Six Trends Shaping Brazil’s Retail And C-store Market
Global Intelligence Alliance
Continued consolidation, social media and an emphasis on eco-friendly are a few important market trends to watch
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 15.7 percent in 2009, slightly more than the 14 percent forecast growth. The segments presenting the highest growth were automobiles, at a record 32 percent; furniture and domestic appliances (25 percent); clothing and shoes (16 percent); tobacco and beverages (15.5 percent); and pharmaceutical and cosmetic items (15 percent).
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-level Senior Executive Service (SES) — 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 percent of all salaries paid, against only 37 percent in 2003.
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. Global Intelligence Alliance estimates 2 million to 3 million new jobs will be created in Brazil over the next six years.
THE RISE OF BRAZIL’S RETAIL
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 for mobile rechargers 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 led 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, which are also ‘tweeting’ their promotions to an increasingly larger group of connected consumers. Price differentiators are no longer the sole tool to attract and retain a client who demands good service, variety and good pricing 舒 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, retail companies in Brazil should dedicate time to understanding their constantly changing groups of customers in a constantly changing environment.
Success will be determined by how well they continue to innovate and capitalize on six important market trends that will shape the entire industry:
1. Continued consolidation. Many local retail companies have turned 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, such as Drogaria São Paulo and Pão de Açúcar, have become multi-billion-dollar market heavyweights in the last 12 months alone.
In the convenience store segment, Brazil still presents a significant number of stand-alone brands, as many gas stations are ‘unbranded’ and can chose any provider to occupy their retail space. However, this will certainly lead to a consolidation in the near future, as only on rare occasions can a single store be profitable. Established gas station chains have long-term partnerships with selected convenience store companies, and although there may be a consolidation trend with the ‘standalone’ brands, there is little evidence of mergers or acquisitions among the top-tier stores.
2. Impact of social media trends. E-commerce in Brazil has grown more than 30 percent per year since 2000, reaching close to US$5 billion in 2009 — even if broadband, at just slightly less than 6 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 percent of the population), and there is ample space for further growth. The time they spend surfing the Web and on social media Web sites such as Orkut, MSN and the recently discovered Facebook is phenomenal. At more than 48 hours per month, Brazilians spend more time Web surfing than their peers in the U.S. (a little more than 42 hours) and the U.K. (36.5 hours), 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.
3. The potential of the “un banked.” The banking industry saw an important chapter in 2009, when second tier Itaú 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 held for close to 50 years.
Both groups now plan on targeting the 49 percent 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, which 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.)
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 percent of gross domestic product, far behind the 70 percent average of other emerging countries. Over 50 percent of the population does not have a credit card.
Banks and retail chains are addressing this gap. Bradesco, in partnership with Banco do Brasil, will be launching a credit card in August 2010 that targets lower SES level consumers. Most retail stores offer private label cards, especially to those people who have little or no access to bank credit.
All convenience stores accept credit cards and many have yet to develop any co-branded cards. ATM machines remain one of the main elements that attract customers to convenience stores.
5. Emphasis on being eco-friendly. Recent panels presented in the World Economic Forum in Davos showed Brazilian consumers are more demanding than their European counterparts in concerns about the environment and the ways in which products are manufactured or disposed.
The majority of convenience stores’ customers are between 18 to 40 years old, and such stores will therefore attract the more eco-friendly coming generation. Ecological concerns, which already play an important role at the retail level, will certainly help shape the segment in the next decade. The wave of concern — which started with manufacturers looking for less-aggressive solutions in production methods and packaging used — is now reaching large retail chains. Companies such as Walmart and Pão de Açúcar, the largest national retail chain, are offering eco-friendly bags to avoid the use of plastic, providing recycling drop-off centers at their parking lots and large boxes right at cashiers, where customers can drop the unnecessary parts of the packaging such as the cardboard box of toothpaste tubes. This trend will continue to spill over into other segments.
6. An aging population. Store sizes in Brazil have been shrinking, partly due to the aging population, as older shoppers prefer not to carry heavy shopping bags home. Catering to an aging population is not a fad. Life expectancy in Brazil increased from 69.5 years in 1998 to 72.7 years in 2008.
C-stores — by definition already smaller in size than grocery stores — have enhanced their offering and increased the number of items in their portfolio. This trend may not be immediately apparent for convenience stores as they tend to appeal to customers aged between 18 and 40 years old, who usually shop at a c-store when a regular retailer is not available nearby. In spite of the varied portfolio, the limited shelf space at a convenience store reduces the number of choices for customers, who will prefer to compare brands and prices at their regular one-stop-shop retailer. Another point that prevents convenience stores from selling more value-added items, such as entrancelevel mobile phones, typically seen in other types of non-electronic retailers, is safety. With increasing levels of store thefts, convenience stores still refrain from displaying items that could attract the attention of unwanted visitors. Convenience stores should be aware of the emergence of small to midsized neighborhood markets, which can easily become the preferred one-stop place, with a larger portfolio and better customer service.
As competition becomes ever more intense, convenience stores will need to become more concerned with segmenting, positioning and promoting their products and services accurately. All this can only be achieved by close listening and monitoring the markets in which they are located.
Global Intelligence Alliance (GIA) is a strategic market intelligence and advisory group. GIA was formed in 1995 by a team of market intelligence specialists, management consultants, industry analysts and technology experts.
Today, it partners with organizations seeking to understand, compete and grow in international markets. For further information, visit www.globalintelligence.com or e-mail: [email protected].
Editor’s Note: The opinions expressed in this column are the author’s, and do not necessarily reflect the views of Convenience Store News.