Is Brazil's food retail environment returning to growth? Yes, but cautiously.

By Mary Ellen Shoup

- Last updated on GMT

Open air markets in urban hubs still play a central role in the typical food shopping routine of many Brazilians. ©GettyImages/	filipefrazao
Open air markets in urban hubs still play a central role in the typical food shopping routine of many Brazilians. ©GettyImages/ filipefrazao
As Brazil slowly emerges from its four-year economic recession – the worst in the country’s history, economists say – there is a fundamental and intrinsic growth opportunity in most food and beverage categories but it remains a challenging environment for most, says managing director and partner of L.E.K. Consulting in São Paulo, Brazil.

“What we are living in now is still a country trying to get out of low-growth environment, especially for food and beverage,” ​Fernando Fernandes told FoodNavigator-LATAM.

Brazil started to report early first signs of an economic turnaround with GDP growth hovering around 1% last year and expected growth of between 1.9% and 2.1% over the next two years, according to the International Monetary Fund.

For years, food and beverage companies were operating in a high inflation environment and reporting higher revenue numbers without actually growing sales volumes, Fernandes explained.

“In a high inflation environment, it’s hard to distill exactly where you are improving or moving the needle or when you are adjusting your prices,”​ he  said. “We are now entering into a more vigorous growth cycle where industries are expecting to actually increase volumes.”

“We’re still not seeing companies projecting huge growth. I would describe this as still a very challenging environment from that perspective,”​ Fernandes continued.

‘Huge disparities’ among Brazilian shoppers

The lingering effects of the economic recession are still significant for many consumers. Even though poverty rates in Brazil have decreased, there is still much debate about what distinguishes “middle class”​ consumers from the country’s “previously poor”​ , the latter defined as those who have risen above the country’s poverty line in recent years.

“Brazil is a country of huge disparities – We don’t have a huge middle class life,”​ Fernandes said.

A 2018 ethnographic and quantitative research study​ surveying people living in dense urban neighborhoods of São Paulo, a city of 12 million, found that “almost no one speaks of the ‘new middle class’ in 2016 or 2017” ​and many citizens are still spending a majority of their income on food purchases, researchers reported.

Sales tax of most food items in major Brazilian cities sits around 17%, a heavy monetary burden for many Brazilians. In comparison, the highest US state sales tax is just above 10%.

As a result, lower-income consumers who do not have the luxury of purchasing fresh food multiple times a week have increased their intake of processed food, according to Fernandes.

Where are Brazilians shopping?

“Brazil is quite open to international brands,”​ Fernandes said pointing out that the three largest food retailers in Brazil are international companies: Carrefour Comércio (France), Companhia Brasileira de Distribuição (France), and Walmart (US).

However, what is distinct about Brazil, is the prevalence of small, independent stores that may not necessarily have every product on hand like Walmart, but provide an environment where local shoppers feel a connection and welcomed by the owner, Fernandes noted.

“Around 60% of the market is still going through small stores, independent stores, which are scattered all over the country,”​ he said. "They hold that characteristic of having a cozy environment and personal relationship with the customer."

Owners of these type of small, local shops have also managed to survive a depressed retail environment partly by practicing informal credit practices with customers many of who may not have a credit card or formal banking account, according to Fernandes.

Fernandes explained that many small format, independent shops do not necessarily charge the full 17% food price tax on products and have existed through “informal credit practices", ​which are still very common in Brazil.

“I think in the last three or four years of recession, they [small format stores] provided a boost given that most of them tried to use some sort of 'tax creativity'," he said.

Health and wellness matters

Open air, street markets selling fresh produce and other goods is prevalent channel for many Brazilians, but the rise in consumption of processed foods has sparked public health debates similar to what's taking place in the US, according to Fernandes.

While Brazilian consumers are not quite discussing 'clean label' food trends yet, the overall health trend is going in that direction. 

"We are as concerned with health and wellness [as the US],"​ he said. "If you take a cut of the population in Brazil, we are very similar to what you see in the US -- We have the same issues around obesity; we have a high intake of sugar and sodium." 

While many Brazilian consumers may have easier access to fresh produce and healthy animal proteins, high food prices remain an issue for most consumers. According to Mintel, the majority of consumers noted price as the top factors in deciding where to shop and they are increasingly looking for affordable better-for-you options -- Although, 83% of consumers do agree that it is worth it to spend more on healthy food items.

"Brazil’s ongoing economic struggles suggest that more manufacturers need to create reduced or enhanced products that retail for affordable prices. Low-priced healthy options can keep consumers active in the category,"​ associate director of Mintel food and drink, Jennifer Zegler, said. 

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