I recently had the pleasure of visiting São Paulo, Brazil, for a market tour, customer immersion, and team meetings. I returned with fresh insights about the consumer & retail landscape in this vibrant country – the world’s 8th largest consumer market.
Between 2009 and 2013, Brazil was a hot growth market with a booming economy. The retail real estate environment was almost speculative and grocery retailers raced to expand their presence. Growth has been more modest in recent years as the country faces a deepening recession marked by high inflation, rising unemployment, and falling wages. However, Brazil is still a market with a lot of potential. It is a populous nation of 203 million, where young people under age 34 account for over half of the population. It is the third largest grocery retail market in the world, with spending of close to $70 billion USD in 2014.
The Insight: Growth at the Low & High End
Brazil has a high level of income bifurcation and this was apparent when traveling through São Paulo. I learned that the country has the #1 Ferrari dealership in the world. And, it is #1 in private helicopter ownership – a necessity for those with the means to avoid the challenging traffic. Conversely, Brazil is a very poor nation, where the average GDP per capita is $12,100 (vs. $51,000 in the U.S.) and 21% of the population lives below the Brazilian poverty line.
Not surprisingly, I learned that the retail grocery landscape mirrors this split. Discounters and luxury grocery retailers have been rare growth spots in recent years, while formats in the ‘middle’ have languished.
Brazil is home to a unique format called the atacarejo, and it has been the country’s fastest-growing grocery segment over the past 3 years. The word itself is a neologism, a mix of atacado (wholesale) and varejo (retail). Atacarejos offer bulk sales of food and other items that can be paid for in cash. They are no-frills outlets that keep prices low in large part through low operating costs. Most employ a tiered pricing strategy, offering the best deals for those who want to buy volume. Traditionally this model attracted wholesale customers but in recent years it has appealed to everyday Brazilians with shrinking disposable incomes.
According to Supermercado Moderno magazine, the number of atacarejos grew from 299 in 2013 to 436 stores in 2014. In March, Nielsen reported that sales in atacarejos grew 12.1% in 2015 over the previous year – more than double sales in the industry as a whole. These outlets have been a boon for large retailers, who are investing heavily in the format. For example, Carrefour bucked the trend of sluggish grocery sales in 2015 posting 8.5% growth in sales at existing stores driven largely by growth at Atacadão, the country’s biggest cash-and-carry chain. More recently, Grupo Pão de Açúcar’s atacarejo format – Assaí –reported 37.6% sales growth year-on-year for Q2 2016. Based on the success of the atacarejo in Brazil, retailers are opening similar formats in other countries throughout Latin America including, for example, Columbia.
The atacarejo model undoubtedly appeals to price sensitive consumers dealing with the implications of recession. However, it also resonates culturally because consumers enjoy the shopping style. Credit-shy shoppers feel comfortable dealing in cash. Brazilian families, which tend to be larger, are able to pool together to buy in bulk and share the cost savings. The largest shopping day is Sunday and shoppers appreciate the bazaar-like atmosphere, where there is space and variety for the whole family to explore.
This format seems poised to retain a presence and relevance even after the country begins to recover from the recession.
The Luxury Purveyors
A second arena of growth has been at the high end. The Italian retailer Eataly opened its first Brazilian (and also first South American) location in 2015 amidst the deepening recession. Fast Company aptly described Eataly as an “Italian grocery market-cum-restaurant emporium-cum-enoteca slash bakery slash cheese shop.” Eataly’s New York outpost opened in 2010 to the delight of consumers and food journalists alike and there are locations in Italy, Tokyo and Munich.
The São Paulo store is located in the Itaim neighborhood, an upscale area near several business districts. It is a two-story luxury emporium that offers fresh and local fare not to mention a Nutella bar, a roast meat counter, and a place to purchase handmade pasta.
Upscale offerings in Brazil are not limited to large multinational retailers. Brazilian retailer Super Muffato opened its first gourmet store in Londrina, Paraná earlier this year. Industry group ABRAS describes the outlet as a “gastronomic paradise” complete with a 700 bottle wine cellar and sommelier, sushi bar, imported cheese shop, and a global cuisine section. This is the third opening under this concept, highlighting the room in the market to provide a more premium retail offering in Brazil, despite its continuing economic challenges.
These outlets capitalize on the “food as hobby” and “food as entertainment” trends. For affluent consumers looking to economize, Brazil’s growing gourmet options offer the ability to procure ingredients for cooking at home rather than spending the money to dine out. Further, they show that Brazilian consumers are willing to spend on categories that engage them even during tough economic times.
The Brazilian grocery landscape is one of juxtapositions, like city of São Paulo itself. Growth at the bargain and luxury ends of the spectrum shows no signs of slowing anytime soon.
For retailers, particularly those without plans to grow through these formats, it will be important to find ways to infuse elements of both the atacarejo and the gourmet grocery into everyday shopping experience across formats.
Further, retailers who continue to struggle in the middle will need to find new ways to create value for customers. This is not unlike the situation of U.S. fashion retailers who are looking to loyalty programs, unique shopping experiences, technology and even product scarcity to lure buyers back to the middle.