Challenging private label perceptions in Brazil

Date : 10 November 2020

Oliver Butterworth

Retail Analyst

Until recently, Brazilian consumers have had a negative perception of private label, with many considering the products as being of low quality. Suppliers have invested in their brands building strong connections with shoppers, which has created a challenge for retailers looking to encourage them to try something new and different. It is, therefore, key for private label products to co-exist alongside major brands, giving customers greater flexibility.  

GPA’s Qualitá (own brand) ketchup, alongside Heinz

Source: IGD Research

In recent years, major retailers in Brazil, including market leaders Carrefour and GPA, have been investing heavily in strengthening their own brand portfolios. The latest retailer to invest in this area is discount retailer DIA.

Following our recent article on DIA’s private label strategy in Brazil, we caught up with Wilhelm Kauth, the retailer’s head of private label in the country, to talk more generally about shoppers’ perception of private label in Brazil.

Private label penetration in Brazil is lower than the global average, which presents a sizable opportunity. What challenges do you face in getting customers to move away from brands and trying private label?

Private label penetration in Brazil is about 6% of the market, so it is a very sizable opportunity indeed.

In the past private label was cheap, but of poor quality in Brazil. Therefore, it is a slow process to create a positive quality perception. It is not enough to just be cheap. The other thing is that brands are extraordinarily strong in Brazil. For many of the international brands Brazil is a paradise, so you have an incredibly strong competitor.

Nestlé display in a Guanabara store, Rio de Janeiro

Source: IGD Research

Private label is not about going to war with brands, our customers want to buy brands, so we sell brands to them. With our private label, we must convince customers slowly and steadily by giving them high quality products, which are democratised and have fun choices for every day. If this is done right, the change will happen.

Source: Dia

In Europe, discount retailers tend to have a similar assortment across the country. Given the size of Brazil have you had to take a more regionalised approach to ranging and did this create challenges when creating new products?

We’re going to have a base assortment from São Paulo and everything else should be done more regionalised to respect the different “Estados” (states) and clients. Another consideration is of course logistics, which is one of the main secrets to be a successful retailer in Brazil… and taxes.

The discount channel has been hugely successful in neighbouring Colombia over the last few years. For some discounters in that market, and many in Europe, private label accounts for over 70% of the product mix (considerably more than in DIA Brazil). How important is it that you maintain a larger share of branded products?

We don’t see DIA Brazil as simple discounter anymore, it is more complex than that. Our business model is more about the smart choice: low prices and proximity to the customer.

DIA Brazil won’t be a 50+% private label discounter in the near future and we don’t want to be that. If our customers want to buy branded products, we’re going to sell them branded products, at the best price, close to their home.

Brazil is expected to face a recession post COVID-19. During and after the pandemic customers will become more frugal, which extends to them buying groceries. We believe value will become a bigger driver of store choice. Do you think this presents a big opportunity for DIA, particularly as there is a lack of other discount retailers in the market?

If we can do it right, offering the right products at the right prices, very close to home, and at the same time we have differentiation and good quality perception then sure it will be a big opportunity. We’re confident we have found the right mix.

Some of Dia’s latest products

Source: Dia

 

In contrast, if customers have less disposable income, are you concerned that they may revert to brands as it may seem ‘too risky’ to try private label?

If you have just enough money for the basics you are of course more unlikely “to risk” your cash on something you do not know or do not trust. This is absolutely true for the Brazilian market. In fact, this is one of the main reasons why private label did not thrive during previous crisis’.

We do not strengthen our private label just to be an option just during crisis, this would be horribly wrong as a strategy. We are doing it to be the preferred choice, everyday…in good times and in bad times.

No, I’m not concerned, we’re confident regarding our quality and value…. private label is a marathon and not a sprint.

In this report we explore DIA’s strategy and its renewed focus on Brazil. We uncover why it could be a key retailer to watch in the medium-to-long term.

We visited GPA's latest Pão de Açúcar G7 store in São Paulo, Brazil. This is one of GPA's highest performing supermarkets under this banner. It showcases several new innovative features, some of which have been developed in partnership with Brazilian start-ups.

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