SOURCE: Boston Consulting Group

Boston Consulting Group

October 10, 2016 00:01 ET

Big Pockets of Spending and Growth Emerge in Brazil Despite Economic Crisis

Many Cities and Retail Segments Defy Downturn to Register Significant Growth in Consumer Spending, According to New Report by BCG and Cielo

SAO PAULO, BRAZIL--(Marketwired - Oct 10, 2016) - Despite the national economic crisis in Brazil, companies can find geographic and sectoral clusters of strong consumer spending -- and even growth -- using an analysis that focuses on actual expenditures, rather than on GDP or other macroeconomic data. This nontraditional analysis shows spending in some city clusters growing by as much as 4% per year (in real terms) in the face of the national economic downturn, while sales in retail segments such as pharmacies and supermarkets in some cities have recorded growth rates of almost 10%.

A new report by The Boston Consulting Group (BCG) and Cielo S.A., a Brazilian technology and retail services company that is the leading electronic payments company in Latin America, Finding Islands of Consumer Spending Opportunity in Brazil's Crisis finds that the impact of the economic crisis in Brazil varies widely by geography and by retail segment. Six clusters of Brazilian cities that share similar economic, demographic, and geographic characteristics have manifested their own consumption patterns, both before and in response to the crisis. A comparison of growth rates by cluster and retail segment shows a highly heterogeneous retail spending landscape.

"The impact of the crisis is far from evenly -- or similarly -- distributed," said Daniel Azevedo, a BCG partner and coauthor of the report. "Smart retailers and consumer goods companies can use spending data from real people and places to adjust their strategies to make the most of the islands of opportunity."

The BCG-Cielo study of Brazilian consumption is based on a database of more than 5 billion transactions per year from 2011 through 2015, involving 160 million credit and debit cards. It includes dozens of economic and sociodemographic variables related to consumption in more than 5,000 cities and 137 mesorregiões (regions, as defined by the Brazilian government's statistical institute, IBGE).

In order of retail sales spending, the six clusters are: national metropolises, other metro cities, the south-southeast interior, the agro-export zone, the northeast interior, and the Amazon belt. The principal factors that determine a cluster's consumption behavior and performance are its economic profile, its levels of wealth and education, the share of export agriculture in its overall economic activity, and the extent of social welfare it provides. The agro-export zone and the northeast interior have registered the highest spending growth rates since the advent of the crisis (3.3% to 4.2%); and national metropolises and the Amazon belt, the lowest. Most retail segments in the agro-export zone have continued to grow, some at rapid rates, but the national metropolises show few segments with positive growth, and the Amazon belt evidences broad and deep decline. (See Exhibit 2.)

Throughout Brazil, consumers have concentrated their spending on essentials since the crisis -- a trend reflected in sales at pharmacies and supermarkets compared with sales at electronics and furniture retailers and department stores. Specialty food shops have generally held up well, while apparel retailers have suffered. Tourism revenues have retreated in large urban areas but have increased in smaller cities within regions with popular vacation destinations.

As an example of the variations at work, sales at specialty food shops declined in national metropolises and the Amazon belt, but they showed growth (in real terms) of 1.2 % to 4.4% in other metro cities, the south-southeast interior, the northeast interior, and the agro-export zone.

One pocket of high performance nationwide is e-commerce sales, which have continued to provide a growth engine for most segments. Even as consumption stumbles, the influence of digital technologies on consumer shopping behavior is rising, driven by wider connectivity, advances in technology, and new services.

The research also shows that it pays to dig below the surface. Cielo's detailed geographic data, combined with big-data analytics, enables companies to explore previously impractical tactical actions based on highly precise segmentations that reach down to street level. Companies can assess retail economic activity at the cluster level (such as major metropolises), at the city level (São Paulo, for example), in zones within cities (São Paulo north, south, east, west, and central), in neighborhoods within zones (Pinheiros), and on streets within neighborhoods; and they are likely to find significant variations in spending when they do.

"By applying advanced analytics to credit- and debit-card data, companies can find growth opportunities hidden in plain sight -- at the level of individual neighborhoods and streets," said Gabriel Mariotto, senior manager of business analytics at Cielo and a report coauthor. "Moreover, much of this data is readily available and accessible in close to real time. Companies can now react to shifts in consumption patterns as they occur, using real data."

A table of growth rates by city cluster and retail segment can be seen in Exhibit 3.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 85 offices in 48 countries. For more information, please visit bcg.com.

About BCG's Center for Customer Insight
The Boston Consulting Group's Center for Customer Insight (CCI) applies a unique, integrated approach that combines quantitative and qualitative consumer research with a deep understanding of business strategy and competitive dynamics. The center works closely with BCG's various practices to translate its insights into actionable strategies that lead to tangible economic impact for our clients. In the course of its work, the center has amassed a rich set of proprietary data on consumers from around the world, in both emerging and developed markets. The CCI is sponsored by BCG's Marketing, Sales & Pricing practice and Global Advantage practice. For more information, please visit http://www.bcg.com/expertise/institutes/center-customer-insight.

About Cielo
Cielo is much more than a terminal to enable debit and credit card transactions. We are a tech retail services company, leading the electronic payments sector in Latin America, and one of the ten largest Brazilian corporations in market value. In 2015, our platform captured over 6 billion transactions amounting to US$170 billion in financial volume. We believe that our role is to move businesses and merchants forward, since payment is a gateway to many intelligent and connected services. We offer a portfolio of VAS to meet the needs of our extensive customer base, comprising individual entrepreneurs and large retailers spread across the country. In addition to providing massive infrastructure that incorporates the latest technology, efficient logistics, and the most exacting safety standards, we are an "idea machine" pushing the market toward the future. Restless, we apply our expertise to terminals, internet, cell phone, and whatever else comes. We believe that no business was born to stand still, and our vocation is to raise this same enthusiasm for positive change in each of our clients, to enable the best payment experience.

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