After three years, Brazil is finally emerging from its most brutal recession ever recorded. As business confidence recovers, retailers will make investments they had previously paused. CPG brands now have a historic opportunity to drive growth while accompanying digital transformation and consolidation in the world’s sixth-largest food retail market.
The economic recession from 2014-2017 drove high unemployment and inflation, rapidly eroding consumer spending power and prompting cuts in retail investment. Three years on, the job market is improving, inflation is under control, consumer confidence returning and spending recovering. These factors, combined with lower interest rates, are encouraging retailers to return to previously-deferred investments. These will now accelerate Brazil’s digital transformation and market consolidation.
Close proximity to consumers
Brazil’s social and demographic structure is highly attractive compared to other emerging markets. Per capita consumer spending – due to hit USD6,600 this year – is much higher than equivalent emerging markets, like Russia (USD5,700) and China (USD3,800).
Around 90% of Brazil’s 210 million-strong population live in the urban strip stretching along the Atlantic coastline, giving the country the highest urbanisation rate among key emerging markets worldwide. As a consequence, access to consumers is efficient, with a high share of addressable (72%) and digitally addressable (47%) population. The digitally addressable population is now expanding particularly fast, with mobile phone ownership rising, opening up new digital paths to the mass market.
Ongoing urbanisation combined with improving incomes means that retail sales per square kilometre are climbing long-term, giving the megacities of São Paulo (22.4 million inhabitants) and Rio de Janeiro (12.5 million) greater resilience to economic shocks than the country as a whole.
The vast urban population density shortens routes to consumers, allowing for the emergence of fulfillment models that will satisfy demanding consumers valuing convenience. The benefits of this will become increasingly apparent as digital transformation takes hold.
Consolidation and digital transformation ahead
Unlike in many other markets, Brazilian big-box outlets are often located in residential areas, with large numbers of shoppers visiting frequently and on foot. As the shift online drives in-store assortment rationalisation and opens up sales areas, Brazilian hypermarkets are particularly well-suited for the implementation of discovery, frictionless and social elements.
Online grocery is also gaining investment and seeing consumer uptake, as demonstrated by Carrefour’s launch of an e-grocery offer in Q3 2017. CPG companies have an opportunity to support change at big-box operators on a broad level through targeted ranges, relevant promotions, product innovation and ecommerce capabilities.
We also anticipate fast change in the fragmented landscape of Brazil’s regional supermarket operators. Here, the urgent need to digitise will trigger merger & acquisition activity, as the required funding levels will be too great for many small players to handle alone. CPG companies have the opportunity to identify and support tomorrow’s sector leaders and grow with them.
Meanwhile, at the bottom end of the market, Brazil’s urban townships (favelas) will offer opportunities for direct-to-consumer (D2C) initiatives Brazil’s large independent trade sector captures 43% of national food retail sales and is deeply embedded in Brazil’s lower-income areas. It will be among the first segments to benefit from economic recovery. Independent neighbourhood stores and D2C initiatives will increasingly develop a digital component that suppliers must be aware of.
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