Peruvian consumers are feeling increasingly time poor, from working longer hours in busy, heavily congested cities. As such, they are seeking convenience and speed of purchase, which is driving buying decisions. This has created a space for retailers to develop proximity formats.
In the last five years we have seen a rapid expansion of modern convenience and hard discount stores, which has been led by two retailers: Tambo+ and Mass (part of Supermercados Peruanos). The stores have changed the way people shop in metropolitan Lima and they have the potential to expand into Peru’s second and third tier cities.
Source: IGD Research
What is driving the need for proximity?
Peru has become highly urbanised, with 78% of the population living in urban areas. It also has a higher number of female workers, relative to the region’s other countries.
Source: IGD Research, data from the World Bank
Most modern retail is in the capital city, Lima, including all Mass and Tambo+ stores, where around a third of the population live. According to TomTom data, Lima has the seventh highest traffic congestion globally. These conditions are making those living/working in Lima feel increasingly time poor, which has increased the desirability of proximity stores.
Shopping habits changing
The average sized household has decreased from 4.4 members in 2004 to 3.6 in 2018, which influences store choice and the size of basket. Kantar data (from Q2 2019) shows Peru has the highest shopping frequency in Latin America, with an average of 281 trips annually (against an average of 155 for Latin America).
Peru’s middle class is also growing, which has led to more people having greater purchasing power. These customers are more willing to pay a premium for the convenience and variety of products offered at modern retailers like Tambo+ and OXXO.
Tambo+ leads the way for modern convenience in Peru
Tambo+ (part of Lindcorp Retail) opened its first store in April 2015 and now has over 400, making it the largest convenience chain in the country. It aims to open 110 new stores in 2020 and to operate 600 by the end of 2021. It also said it wants to expand into the provinces, but is yet to do this.
The stores are small, between 70 and 120 sq. m, making it easier to find vacant units, expand quickly and open stores close to shoppers. In Lima there is little competition from other modern convenience players, which has enabled Tambo+ to accumulate stores in some of the best strategic locations and highest footfall streets.
Tambo+’s proposition differs from the traditional bodega (mom-and-pop stores). The main shopping missions are replacement, food-for-now and impulse, while its best-selling products are beverages and prepared food/ready-to-eat products. Although bodegas sell beverages and snacks, the stores have a predominantly neighbourhood mission.
For more on Tambo+’s proposition, see our article here.
Slow start for OXXO
Mexican convenience retailer OXXO entered the market in 2018 and ended 2019 with 51 stores (all in Lima). It has not expanded as quickly as expected. However, OXXO has said it will open 300 stores by the end of 2022, so it could still be adapting to the new market and defining its strategy.
Supermercados Peruanos rapidly expands its Mass banner
Mass opened 120 stores in 2019 and ended the year with 405. In March 2020 it announced plans to open 100 new stores annually until 2022, as well as close 40 in 2020.
Mass stores are compact sized, between 150 and 200 sq. m, hard discount stores. Prices are kept low through an efficient operating model, which requires fewer staff, and through mostly selling private label products. Like Tambo+, the stores’ small footprint enables the business to locate stores closer to the customer, which are mostly being built in low to low-middle income districts.
Mass is a unique proposition as it benefits from both its low prices (particularly on fresh produce), which allows it to compete with traditional retailers, as well as its proximity to the customer.
For more on Mass’ proposition, see our article here.
Source: Peru Retail
Traditional channel remains highly relevant
Peru’s traditional channel is huge, accounting for around 75% of the market (the highest penetration in Latin America). Despite the recent acceleration in the expansion of modern retail, bodegas and markets are still more significant in the eyes of most consumers. Many Peruvians prefer to buy fresh produce from traditional markets and bodegas are in most cases the closest store for customers.
Bodegas are typically small stores with low operating costs (low labour costs and store rent), so prices can be kept low without depleting margins. They sell small and irregular pack sizes, which support those on restricted budgets and the (approx.) 40% of Peruvian consumers who receive their income on a daily or weekly basis. Bodegas build loyal customer bases by giving regulars informal credit.
How will the growth of Mass and Tambo+ affect the market?
It is evident that Tambo+ and Mass are both gaining share from traditional retailers in Lima. Bodegas may have to modernise or adapt their offer to stay competitive. For example, all Tambo+ and OXXO stores accept credit and debit cards, which is not the case for all bodegas. More customers are looking for on-the-move meal solutions, so traditional stores could dial up this part of their offer.
Peru’s modern channel is in its growth stage and has a small penetration outside of Lima. The share of modern retail is so low that we could see new players enter the market.