Bain & Company partner shares insight on South American consumer market

09 April 2018

In order for brands to reach consumers in South America, they should attempt to expand their client base and embrace online sales technology, says Bain & Company Partner Robin Bartling.

In a new video titled “How Brands Can Thrive in South America”, Robin Bartling, a Bain & Company partner, gives advice on fundamental changes in the marketplace. Bartling, co-leader of Bain & Company’s South American branch and a member of the company’s Consumer Products Practice, has worked in several South American markets including Brazil, Argentina, Chile and Peru. In the video, Bartling explains that in developing markets “many consumer products' companies are struggling to keep up with the fast-changing rules of the game.” To adapt, companies will need to change their mindset to penetrate more households, focus on digital consumer behavior, and integrate both sales and marketing into a holistic commercial strategy. 

Latin America’s economy as a whole has had a rough few years, fueled by political feuds and multiple recessions. The election of Donald Trump in 2016 managed to shake 10% from the Mexican peso, while recent political turmoil in Brazil has left the national economy in a space of instability. Venezuela's economy is predicted to contract 15% in 2018, with inflation set to hit 13,000%, according to the IMF. Meanwhile, the election of Mauricio Macri in Argentina allowed the government to reel in the blue market currency exchange rate which in turn prompted economic progress, while Peru, Colombia and Chile have all experienced steady albeit mild regional growth.

The volatility in both the political and economic facets of South American society have been important factors in why the area has failed to attract continued regional investment. Nevertheless, strong global conditions and the rise of the middle class are creating a favorable domestic environment which benefits consumer brands. Robin Bartling suggests that there is significant opportunity for both local and international consumer product companies to “adapt quickly and win”.

Robin Bartling, Partner - Bain & Company

With the recent expansion of the Latino middle class, it is important that companies diversify their target audience, rather than selling more to their existing client base. Almost two-thirds of Latin America’s consumption growth to 2030 will be a direct result of an increase in per capita spending, according to McKinsey. This growth will be concentrated in urban areas, as South Americans flock towards cities across the continent. The growth of metropolitan areas creates a new connected population with larger purchasing power than their rural counterparts. Higher disposable incomes are likely to open up consumer markets to new products which were previously unattainable. 

To reach this evolving market, consumer product companies must take advantage of tech-savvy consumers. However consumer confidence in online shopping is still lagging due to poor site navigation and third-party payment systems. According to Forbes, Latin Americans — especially Colombians, Mexicans, and Brazilians — are less likely to see targeted advertisements as an invasion of privacy in comparison to the rest of the world. This shows a desire for brand engagement and highlights the necessity for creating a better customer experience during online browsing and purchasing.

A shift towards higher consumer confidence in online shopping will create a significant step forward. “Consumers are increasingly more and more digitally connected, and they're willing to pay for convenience, so this drives on one side in the digital world, online sales,” says Bartling. By improving customer service, utilizing technology-driven customer engagement, and promoting secure online transactions, consumer product companies can break down the “silos between marketing and sales”. Brands that integrate a holistic commercial strategy can harness this significant shift in the marketplace and find themselves in a competitive position.

Watch the video with Bain & Company Partner Robin Bartling online on YouTube.

Going modern with Latin American consumer practices

14 January 2019

In Latin America, corner stores, bodegas, and mom-and-pop shops reign. In the early 2000s, this was not the future idealized by consumer product companies, which aimed to lay the foundation for a fluid network of modern convenience and self-service stores. Distribution channels were planned, and a consumer base targeted: the rising middle class, which was fast becoming more affluent and empowered.

But old habits die hard – and the global market crashed. Thus, the Latin American consumer product market remains fragmented – there are hundreds of thousands of shops scattered around the region – with no intuitive entry point for industry newcomers. Those established companies that had hoped for a more modern future are now struggling, as a large percentage of the market remains unmoved, and the middle class is not rising as quickly as companies had hoped.

This puts consumer product companies between a rock and a hard place. They cannot ignore the traditional habits of the current consumer. To do so would be assured financial loss. But they also cannot afford the potential decade, as well as resources, financial and otherwise, necessary to construct a network that would adequately service an entire region.

But all is not lost. An EY-Parthenon study shows that there are methods and strategies that can allow consumer product companies to infiltrate the Latin American market, with “modest exposure and capital expenditure.” First, however, it is necessary to look at the root causes of the trouble.

Split of traditional vs. modern trade in the food and beverage category in Latin America

Consumer culture shock

When looking toward the future, consumer product companies underestimated the allure of modern convenience stores. “This vision, inspired by North America and Europe, was based on an assumption that consumers would discover modern stores and be delighted by their lower price points, curated, assortments, on-shelf execution, and ‘one-stop-shopping,’ therefore causing a fundamental shift in consumer preference toward a more contemporary shopping experience.”

But societal differences, especially in consumer habits, between Latin America and the aforementioned regions are rather large. Rather than capturing the growing and increasingly affluent middle class, the more modern consumer product stores – the “one-stop-shops” – have faltered. Additionally, in a region where many are paid daily, in cash, the idea of consolidated shopping trips encouraged by modern stores, necessitating higher, if less frequent, lump payments, is undesirable. Modern stores, as well, were often too small to remain in the black, meaning more stores were needed, resulting in a 360-degree turn to the fragmented network that had initially been an obstacle.

Longer working hours among Latin Americans, compared to Americans and Europeans, also means there is less time to shop. Store location is a hugely important factor in a Latin American’s choice of where to shop, with 44% considering it to be the “most influential reason.” Also important is a cultural factor: 60% of Latino consumers have developed a personal relationship with their shopkeeper, “presumably allowing him or her to influence their path to purchase with helpful, time-saving recommendations.”

Markets matter

Modern trade, according to the report, has a “formidable presence” in Latin America, but its growth has stagnated. While modern trade dominates in the home care (68% in 2016) and beauty and personal care (89% in 2016 markets, where products are primarily purchased at large supermarkets or hypermarkets, traditional trade narrowly takes the edge in food (51%) and beverage (50%).

Split of traditional vs. modern trade in the home care & beauty and personal beauty category in Latin America

Different Latin American countries exhibit varying attitudes and openness toward accepting modern trade methods. In Mexico, Argentina, Colombia, and Peru, traditional trade takes a 30% share of all markets. In Chile, for example, this share plummets to 14%. Different national markets also forecast varying degrees of growth – Colombia expects modern trade to grow just over 6.0% annually, while Peru expects 3.5% growth. Consumer product companies would do well, then, to closely examine the country, rather than the Latin American region as a whole, when attempting market entrance.

Market penetration is also not as difficult as in the recent past, thanks to independent distributors that allow companies access to a “reliable network of third-party providers.” This means consumer products companies need not focus or invest in assets and infrastructure, freeing up time and resources to “more value-adding” activities, such as merchandising.

Go mobile

Latin America is the fourth-largest mobile market in the world. Adoption of social media has surpassed that of the Untied States, meaning advertising and marketing budgets can be adapted accordingly, by using “targeted direct marketing campaigns to drive traffic to traditional stores where consumers can discover localized product innovations and assortments.” Regional sales for Proctor & Gamble, for example, have grown 8% in the last fiscal year, with approximately half of its products sold in traditional stores.

Partner up

There are many hurdles to properly handling business with traditional stores, often involving the different distributors for different products in different regions, as well as a lack of talent. To reduce the juggling act, this means distribution partnerships are all but necessary. Consumer products companies must be adaptive and creative to maintain partnerships and retain qualified and experienced professionals.

EY-Parthenon RTM circle

In its study, and to aid those companies looking to dip into the Latin American market, EY-Parthenon developed a four-stage approach to “route to market” transactions.

  • Evaluate capabilities and compare them to opportunities. Essentially, companies should ask themselves, “Is it worth it?”
  • Assess strategic options against all potential risks.
  • Design with the future in mind. Companies must have a vision for how they will keep their operating model up and running in the weeks, months, and years ahead.
  • Implementation must be supported, in various forms – cutover, stabilization, synergy. There should be no surprises when it comes to enacting a plan.

Related: Growth of billionaires in Latin American stagnates.