L.E.K. Consulting
CONSUMER SPOTLIGHT
Spotlight on Brazil
Understanding the Brazilian Consumer
Once the darling of the BRIC group, Brazil has recently fallen out of favor. GDP growth over the past four years has halved
since the heady years of 5% growth between 2004 and 2008, and the market expects a similarly weak performance of
around 2% GDP growth in 2014. The reasons for the decline are well understood: a closed and protected economy, low
productivity, heavy government intervention and bureaucracy, and famously weak infrastructure. If the hype is over, however, Brazil still remains a large and attractive consumer market. The country has the sixth largest GDP in the world and a
population of around 200 million, half of which can be safely categorized as middle class. On the whole, Brazilian consumers
remain underserved in many retail categories, presenting plenty of opportunities for retailers able to understand where and
how to place their bets.
Retail sales in Brazil were weak in 2013,
growing at 4.5% from 2012, accord-
Figure 1
Consumer purchase intention in São Paulo for the first quarter of 2014
of shopkeepers; a similar performance
% change compared with
1st quarter of 2013
% of respondents
1st quarter of 2014
ing to CNDL, a national confederation
Apparel and Footwear
17.8
Travel and Tourism
13
school, consumers seem to be particu-
Large Appliances
10.6
larly interested in electronics, large appli-
Electronics
9
0
ances and travel/tourism for 2014. On
Furniture
7.4
0
the other hand, purchase intention on
Construction materials
7.4
computing equipment and construction
Automotive and Motorcycles
7.2
Cellphones
6
Computers
5.4
Looking toward the long term, demo-
Camera, Photo & Video
3.6
graphic change will affect Brazilian
Small Appliances
3
Home textiles
1.8
is expected for 2014. In a recent survey
undertaken by Provar/FIA, a business
material are substantially down compared with 2013. (See Figure 1)
consumption patterns significantly. If the
growth of the lower middle class has
been the defining characteristic of the
-5.3
22.6
51.4
-27.5
16.1
7.1
-50.9
5.9
36.4
0
Source: Provar/FIA
previous decade’s demographic shifts,
the growth of the middle and upper-middle classes will be the main factor for change over the next 10 to 20 years. By 2030,
the richest Brazilians will increase from 1% to 5% of the population, and the middle and upper-middle classes will increase
from 36% to 56% of the population. Both demographic changes will drive consumption changes, in particular an increased
interest in luxury and aspirational goods.
Today’s typical Brazilian luxury consumer is usually between 35 and 55 years old and lives in either São Paulo or Rio de Janeiro. The Brazilian luxury consumer is not price sensitive, as luxury goods are more expensive in Brazil than elsewhere in the
world. Taxes are the main reason for this price premium – some items are taxed up to 300%. Luxury consumers also expect
exceptional service, so they tend to prefer high-end malls. Some of them, such as JK Iguatemi in São Paulo and Village Mall
in Rio de Janeiro, have helped launch several international brands in Brazil.
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Another important factor changing Brazilian retailing is technology. Brazilian Internet penetration is reasonably high at around
50% (versus 75% for the U.S.) and eight out of 10 Brazilians visited a social networking site during the last six months. The
Wall Street Journal recently reported that Brazil has 65 million Facebook users, second only to the U.S.
This high level of Internet usage signals promising opportunities for e-commerce. E-commerce sales in 2013 reached R$28
billion ($11bn), according to e-bit, an Internet data provider—a 25% increase over 2012 and 3.6% of total retail sales in
Brazil (compared to 5.2% in the U.S.). Brazil is expected to become the fourth largest e-commerce market by 2016. The main
established e-commerce categories in Brazil include travel, electronics, books, appliances, clothing and footwear. Up and coming categories include home items as well as beauty and
health products. While the e-commerce market in Brazil
Figure 2
is growing, profitability remains a distant objective and
E-commerce in Brazil
most players are still focused on capturing market share
16,000
15,958.1
at any cost; companies considering e-commerce should
be prepared to play a long game in Brazil. They also have
to face many logistics challenges that increase shipping
14,000
costs while decreasing customer satisfaction.
The next frontier in Brazilian e-commerce is smartphone
12,000
especially among the young. Brazil is the fifth largest
11,195.3
23%
usage. Smartphone penetration is rapidly increasing,
10,000
global market for smartphone sales with 26% of the
23%+ Brazilians have
already made a purchase
on the internet
population owning a smartphone in 2013. Among 18 to
24-year-olds the penetration rate is 46%. Many Brazil-
8,000
7,854
ians, however, have yet to use their smartphones to shop.
Forty-two percent of Brazilians say they do not use their
smartphones for shopping, while 33% use their phones
6,000
6,216
to look for ideas and to comparison shop but not to
make purchases.
4,452
4,000
3,444
While overall retail growth is expected to be muted during the next few years, smaller metropolises are expected
2,646
2,000
to deliver above-average growth. We expect cities
357
between 20,000 and 500,000 inhabitants to grow 1-2%
226.8
more than larger cities until 2020, and the population
0
of Brazil’s north and northeast are expected to grow 3%
2001
more quickly than the country’s southeast during the
495.6 735
02
03
04
1,848
E-commerce purchases in
Brazil (2001-2013E)
USD in millions
1,050
05
06
07
08
09
10
11
E12
E13
Source: Interbrand, Euromonitor International, Canadean, Consultoria e-Bit, E-commerce
Brasil, PR Newswire, L.E.K. analysis
same period.
Finally, the rise of female consumers is changing the demographic mix of Brazil’s shoppers. More women in the workforce
means households have more discretionary income. Women have gained increased financial independence and as a result
have developed unique purchasing tastes. The health and beauty category, for instance, is expected to grow by about 12%
annually from 2012 to 2017.
Retailers have responded to these demographic changes in different ways. Some players are expanding aggressively to take
advantage of opportunities outside the big, urban centers. They are also experimenting with new retail models and store
formats. Neighborhood markets, for instance, are competing more aggressively with supermarkets. Smaller outlets (1-4
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CONSUMER SPOTLIGHT
Figure 3
Brazil’s growth rate - percentage change in GDP
8
7
6
5.7
5.7
5
5.3
4.1
4.0
3.2 3.2
3
1
5.2
4.4
4
2
7.6
6.6
2.9
5.6
6.1
6.3
6.4 6.4
5.2
4.9
5.4
3.7
4.2
2.9
3.3
2.7
2.6
2.5
1.9
1.9
1.2
1.6
0.7
0.9 0.9
0
1.2
-0.3
-1
-2
7.5
-1.4
Q1
2004
Q1
2005
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Source: IBGE, Adaptação NE&PE/GS&MD
checkouts) experienced 1.2% of sales volume growth in 2012, while larger outlets experienced a sales decrease. Some larger
retailers have been experimenting with stores that open late as well as 24-hour shopping.
Retailers have also experimented with product mix. Consumers with more discretionary spending power are now searching for
broader product variety and new products to try. For instance, consumer electronics sales in hypermarkets have grown rapidly
in recent years. Private labels, particularly in the food and house cleaning categories, are also gaining share and expanding
beyond grocery retail.
In short, the sheen may have rubbed off Brazil’s economy, but this large country still provides an enticing opportunity to international retailers, particularly those that can identify pockets where consumers are spending more, are underserved, or both.
Meet Our Experts
Mauricio Franca
São Paulo
Jon Weber
Boston
Please contact us at [email protected] for additional information.
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