Dollarama Inc. is dipping its toe in the Latin American market.
The Montreal-based discount-store giant sees huge growth potential in an underdeveloped and underserved region that has stronger growth potential than mature markets in North America.
But the company is taking a cautious approach to expansion into a market it's not familiar with.
It has struck an eight-year agreement to share its business expertise and provide sourcing services to Dollar City, a 15-store Central American chain that is keen on expanding its operations in Central America, Peru, Colombia and Ecuador.
Dollarama -- which is not only a retailer but also a major importer -- will provide Dollar City with product offerings, but won't invest in or take on operational responsibilities at the fledgling retailer, Dollarama said in a news release Tuesday.
The deal includes an option for Dollarama to take a majority interest in Dollar City at the beginning of the seventh year of the term.
"Dollarama's unique dollar store concept and compelling product offering continues to be very successful with Canadian consumers. Our objective is to test the potential of the Latin American market in a way that minimizes risk, capital and time investment and we believe that we have found the right strategic approach and the right partners to achieve, this," Dollarama chairman and chief executive officer Larry Rossy said.
"As we continue to explore opportunities to extend the reach of our concept, Latin America stands out as an increasingly attractive market. This collaboration with Dollar City will provide us with a timely window and a strategic entry point to participate in the long-term potential of this dynamic emerging market. Furthermore, we believe that our product offering can be easily adapted to appeal to local tastes as well as offer consumers tremendous value."
But Mr. Rossy also stressed that Dollarama remains focused on its growth strategy in Canada, where it is the dominant dollar-store player. It plans to open 80 new stores in fiscal 2014.
Desjardins Securities analyst Keith Howlett said in a research note Tuesday that Dollarama is most likely "exploring if and how to bring its retail concept to the growing consumer markets in Latin America. This opens up potential new avenues of long-term growth."
Dollarama -- which now sells items at fixed price-points of up to $3 -- has 761 locations in Canada.