Six Trends That Will Shape Brazils Consumer And Retail MarketConsumer and retail businesses in Brazil can anticipate a promising future. Employment rates and consumer groups are growing, while political risk, economic uncertainty and inflation continue to stabilize. Overall, the retail market grew by 15.7% in 2009; slightly over the 14% forecast growth. The segments presenting the highest growth were automobiles, at a record 32%, furniture and domestic appliances (25%), clothing and shoes (16%), tobacco and beverages (15.5%) and pharmaceutical and cosmetic items (15%).
Boosted by an increase in the level of salaries and a reduction in unemployment, the retail segment in Brazil avoided the effects of a stronger negative GDP brought about by the reduction in exports and foreign direct investment in the country. The emergence of the C SES level, those who receive a maximum of US$2,700 per month, was and still is one of the main pillars of such growth. This group now receives 46% of all salaries paid, against only 37% in 2003.
The rise of Brazil retail market¬†
Over the years, many Brazilian companies have become more competitive and innovative in most segments. Procurement and purchasing have become very sophisticated, along with the rise of cost and pricing specialists. Innovative sales promotions and services are backed by customer surveys and trend analysis and help enhance the typical Brazilian shopping experience.
Examples include in-store wine cellars and extended services, from in-store beauty and gastronomy consultants to food and photo printing kiosks, or extended warranties to mobile recharges and flash promotions at cash registers.
Brazil is also probably the most advanced and demanding country in Latin America, in terms of innovative and creative advertising campaigns, and has been leading in this area for at least two decades. Brazilian agencies are constantly winning international awards for their creative advertisements for consumer brands.
Besides creating great advertisements, some social media groups are now being monitored by larger retailers, who are also twitting' their promotions to an increasingly larger group of connected consumers. Price differentiators are no longer the sole tool to attract and retain a client that demands good service, variety, and good pricing ď all this to be reported in some sort of forum or online group afterwards.
The intense degree of competitiveness is also expressed in advertising campaigns where some companies appear to be edging ever closer to the limits allowed by legislation.
When traditional tools seem to be exhausting their power, innovation will determine success or failure. To excel in the future, consumer and retail companies in Brazil should dedicate time to understanding their constantly changing groups of customers in a constantly changing environment.
Six trends that will shape the market
How companies fare in the future will be determined by how well they capitalize on six important market trends that will shape the consumer and retail industry. Here are some predictions about where the market will be heading.
1. Continued consolidation (
Many local consumer and retail companies have been turning to mergers and acquisitions (M&A) in order to capture economies of scale, fight off domestic and foreign competition as well as secure leadership positions within their segments. Several have become multibillion-dollar market heavyweights in the last 12 months alone.
With companies like Unilever reporting Brazil as their second largest market; making up 21% of global sales and contributing US$6 billion per year to the fast moving consumer goods (FMCG) company; international consumer and retail players are increasingly finding Brazil attractive.
Indeed, Brazil will remain one of the top M&A destinations within the global consumer and retail landscape for several important reasons:
Latin American hub (
Due to its geographic position, level of industrialization and developed services industry, Brazil is considered a hub to Latin America. Argentina is the second most important destination of Brazilian exports after the US, while Chile, Colombia and Mexico are located just around the corner, so to speak.
Base for manufacturing¬† (
FMCG products such as personal hygiene goods, consumer electronics such as mobile handsets and domestic appliances, as well as processed foods such as potato chips to frozen vegetables, are manufactured in Brazil and shipped to neighboring countries.
Robust economic growth¬†¬† (
Sound economic development as well as two long-awaited events; the 2014 World Cup in Brazil and the 2016 Olympic Games in Rio de Janeiro; are certain to boost the infrastructure, telecommunications, retail and services sectors, among others. GIA estimates that an estimated 2 to 3 million new jobs will be created in Brazil over the next six years.
Large domestic market¬†¬† (
One important consequence of the recent growth in Brazilian economy has been the emergence of the "C SES level", represented by over 40% of the population that is steadily migrating from poverty levels into consumer levels. In addition to this, the sheer size of Brazil's entire 190 million population cannot be ignored.
Prediction: Brazil will reduce its dependence on foreign investment, as local companies continue to grow, consolidate and benefit directly benefit from a stronger internal market.
(2. Impact of social media trends (
E-commerce in Brazil has been growing at over 30% per year since 2000, reaching close to US$ 5 billion in 2009 ď even if broadband, at just slightly less than six percent, is not yet a reality for most people. Brazil also has one of the most well developed online banking systems in the world.
In addition, the country occupies leading positions in terms of number of Internet users (63 million or 35% of the population) and there is ample space for further growth. The time they spend surfing the Web and on social media websites such as Orkut, MSN, and the recently discovered Facebook is phenomenal. At 48h 26min per month, Brazilians spend more time web surfing than their peers in the US (42h 19min) and the UK (36h 30min), based on July 2009 estimates.
Such high Internet usage and participation in social media impacts the way companies sell to and communicate with the market, as consumers compare products, share experiences with peers and, more importantly, participate in the creation of products and even management of companies. Innovative companies are keeping blogs and Twitter accounts to listen to their customers voice their opinions on store layouts, product development and even competing products.
Prediction: The development of certain retail segments such as hypermarkets and even the automobile industry may see radical changes, as consumption migrates from the physical to the online environment.
3. The potential of the "unbanked" (
The banking industry saw an important chapter in 2009, when second tier Ita√ļ acquired Brazil's third largest bank, Unibanco, to become the country's largest bank. It usurped the position of market leader, Bradesco, a position it had held for close to 50 years.
Both groups now plan on targeting the 49% of the population who are unbanked', either through new branches to be opened in remote areas of the country, or through partnerships with popular retail chains, who typically sell on credit and are thus already playing the role of a bank. (The "unbanked" are those who do not have any bank accounts, and thus have no access to other financial services such as loans and insurances.)
Prediction: Consumer and retail segments in Brazil will benefit when banks increase their reach through retail stores. This is a trend already in place.
4. Greater credit card penetration (
Brazilians have been more inclined to pay with cash, which is typically drawn from automated teller machines (ATMs) only once or twice a month. Credit in Brazil accounts for nearly 40% of gross domestic product, far behind the 70% average of other emerging countries. Over 50% of the population does not have a credit card.
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