Introducing Brazil’s consumer market
Across the emerging markets, an expanding middle-class is driving growth and opening opportunities.
Nowhere is this trend more evident than in Brazil where many millions of people have moved out of poverty in the last 10 years. At HSBC’s International Exchange to Brazil, Alberto Serrentino, of retail specialists GS&MD, gave delegates an insight into the country’s new consumer class.
From the importance of credit for Brazil’s consumers to the maturity of a market that has long been home to major international brands, delegates heard about a growing middle-class that helps to make Brazil such an exciting market.
Influence of credit
“Brazil is probably the only market in the world where you can buy a t-shirt and pay for it in six instalments,” says Alberto as he explains the central role of credit in the Brazilian retail market.
In spite of economic difficulties in Western economies, confidence is high
“Credit is a fundamental tool to our consumption market, most Brazilians cannot consume anything if it’s not financed. It’s a heritage of our hyper-inflationary economy. But its embedded in our culture.”
It is this reliance on credit that makes confidence so vital to the Brazilian economy and according to Alberto the Brazilian consumer is a confident one.
“In spite of economic difficulties in Western economies, confidence is high,” says Alberto.
“On an individual basis consumers have not been affected by the global economic downturn and they see the future as positive. This makes them willing to take on additional debts, consume and make purchases.”
Allied to this, Brazil has an improving labour market, where unemployment is consistently falling, wages are growing and the real income of households is increasing.
Responding to rates
With the Brazilian consumer ever willing to take on credit, any movement in interest rates has a significant impact on consumption levels. So with Brazil enjoying its lowest ever rates of interest, the time is right to target Brazil’s consumers.
“When an emerging middle-class shopper goes to make a purchase, he or she is prepared to take on a certain amount on interest. So when rates drop, you enlarge the market dramatically,” explains Alberto.
“These are the dynamics that official figures don’t register; how responsive Brazilian middle-class to lower-end consumers are to changes in rates.”
Concentration of consumption
While Alberto remains confident in the continued growth of Brazil’s consumer market and the willingness of people to take on credit and purchase goods, he does sound a note of caution to companies considering the market.
“Most retail companies look at Brazil and they see a nirvana,” he says. “They compare the size of Brazilian economy with the US or Europe and they project figures onto the Brazilian market; this is huge mistake.
“It doesn’t allow for the variety of social classes and the disparity in consumption across a huge territory. We have 5,565 cities in Brazil and only 3% of those account for 50% of consumption. The market is big, it’s growing but it’s very concentrated.”
The current concentration of consumption in the south of the country does though suggest strong opportunities in the relatively untapped north.
“At this stage, the share of consumption in the north-east is equivalent to the south but the population is double so there’s a huge amount of potential consumers in that region.”
Retail in Brazil: a mature market
While Brazil’s economic growth may not have been as spectacular as China’s, for example, its retail market is far ahead of its fellow BRICs in terms of maturity.
“Leading international retail brands have been operating in Brazil since the 70s, so local companies are used to competing against leading brands,” explains Alberto.
“That’s led to a mature consumer market that potential investors should not underestimate. Brazil’s is also a young society that is very open culturally to new technologies and the digital world.”