Luciano Sessim — the former commercial and marketing vp of Petz and former CEO of Loja do Mecânico — is taking charge of 1A99, a chain of affordable product stores that wants to reissue a business model that was a rage in Brazil in the 1990s. 90.
Sessim had been at Loja do Mecânico for just over a year, where he took over as CEO after spending more than seven years at Petz. Previously, he had a two-decade career at Walmart.
The executive sees some parallels between 1A99 and Petz.
“The dollar store market in Brazil is very similar to what the pet market was when Petz emerged: there are many stores, but it is extremely fragmented and there is no large national chain,” he said.
According to Sessim, there are some regional chains, but they have a maximum of 10 to 15 stores.
1A99 was founded in 1989 by two friends — João Barbosa and Eduardo Mazolini — who started with just one store in the city of Socorro, in the interior of São Paulo.
In the beginning, they only sold products that they imported from Paraguay in the traditional model of R$1.99 stores. Over time, they expanded the proposal to also sell food and products at a higher price. (The change in the business model also resulted in an adaptation in the name of the stores, replacing the comma with an ‘A’).
In 2021, Gregory Reider, who had just left Warburg Pincus, raised a specific vehicle to buy 42% of the company, investing R$180 million between a primary and a secondary.
Gregory said he decided to invest in 1A99 because the thesis had already worked for Warburg Pincus.
According to him, the manager invested in the British PoundLand and gained more than 7x the capital with the investment.
There are several consolidated companies in this market. In the USA, there is Dollar General, which is worth more than US$30 billion and has 20 thousand stores, and Dollar Tree, which is worth US$25 billion and has 15 thousand. In Canada, Dollarama, with more than 1,200 stores.
“Almost half of all stores opening in the US today are dollar stores,” said Gregory. “And the reason for that is that it’s an ecommerce-proof model, because the average price is very low, so it’s not worth buying online.”
For now, 1A99 has 65 stores and earned R$350 million last year. Since Gregory invested in the company, it has grown at a compound annual rate of 20%, with virtually all of the growth coming from improvements to the store portfolio and product mix.
Since 2021, 1A99 has closed some stores and opened others, but in net terms it has maintained the same size.
According to Sessim, the plan is to continue focusing this year on adjusting the model and categories. But when the stores are ready, the idea is to start an aggressive expansion plan, which should happen from 2025 onwards.
The goal is to reach 1,000 stores in the next ten years — focusing on small towns in the interior.
To finance this expansion, the company’s shareholders (Gregory’s fund and the two founders) injected another R$30 million into the company this year, which should allow it to open another 30 stores.
“We haven’t yet defined how many stores we are going to open per year, but in the past we have already opened 17 stores in 1 year, so we have the capacity to reach that,” said Gregory.
Typically, 1A99 stores have 6,000 to 7,000 SKUs, divided into four broad categories: indulgence foods, such as chips, snacks and chocolates; household items, imported and national; bazaar, with home products; and hygiene and beauty, with a focus on accessories.
Today half of sales come from food. The idea, however, is to increase the participation of the other three categories, as they all have greater profitability.
1A99 had its third consecutive year of negative EBITDA last year, but the goal is to reach breakeven this year.
According to Gregory, the negative margin has to do with the decision to increase hiring at C-Level. “We have a structure that is for a much larger company than it is today. But over time these expenses will be diluted,” said the investor.
He recalled the example of Petz, which had the expenses of holding representing 11% of revenue, a percentage that has dropped to 4% today. In the case of 1A99, this percentage is 8.5%.
Pedro Arbex
