Five trends affecting Brazilian growth
Five trends affecting Brazilian growth
We took a trip to Brazil in September, which saw us travel round the country visiting three states and checking out the latest developments in the FMCG market. Here, we bring you five trends that are hot in the market at the moment.
1. Longer-term optimism over the economy
A lot has happened over the past 12 months. There's always a lot going on in Brazil, but the last year has been exceptionally busy. The World Cup brought plenty of tourists, and spikes in beer and meat sales, but it's been accompanied by a lot of frustrations at the investment required to hold such an event. And it didn't help that the World Cup came in a period of economic slowdown. While there is still much longer term optimism, 2014 and 2015 look like being slower growth years for the Brazilian economy. In addition there's an election this month, when Brazil chooses a new president.
2. A more promotional environment than everPromotion
Last year, we saw how lower inflation was driving more frequent shopping missions and lessening the requirement for promotions. Inflation is once again having an impact on shopper behaviour, but this time it's rising and causing some people to return to previous buying habits of stocking up when something is on promotion, before it becomes more expensive. Inflation is close to the upper limit of the government's target range, at 6.51% (August 2014), and shows little sign of slowing. From a retailer perspective, this makes it harder for an everyday low price operator - like Walmart - to show its value. And it's even harder in a market in which formats like atacarejo are the reference point for EDLP.
3. Atacarejo remains a format in growth
We encountered this Brazilian success story - part cash and carry, part discounter, part hypermarket - on our previous trips, and it's going from strength to strength. A low price proposition based on a limited range offer which includes plenty of brands, and simple, but often buzzy and fun in-store environment, are all part of the appeal and explain why it's getting stronger in Brazil, especially given the economic conditions.
4. Getting products around Brazil is no easy task
Brazil is the size of Europe and the infrastructure is patchy. I got an insight into this from a day spent with leading wholesaler Martins in Uberlândia, the second-largest city in the state of Minas Gerais, which borders São Paulo state. Martins serves half a million customers up and down the country and has built up an impressive distribution network to support this. What particularly struck me was the flexibility it provides for store owners, giving them scope to buy one or two products at a time rather than a whole case, really helping smaller operators. Martins is also seeking to raise standards by supporting stores in aspects such as being part of its franchise group for Smart supermarkets, or in implementing category management principles.
5. Bigger retailers are focusing more on proximity retailing
We visited various neighbourhood store formats in São Paulo from some of the leading retailers: GPA, Carrefour and DIA. One that really impressed us was GPA's Minuto Pão de Açúcar. Based on the Pão de Açúcar supermarket format and opened in June this year, the quality-focused store is well pitched to meet the needs of more affluent São Paulo shoppers. Carrefour opened its first Express store at the end of August. Based round three 'circuits', it offers products for immediate consumption, daily top-ups, and a fuller grocery shop. It feels like there's more to come here; Carrefour is already talking about opening more Express stores, in São Paulo and elsewhere, and GPA targets 15 Minuto Pão de Açúcar stores by the end of 2014.
So that's certainly one format trend we expect to grow. We also see scope for online growth - but it won't be the type of online development we've seen in countries like France, the UK or the US. Firstly because the technical infrastructure just isn't there, and secondly because Brazilians always like to do things their way. That said, from the conversations we had during our trip, there's a growing trend to look outside Brazil for inspiration and best practice to boost competitiveness and to help put Brazil permanently on the world stage. Watch out world!