Brazilian Consumers

Collyer Bristow Lawyers recently hosted a breakfast and seminar at their offices on the subject of Brazilian Consumers on March 19. The keynote speakers were Janaina Roque and Adriana Ribeiro.

Ms Roque is a director for Integration Consulting and has a wealth of experience in a number of different industries, focusing particularly on retail and consumer goods. She spent six years in Brazil before moving to Mexico, Argentina and finally London. She currently runs Integration’s European operations.

Ms Ribeiro has worked for Pepsico for more than ten years, occupying different positions in the marketing area before becoming Marketing Director in 2005. She has worked in Mexico, the US and the UK, and is currently studying for an MSc in Leadership and Strategy at London Business School.

Brazil is an Evolving Retail Market

Ms Roque discussed the unique characteristics of the emerging Brazilian retail economy and the key factors businesses need to consider when planning to engage with the Brazilian consumer.

Despite its wealth Brazil is a country in which 26% of the population lives below the poverty line. The good news for businesses, however, is that this percentage is shrinking, meaning that more and more people have disposable income. The emerging middle class – a significant proportion of a total population of more than 190 million – presents a wealth of opportunity to potential retail entrepreneurs. Indeed, Brazil has just overtaken the UK as the sixth-largest economy in the world and is expected to carry on growing at a healthy rate for the foreseeable future. Brazil has falling unemployment (very rare in the current economic climate), falling inflation, and a rising population of working women – just a few of the positive attributes that bode well for a robust and fertile retail economy.

Brazil’s consumers are classed into four main categories: A, B, C and D. Classes A and B occupy the higher end of the personal income scale. Class C, containing those with low to middle incomes, is growing the fastest. New opportunities are constantly arising for astute retail businesses as Brazil takes on characteristics usually associated only with the most advanced western economies:
• More working women
• Growing class of Double Income No Kids couples (‘DINKS’)
• Longer life expectancy
• Greater consumption of health related products

As a result of these developments the consumer market in Brazil is evolving. Although still a relatively young population, the average age is set to rise, which along with the general increase in affluence will create new desires for consumer goods.

Among the distinctive traits highlighted during the seminar was the concentration of wealth in a few regions of Brazil, 18 in total, which together account for approximately 48% of all retail trade. Of these regions, the Northeast, with the largest proportion of people below the poverty line, is also changing quickly, with the fastest growth in class C consumers. Interestingly, 70% of point of sale stores, around 400,000, are small independent stores, not large chains, and in geographical terms are spread out thinly. This clearly presents a challenge to retailers attempting to reach the consumers.

Important considerations for businesses when planning on entering the Brazilian retail market include:
• Identifying the consumer
• Understanding their unique desires
• How to communicate with the consumer to meet these desires
• How to meet the geographical challenges of the Brazilian landscape

Success in Brazil: a Case Study

Ms Ribeiro presented interesting studies on how major western brands have successfully penetrated the Brazilian retail market.

Pepsico was very keen to enter the chocolate drink market in the Northeast, this particular kind of drink being very popular with Brazilians. It decided to buy Magico, a product already on the market but not performing very well. In-depth consumer research allowed Pepsico to discover that consumers in the Northeast actually preferred their chocolate drink to have a slightly different flavour to those in the South – so they altered their product and then repackaged and remarketed the new Magico formula. It was a roaring success: the Magico chocolate drink went from relative obscurity to second-biggest seller in the Northeast. Pepsico realised that knowing the customer is key.

However, this was only part of the success story, as Pepsico also identified the geographical constraints presented by Brazil’s landscape. It was essential to have a dedicated sales force and distribution network to serve the small retail outlets spread out over the region. Going to each individual area and understanding its unique needs and challenges allowed Pepsico to triumph in this retail arena.

An aspect of the retail market in Brazil which should not be overlooked is the ‘corner shop’, which is extremely important in Brazil because the majority of class C and D consumers purchase most of their products there – not from the large shopping outlets we have become accustomed to in the UK, where corner shops account for a mere 10% of total sales. Unlike the population of the UK, most Brazilians don’t own a car and therefore tend to do more ‘topup’ as opposed to ‘bulk’ shopping.

Ms Ribeiro explained that many businesses were finding ways of successfully reaching the emerging class C and D consumer in Brazil. These consumers often desire luxury goods similar to those usually purchased only by class A and B consumers – and with the advent of easier credit and payment plans they are now able to acquire the washing machines, flat-screen televisions and other such items which until recently had been beyond their economic means.

The lesson, therefore, is that gaining an understanding of the unique Brazilian consumer, retail arena and geography is essential for businesses looking to break into and succeed in this emerging giant of a retail economy.

Article taken from Brazil Business Brief, April 2012.

Sectors: Wholesale & Retail
Countries: Brazil
Topics: Insights & Statistics
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