Brazil in 2015: winning in a tough market

Date : 31 March 2016

Industry body ABRAS has revealed the much anticipated rankings of total sales for 2015. Here’s what we took from them.

1. A tough market as shoppers switch to atacarejo

Sales volumes at supermarkets and hypermarkets dipped by just over 1% in 2015, following a sustained period of growth since 2003. By contrast, the growth impetus in atacarejo strengthened, with sales volumes showing double-digit growth. More shoppers are voting with their feet, as the impact of the economic downturn hits their spending ability. The simple proposition of atacarejo, focused around low prices, a basic store environment, limited SKU counts and - at times - discounts for bulk purchases is therefore increasingly alluring to shoppers. Carrefour and GPA (Grupo Éxito, which is majority owned by Casino) have both reported exceptional growth from their Atacadão and Assaí operations respectively, whereas by contrast growth has been much harder to come by for both across hypermarkets and supermarkets.

2. Volume growth will remain hard to come by

Grocery retail has been impacted by the economic downturn, but other sectors have come off far worse. Car sales, for example, fell almost 20% in 2015 according to the Brazilian statistics office, while other large ticket items, such as electricals and white goods, also experienced substantial sales declines. And given the weak economic prospects for 2016 - in which GDP is expected to dip by 4% - and 2017, it feels non-food will remain a particularly challenging segment. Clearly, this is bad news for non-food specialists, but also for GPA, which derives a big part of its sales in Brazil from the two non-food chains of Pontofrio and Casas Bahia.  For hypermarkets, the lesson from this is not to expect a regenerated non-food offer to be a stimulus to growth. Instead, the key to growth lies in providing the right combination of relevance and value.

3. Despite the tougher times, those with a clear and coherent trading proposition can grow

Interestingly, Carrefour came out well in this year's rankings. Part of this is due to weak trading at others, such as Walmart, as well as the growth of its own atacarejo format, Atacadão, which has been expanding fast and now trades from almost 120 stores across Brazil. However, another aspect of this has been improvements in its core proposition. Admittedly this is coming from relatively weak comparisons, but initiatives such as those seen in the refurbished store at Alphaville below appear to be demonstrating the appropriate combination of relevance and value for Brazilian shoppers. What's more, we're seeing continuing growth from operators like Grupo Zaffari, now Brazil's fifth largest player, whose stores impress not just at a Brazilian but also at a global level.

 

Source: Retail Analysis

4. Market fragmentation remains high  

Brazil is a vast country with huge regional differences in demographics, ethnicity and culture. So it's perhaps no surprise that no single retailer holds more than 5% of the market. And while none of the leading retailers is currently firing on all cylinders, if and when they do there are multiple regional chains across the country that provide potential acquisition opportunities.

But longer term, key challenges lie in driving efficiencies in distribution. Increasingly, we see scope for global supply chain best practice to play a major supporting role in this, to drive profitable long-term growth.