Article by Leonardo Cyreno, Analyse²’s Brazilian Market Specialist
Changes or Phenomena in the Brazilian Market
There are so many changes in Brazil that affect product consumption and shopping directly, that it is hard to focus on primary things. Nevertheless, let’s give a general vision in three topics that will allow you to have an idea about changes in Brazil:
a) A, B and C classes’ growth and D and E classes’ reduction.
When we study Brazil’s changes in classes for less than 10 years you can see how big the change has been. In 2003, there were 66 million people in Brazil’s C Class (38% of total population). In 2009 this amount was 94,9 million (50% of Brazil’s population). This means that almost 29 million people moved to the C class and most of them came from the D and E classes. Therefore, those two classes had a reduction from 96 to 73,3 million in the same period.
If you take a look at the A and B classes, the change was even bigger. In 2003, the percentage of the population in this class was 7% (13 million); in 2009 the number was 11% (20 million). This means that from 2003 to 2009, 7 million people entered top class consumption in Brazil, an increase of 41% for the A Class and 38% for the B Class, compared to the C class, which was 34% in the same period. (See Chart below.)
Population by Social Class in Brazil
For 2014, according to the FGV institute in Rio de Janeiro, we expect 31 million in A and B classes (an increase of 11 million), 113 million in the C Class (increase of 18 million) and 59 million in the D and E Classes (decrease of 14 million).
Now stop for a moment and imagine what happens with consumption and shopper habits and behavior at the stores with that change of money availability in the shoppers’ hands… They will buy different products, different categories and also increase the amount of what they already buy. In other words, they are looking for better products in general, making the market much more sensitive to product characteristics and the benefits that they want to receive from them.
b) The amount of information that shoppers have available now is changing the consumption and shopping habits
Let’s use an even smaller period than the previous example. In 2006, the Internet penetration in C Class was 33%, basically one out of every three persons had access to Internet.
In 2009, just 2 years later, the Internet penetration rate rose up to 66%, duplicating in 2 years. This didn’t happen just for C Class, it also happened in D and E Classes, from 11% in 2006 to 33% in 2009; three times bigger.
Now imagine the amount of information that one person has with no Internet access, and then imagine what happens when they start to use the network. We could assume that they are using the Internet only for social networking, which by itself already changes the shopping behavior a great deal, through information and perception exchanges. However, that is not the main reason why people use Internet; 87% of the C class uses Internet for research against 69% for social networking, and additionally, 68% of C Class and 42% of D Class do price research in the Internet before buying something.
c) Huge dimensions with huge social and economic differences between regions.
Brazil is a country with very large dimensions. This fact does not affect only geographical aspects, it is also easy to see different economic factors that are directly related to shopping and consumption behavior.
Just to give some dimensions about these facts, let’s use an example: For the A and B Classes which we talked about in the first topic, 63% of the population from these classes are located in the SE Region, 15% in South, 13% in the NE, 7% in the Center and 4% in the North.
However, this scenario is also changing. When you look at economic development, the NE region is growing much faster than the other regions. When you look at GDP in 2010, Brazil reached 7,5% and NE achieved 8,3%. This growth is making the changes even faster and more aggressive, forcing the national retail chains to be very flexible, fast, and assertive with assortment definition, trying to avoid the loss of market shares.
The growth in Brazilian’s C class changing the assortments in Brazilian supermarkets
If you want to keep sales growth and market share, you have to look very closely at the C Class. They are already the majority of the population in Brazil, have most of the consumption participation, and they are changing faster than any other segment. It basically means that, except for very specific retailers that offer solutions specifically for A and B class, if the assortment, layout and store merchandising don’t fit their needs, they will buy somewhere else.
About Leonardo
Leonardo Cyreno, our new Latin American Regional Director, has 13 years of experience in the Brazilian retail market. He started to work in the Bompreço (nowadays Walmart) in 1999, a retail chain located in Northeast of Brazil and had 116 stores at that time. Bompreço was bought by Walmart Brasil in 2004.
Leonardo started working there as a trainee in quality programs to increase the productivity and efficiency of the offices and stores. Then, he worked with projects, modulars, pricing, marketing, item file, and integrations, until finally he became Category Management Director, with the challenge of building a category management area and process for Brazil. He was also responsible for modular, store layout, assortment planning, business plan construction and merchandising strategies.
As Leonardo mentions, “building processes with the suppliers’ participation was a very interesting opportunity to know the Brazilian Market and also to understand much available research about Brazilian Shoppers’ change in shopping behavior and also consumption migration between classes A and B to C and D”.