 337,041 square meters of sales floor. Soriana Company has a good rate of return on the
capital paying significantly to its shareholders.
4.3. Weaknesses
The working capital of the company has a short range of positive difference in 2006 and in 2007 becomes
negative where the liability of the company is much larger than the assets. Besides having a slow-moving inventory,

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which is 6 times on average every 53 days. This being a company that handles perishable products including a
temporary too high for the market, in addition to its indexes in this acid test are low having only .52 of 1 indicating
that it is unable to meet their obligations with respect to assets held in 2006 as in 2007, however in 2007 has clearly
diminished its ability to pay.
4.4. Threats
The expansion policy of the company is in a very aggressive point. The company is not in the best financial
situations to generate the acquisition of the Gigante stores. It has shortcomings in information technology because it
is still in the process of standardizing computer systems which puts it at a distinct disadvantage with competitors.
Like Grupo Gigante (Giant Group), Soriana Organization faces a market with a high level of competitiveness. In
2006 the US chain Wal-Mart of Mexico reported an increase of 4.1% and 3.4% of market share. Industry of self-
service stores has a high degree of competence basically at price level where the most common is a war of prices and
where the main competitors such as Grupo Gigante SAB de variable capital (C.V), Wal-Mart de Mexico Society of
limited responsibility (S. R.L of C.V.) and Mexican Commercial Controller, Anonymous Society of Variable Capital
(S.A. of C.V.) strategies have kept the price war which increases the pressure on operating margins of the company.
In 2006, Wal-Mart launched an aggressive expansion plan, opening 120 stores in the country in a single year, in
addition to the market share of Organization Soriana decreased from 16.5% in 2001 to 9.7 in 2006 according to the
listed companies.
5. Organization Soriana SA De C.V. and the Assumption of Arrogance
The hypothesis of arrogance tells of how a company can generate an overestimation of another and offer over
the real cost, paying a price exceeded in the acquisition thereof, (Roll, 1986) which can be reflected in the Tiendas
Gigante (Giant Stores) acquisition by Organization Soriana (Organization Soriana).
The December 5, 2007, Soriana held a purchase agreement with Gigante in the amount of 1, 351 million dollars.
This includes the transfer of, among other things, the rights of the leases that the Company has made with third
parties to lease the properties where it operates some of its stores of supermarkets that have celebrated Gigante, S. A.
of C. V. with the real estate group of the Company. This converts Soriana on the landlord of two hundred five stores
(198 in Mexico and 7 in the United States), five distribution centers, two meat processing plants, furniture and
equipment stores and distribution centers.
The purchase also includes the transfer of all fixed assets of the Company used to operate grocery stores,
furniture and equipment of stores and distribution centers, as well as technology transfer of SAP system
implemented in the company; the sale of two properties (Durango and Torreon); the use of the trademark "Gigante"
by the purchaser during the first four months of 2008; a covenant not to compete for the Company for 5 years; and
the transfer of all employees of the company involved in the operation of the supermarket stores, so that from
January 1, 2008 Soriana will be the replacement of the same pattern.
Organization Soriana as shown in Table 1 and 2 was not in the best position to make this acquisition.
Table-1. Financial reasons Gigante
2006 2007 Comments
Liquidity Working Capital (AC-PC) 8’961,729-
6’852,731 =
2’108,998
16’458,236-
8’889,674 =
7’568,562
Following the
divestment of the
self-service sector
you can see a
clear improvement
Liquidity Ratio (AC / PC) 8’961,729/
6’852,731 = 1.31
16’458,236/
8’889,674 = 1.85
Increased liquidity
ratio after the
divestment
Acid Test (AC-Inventory /
PC)
(8’961,729 –
1’189,562 /
6’852,731 = 1.13
16’458,236 -
1’345,693 /
8’889,674 = 1.70
The index of the
acid test is higher
in 2007
2006 2007 Comments
Activity Inventory turnover (cost of
sales / inventory)
24,582,400 /
1’189,562 =
20.66
31,864,963 /
1’345,693 =
23.68
Decreased
inventory turnover
Period inventory (inventory /
cost of sales * day period)
(1’189,562 /
24,582,400)*360
=
17
(1’345,693
31,864,963)*360
=
15
They have a good
inventory turnover
period although
many of these
were bought by
Soriana in the
divestment

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process
Average customer collection
period (accounts receivable /
sales * day period)
(125,338 /
31’876,300)*360=
1.42
(114,921 /
34’932,998)*360=
1.18
The collection
tells us q clients
most purchases
are made in cash
Debt Debt ratio (total liabilities /
total assets)
25010063 /
11155094 =
0.4460
30200333 /
11761467 =
0.3894
Acceptable debt
levels
2006 2007 Comments
Profitability Gross profit margin (Gross
Profit / Sales)
7,888,600 /
31,876,300 =
0.25
3,333,212 /
34,932,998 =
0.10
The company has
higher cost of sales
after the
divestment
Net Profit Margin (Net
Income / Sales)
306,500 /
31,876,300 =
0.10
4,729,711 /
34,932,998 =
0.14
The company
generates a higher
margin of profit
subsequent to the
divestiture
Return on assets (net income
/ total assets)
306,500 /
25,010,063 =
0.01
4,729,711 /
30,200,333 =
0.16
The company
generates a higher
margin of profit
subsequent to the
divestiture
Return on equity (net profit /
equity)
306,500 /
13,854,969 =
0.02
4,729,711 /
18,438,866 =
0.26
The company
generates a higher
margin of profit
subsequent to the
divestiture
Table-2. Financial reasons Soriana
2006 2007 Comments
Liquidity Working Capital (AC-PC) 12,997,011 –
11,468,945 =
1,528,066
16,849,982 –
26,163,752 =
-9,313,770
Buying giant
Soriana stores left
with a marked
loss of working
capital
Liquidity Ratio (AC / PC) 12,997,011 /
11,468,945 =
1.13
16,849,982 /
26,163,752 =
0.64
The company had
a considerable
deterioration in
terms of liquidity
Acid Test (AC-Inventory /
PC)
(12,997,011 –
7,080,286)
/11,468,945 =
0.52
(16,849,982 –
7,847,221)
/26,163,752 =
0.34
The obligations
acquired in the
purchase of giant
stores had a clear
impact.
Activity Inventory turnover (cost of
sales / inventory)
47,718,414 /
7,080,286=
6.73
51,796,467/
7,847,221 =
6.60
Slight increase in
inventory turns
Period inventory (inventory
/ cost of sales * day period)
(7,080,286/
47,718,414)
*360= 53.41
(7,847,221/
51,796,467)
*360 = 54.54
It has a very high
inventory
turnover period
Average customer collection
period (accounts receivable
/ sales * day period)
(611,501 /
60,554,446) *360 =
3.64
(639,878/
65,190,659) *360=
3.53
The company has
a high collection
period to
customers for the
market
Debt Debt ratio (total liabilities /
total assets)
18,283,232/
43,110,568=
0.4241
33,746,600/
61,154,338= 0.5518
Acceptable debt
levels
2006 2007 Comments
Profitability Gross profit margin (Gross 12,836,032 / 13,394,192 / The profit margin

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Profit / Sales) 60,554,446=0.21 65,190,659= 0.21 is minimal
variations
Net Profit Margin (Net
Income / Sales)
2,789,262 /
60,554,446=
0.05
3,134,651/
65,190,659= 0.05
The profit margin
is minimal
variations
Return on assets (net
income / total assets)
2,789,262 /
43,110,568=
0.06
3,134,651/
61,154,338=
0.05
The profit margin
is minimal
variations
Return on equity (net profit
/ equity)
2,789,262 /
24,826,807=
0.11
3,134,651/
27,407,738=
0.10
The profit margin
is minimal
variations
Source: Own creation with data annual financial reports of Grupo Gigante S.A. de C.V. (Grupo, 2007;2008; Organizacion, 2007;2008).
It may have been the arrogance and / or inexperience of the main investors in the company and vendor
management that take them to make a decision that apparently not generated the best results in terms of short-term
concerns, (Ketelhöhn, 2009). The acquisition meant for Soriana acquiring debt for 9,790.998 million pesos. As a
result Soriana 2007 saw a considerable decrease in its solvency and liquidity being unable to meet its total
obligations with the assets held. (Walter and Barney, 1990) presented 20 possible targets that could pursue
acquisitions. For purposes of this work will take only those that apply to the case study:
A. To enhance the competitiveness inherent generating or absorbing a significant market share, the acquisition
of 205 stores, in addition to its distribution centers helped to that Soriana has a greater market share.
B. Penetrate new markets through the company's capabilities. Seven giant stores in Los Angeles, California
open the doors of the US market.
C. Improving economies of scale thanks to an absorption capacity of the acquired company. In this case, it
could be interpreted as such technology transfer capabilities of the SAP system and as the program logistics
and distribution centers.
D. Amplification of capacity at lower cost than the installation of new facilities, Soriana acquired the physical
space as well as furniture and all the equipment required for its operation. This means that it takes longer
than only investing in change image, as the staff was also hired and therefore training expenses and
management regarding the hiring of new staff was minimized by acquiring the company.
6. Conclusions
Self-service industry in Mexico in late 2007 approached a duopoly, after the acquisition of Tiendas Gigante
(Giant Stores) by Organization Soriana. The market was redistributed being Wal-Mart of Mexico at the lead and
Soriana the second competitor at the market. The purchase of the Gigante stores impacted in the short term
negatively on Soriana, and positively in Gigante, although the divestment will generate a lower income. Also it was
provided greater stability to maintain the operations of other companies in the group.
It can be said that Soriana fell on the assumption of arrogance because it bought at high cost the shops and
Gigante earned a good profit by disintegration. But even if Soriana obtained negative results, it was considered a
good strategy because as mentioned under Porter´s framework. The industry has few but very large companies
competing all the time and to have let Wal-Mart to absorb market share, it would have taken the market monopoly
by acquiring most of this.
References
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Grupo, G. S. D. C. (2008). Reporte financiero anual 2007.
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Appendix
FINANCIAL STATEMENT 2006-2007 GRUPO GIGANTE SAB de C.V.
Results statement % integrals YEAR 2006 YEAR 2007
$ $
Income
Net sales 31,876,300 100.00% 34,932,998 100.00%
Other income 594,700 1.87% 265,177 0.76%
32,471,000 101.87% 35,198,175 100.76%
Costs and expenses
Sales costs 24,582,400 77.12% 31,864,963 91.22%
Operating expenses 6,882,300 21.59% 2,485,966 7.12%
31,464,700 98.71% 34,350,929 98.33%
Operating profits 1,006,300 3.16% 847,246 2.43%
Comprehensive financing cost 184,800 0.58% 51,498 0.15%
Other expenses 206,100 0.65% -6,086,415 -17.42%
Not ordinary account 0 0.00% 49,038 0.14%
Income before income 615,400 1.93% 6,931,201 19.84%
ISR 308,900 0.97% 2,201,490 6.30%
PTU 0 0.00% 0 0.00%
Consolidated net income $306,500 0.96% $4,729,711 13.54%
Majority net income $295,700 0.93% $4,712,476 13.49%
Income (loss) Net minority 10,800 0.03% 17,235 0.05%
Consolidated net income $306,500 0.96% $4,729,711 13.54%
Basic earnings per common share $0.34 $4.78
Basic earnings per diluted share $0.34 $4.78
BALANCE SHEET GRUPO GIGANTE 2006-2007
Grupo Gigante S.A.B. de C.V.
General balance sheet % integrals 2006 2007
miles de pesos
ASSETS $
Cash 414,647 1.66% 634,823 2.10%
Customers 125,338 0.50% 114,921 0.38%
Estimate doubtful debts -16,134 -0.06% -8,882 -0.03%
Taxes to recover 200,469 0.80% 586,136 1.94%
Stores Soriana 0 0.00% 7,138,607 23.64%
Others 16,138 0.06% 76,975 0.25%

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Accounts Receivable 325,811 1.30% 7,907,757 26.18%
Inventories 1,189,562 4.76% 1,345,693 4.46%
Prepayments 72,902 0.29% 93,991 0.31%
Derivative financial instruments 529 0.00% 0 0.00%
TOTAL ASSETS 6,958,278 27.82% 6,475,972 21.44%
TOTAL ASSETS flows 8,961,729 35.83% 16,458,236 54.50%
Buildings 5,826,677 23.30% 5,544,882 18.36%
Adaptations to buildings 1,322,430 5.29% 1,403,253 4.65%
Store equipment 705,513 2.82% 769,307 2.55%
Furniture and equipment 174,771 0.70% 233,376 0.77%
Transport equipment 102,311 0.41% 108,224 0.36%
8,131,702 32.51% 8,059,042 26.69%
Cumulative depreciation and Amort -1,211,097 -4.84% -1,102,107 -3.65%
6,920,605 27.67% 6,956,935 23.04%
Construction in progress 77,770 0.31% 127,100 0.42%
Land 5,648,472 22.58% 5,858,364 19.40%
EQ estate and net 12,646,847 50.57% 12,942,399 42.86%
investment in shares 216,779 0.87% 213,538 0.71%
Goodwill and other 553,336 2.21% 548,301 1.82%
Discontinued operations 2,631,372 10.52% 37,859 0.13%
SUM OF ASSETS 25,010,063 100.00% 30,200,333 100.00%
2006 2007
thousands of
dollars
LIABILITIES $
Bank loans 31,680 0.13% 50,000 0.17%
Portion of long-term liabilities 13,487 0.05% 61,001 0.20%
Documents to pay 985,846 3.94% 983,507 3.26%
Accounts payable 79,125 0.32% 122,270 0.40%
Taxes and accrued expenses 760,906 3.04% 2,113,627 7.00%
Discontinued operations 4,981,687 19.92% 5,559,269 18.41%
TOTAL LIABILITIES 6,852,731 27.40% 8,889,674 29.44%
Long-term loans 48,764 0.19% 39,000 0.13%
Employee retirement obligations 44,085 0.18% 48,307 0.16%
ISR AND PTU (ESPS) 647,531 2.59% 2,206,160 7.31%
Discontinued operations 3,561,983 14.24% 578,326 1.91%
SUM OF LIABILITIES 11,155,094 44.60% 11,761,467 38.94%
CAPITAL
Social Capital 2,688,168 10.75% 2,689,090 8.90%
Share premium 7,523,747 30.08% 7,648,149 25.32%
Retained earnings 17,716,760 70.84% 22,476,480 74.42%
Failure to update -12,870,774 -51.46% -13,188,431 -43.67%
Cumulative effect of deferred income tax -1,312,925 -5.25% -1,312,925 -4.35%
Majority stockholders' equity 13,744,976 54.96% 18,312,363 60.64%
Minority interest 109,993 0.44% 126,503 0.42%
S.C. TOTAL 13,854,969 55.40% 18,438,866 61.06%
SUM LIABILITIES AND CAPITAL 25,010,063 100.00% 30,200,333 100.00%
Organization Soriana S.A. de C.V.
% comprehensive income
statement Year 2006 Year 2007
$ $
Income
Net sales 60,554,446 100.00% 65,190,659 100.00%

112
Other incomes 0 0.00% 0 0.00%
60,554,446 100.00% 65,190,659 100.00%
Costs and expenses
Cost of sales 47,718,414 78.80% 51,796,467 79.45%
gastos de operación 8,966,500 14.81% 9,090,800 13.94%
Operating expenses 56,684,914 93.61% 60,887,267 93.40%
Operating income 3,869,532 6.39% 4,303,392 6.60%
Comprehensive financing cost -420,832 -0.69% -460,246 -0.71%
Other expenses 163,530 0.27% 194,121 0.30%
No ordinary game 0 0.00% 0 0.00%
Income before income tax and
employee profit sharing ISR and
PTU 4,126,834 6.82% 4,569,517 7.01%
ISR 1,337,572 2.21% 1,434,866 2.20%
PTU 0 0.00% 0 0.00%
Consolidated net income $2,789,262 4.61% $3,134,651 4.81%
Majority net income $0 0.00% $0 0.00%
Income (loss) Net minority 0 0.00% 0 0.00%
Consolidated net income $0 0.00% $0 0.00%
Basic earnings per common share $0.34 $4.78
Basic earnings per diluted share $0.34 $4.78
Organización Soriana S.A. de C.V. At December 31 of
General balance sheet. % integrals 2006 2007
Thousands
of dollars
ASSETS $
Cash 3,359,814 7.79% 4,571,113 7.47%
Customer 611,501 1.42% 639,878 1.05%
Estimate doubtful 0 0.00% 0 0.00%
Recover taxes 0 0.00% 0 0.00%
Others 0 0.00% 0 0.00%
Accounts receivable 611,501 1.42% 639,878 1.05%
Inventories 7,080,286 16.42% 7,847,221 12.83%
Prepayments 1,944,881 4.51% 3,791,770 6.20%
Derivative financial instruments 529 0.00% 0 0.00%
Discontinued operations 0 0.00% 0 0.00%
TOTAL ASSETS 12,997,011 30.15% 16,849,982 27.55%
Accounts Receivable at long term 120,035 0.28% 115,685 0.19%
Investment in shares 175,533 0.41% 172,012 0.28%
Buildings 17,629,665 40.89% 19,345,058 31.63%
Adaptations to buildings 0 0.00% 0 0.00%
Store equipment 0 0.00% 0 0.00%

113
Furniture and equipment 10,391,186 24.10% 11,597,251 18.96%
Transportation equipment 0 0.00% 0 0.00%
28,020,851 65.00% 30,942,309 50.60%
Cumulative depreciation and Amort -6,840,187 -15.87% -7,698,213 -12.59%
21,180,664 49.13% 23,244,096 38.01%
Construction in progress 99,416 0.23% 315,188 0.52%
Lands 8,409,594 19.51% 8,988,031 14.70%
Estate and EQ net 29,689,674 68.87% 32,547,315 53.22%
Redeemable investment 0 0.00% 11,401,983 18.64%
Goodwill and other 101,464 0.24% 36,935 0.06%
Other assets 26,851 0.06% 30,426 0.05%
SUM OF ASSETS 43,110,568 100.00% 61,154,338 100.00%
2006 2007
thousands
of dollars
LIABILITIES $
Suppliers 10,226,124 23.72% 11,799,584 19.29%
Bank loans 0 0.00% 3,309,888 5.41%
Documents to pay 1,242,821 2.88% 11,054,280 18.08%
Accounts payable 0 0.00% 0 0.00%
Taxes and accrued expenses 0 0.00% 0 0.00%
TOTAL LIABILITIES 11,468,945 26.60% 26,163,752 42.78%
Other liabilities 205,683 0.48% 167,537 0.27%
Employee retirement obligations 102,128 0.24% 44,377 0.07%
ISR and PTU ESPS 6,506,476 15.09% 7,370,934 12.05%
SUM OF LIABILITIES 18,283,232 42.41% 33,746,600 55.18%
CAPITAL
Social capital 2,067,442 4.80% 2,067,442 3.38%
Share premium 1,608,645 3.73% 1,608,645 2.63%
Reserve for the repurchase 550,201 1.28% 550,201 0.90%
Retained earnings 24,113,981 55.94% 26,594,868 43.49%
Consolidated net income for the year 2,789,262 6.47% 3,134,651 5.13%
Failure to update -6,302,724 -14.62% -6,548,069 -10.71%
Majority stockholders' equity 0 0.00% 0 0.00%
Minority interest 0 0.00% 0 0.00%
S.C. TOTAL 24,826,807 57.59% 27,407,738 44.82%
SUM LIABILITIES
AND CAPITAL 43,110,039 100.00% 61,154,338 100.00%

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