In Depth March 11, 2010, 11:00AM EST

A Food Fight for Hugo Chavez

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SUDDEN SHUTDOWNS

The capitalists, though, face constant oversight. Members of Cuba-inspired "community councils," or neighborhood watch groups, can make unannounced inspections to look for signs of hoarding. One executive from a nationwide chain grouses about constant visits from tax authorities, the consumer protection agency (to check prices), workplace safety inspectors, and even the National Guard, which monitors store hours to make sure they don't stay open too long and use too much electricity at a time of widespread blackouts. Even when no infractions are found, the executive sighs, "The inspector can say, 'It doesn't matter, I have orders to shut you down for 24 hours,' and he does it—just like that."

Supermarket managers estimate that the government regulates prices on about 20% of the items they sell, but these products account for up to 40% of volume. "We make zero profit on most of the regulated foods, so we have to make up for it by charging more for other goods," says Carlos Hernández, manager of Los Campitos, a small grocery in Caracas' upscale El Rosal neighborhood. And at Exito and Coda stores, says one executive, the government seems intent on eliminating any possibility of turning a profit. "How are they going to replace freezers and forklifts as they wear out?" he asks.

Supermarket owners are watching how the government manages Exito, renamed Bicentenario in honor of this year's 200th anniversary of Venezuela's independence from Spain. Since the takeover, sales have sagged, according to Sintesis Financiera, an economics consultancy. Now suppliers concerned over delays in payment appear to be slowing deliveries, prompting Chávez to warn 60 companies that they may be expropriated if they fail to double deliveries to the chain.

With legislative elections scheduled for September, the fiery President is likely to continue cracking down on food retailers. Although he doesn't face another presidential vote until 2012, he's determined to hold onto his party's majority in the National Assembly. Chávez has won the loyalty of poor Venezuelans with his food subsidies, but as inflation erodes spending power, that support is flagging. After climbing by more than 15% annually from 2004 to 2009, consumption has started to fall, Central Bank data show.

As supermarket owners fret about further expropriations, Venezuelans increasingly say socialism isn't the right path. In a poll by researcher DATOS taken two weeks after the Exito seizure, 58% of respondents said they disapprove of Chávez's takeover of stores. Another DATOS survey found that 86% don't think Cuba is an appropriate model for Venezuela. Chávez "is moving in the opposite direction from what people say they want for their country," says DATOS director Joseph Saade. "People look at everything the government has taken over and they're seeing that the companies have become dysfunctional."

Smith is Bloomberg BusinessWeek's Latin American correspondent, in Mexico City.