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    Brazilian Supermarkets Cut Prices as Sales Outlook Dims

    SAO PAULO -- Supermarket sales in Brazil might not grow at all this year, after falling a faster-than-feared 1.1 percent in real terms over the past six months, according to Joao Carlos de Oliveira, president of Brazil's Association of Supermarkets (ABRAS).

    SAO PAULO -- Supermarket sales in Brazil might not grow at all this year, after falling a faster-than-feared 1.1 percent in real terms over the past six months, according to Joao Carlos de Oliveira, president of Brazil's Association of Supermarkets (ABRAS). "We were expecting sales to fall in the first half of the year, but not so steeply," he said.

    As a result of the crisis, retailers are cutting prices to make up for lost sales, and margins are getting squeezed, Oliveira said.

    ABRAS revised its 2003 outlook downward Tuesday, saying it now expects supermarket sales to remain flat this year or, with luck, grow as much as 1 percent. That compares with the 2 percent forecast the group had been using since January.

    The dimming outlook bodes ill for Brazil's biggest retailers, such as Companhia Brasileira de Distribuicao SA , French retail giant Carrefour SA, and Dutch retailer Royal Ahold NV. CBD, the No. 1 retailer in the country, just last week revealed that inflation-adjusted sales, on a same-store basis, fell 8 percent on the year in May and nearly 10 percent in June.

    The weakness in inflation-adjusted sales stems largely from a sharp rise in consumer prices in late 2002 and early 2003. The spike in inflation has been followed by high credit rates, a slowing economy, and rising unemployment, wreaking havoc on consumer spending here. Brazil's broad retail sales index, published by the government, fell for six straight months from December through May.

    ABRAS is expecting growth to improve in the second half of the year, after inflation eased dramatically in June, allowing Brazil's central bank to start loosening money.

    But prices for goods sold in supermarkets are falling faster than the inflation rate, the association said Tuesday, because the segment is cutting prices aggressively to try to make up for declining sales.

    "Supermarkets are all doing promotions right now to try to minimize the sales loss," Oliveira said, adding that ABRAS expects the trend to exert pressure on profit margins in the third quarter.

    The price of a basket of 35 basic goods tracked by ABRAS fell 2.1 percent in June from the month before, while Brazil's leading IPCA inflation index fell only 0.15 percent.

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