Case Detail

Case Summary

Grupo Pão de Açúcar: Strategic Use of Trade Credit

Case Number: 5-312-508, Year Published: 2013

HBS Number: KEL744

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Authors: Mitchell A. Petersen; Rajiv Chopra; Alex Williamson

Key Concepts

Cash Flow Analysis, Competition, Competitive Strategy, Financial Analysis, Financial Management, Financial Strategy, Valuation

Abstract

At the end of 2011, one of the largest food retailers in Brazil, Grupo Pão de Açúcar, or GPA (a subsidiary of Companhia Brasileira De Distribuição, or CBD), was reviewing its accounts payable terms with suppliers in search of additional value. Manager of analytics Maria Cristina Santos was examining the trade credit terms GPA had with Oalem Ltda, a family-owned melon grower located in northeastern Brazil. Oalem, like most small family businesses, was financed with bank loans and equity that was held predominantly by the family. The case examines how accounts payable (trade credit) terms should be set or negotiated between a large retailer and a small supplier, especially when the bargaining power between the two may not be equal. The case demonstrates that trade credit terms can be as important as the terms of more traditional forms of financing.

Learning Objectives

After analyzing and discussing the case, students should be able to:

  • Determine when it is efficient or value-increasing for one nonfinancial firm to borrow from another nonfinancial firm through trade credit, as opposed to borrowing from financial institutions (e.g., banks) or financial markets
  • Understand how competition or relative bargaining power can influence feasible and optimal trade credit terms
  • Explain why trade credit can be a cheaper form of financing than the alternative forms of financing available to small family businesses like Oalem Ltda

Number of Pages: 20

Extended Case Information

Teaching Areas: Finance

Teaching Note Available: Yes

Geographic: Brazil

Industry: Food Retail

Organization Name: Grupo Pão de Açúcar (real firm and fictional details) & Oalem Ltda (fictional)

Organization Size: Large

Decision Maker Position: Manager of analytics

Decision Maker Gender: Female

Year of Case: 2011