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April 2009
RNG's Latest Chain Retail Forecasts for Latin America
Greetings!
We recently completed a major update for our chain retailer database in Latin America and wanted to briefly highlight
a few of the themes we came across during our update.
For those not familiar with RNG's coverage in Latin America, we closely track, monitor, & forecast over $200
billion dollars in chain retail sales accounting for close to 20% of formal retail sales in a region with a combined
GDP of more than $3.5 trillion dollars.
Please read on for the five biggest themes coming out of from our update. Subscribers can access these detailed
views at the banner & market level at retailnetgroup.com.
As always, please reach out with any questions or concerns - we are here to help.
Sincerely,
Aaron Chio
Senior Analyst
RetailNet Group
Despite talks of potential deflation in developed markets, inflation still remains high throughout most of Latin America.
In addition, currency depreciations will impact prices of imported goods, further pressuring costs & price points
higher. These two things should somewhat offset economic slowdown in the region - at least nominally.
Nonetheless, RNG is still forecasting a marked slowdown in sales & store growth across the board down from
double digit, 11.9%, to single digit, 6.9%, sales growth for chain retailers.
Despite credit tightening & tougher market conditions, retailers are still opening stores--albeit at a significantly slower
pace. The key difference between what we are seeing in the US (dozens of retailers going bankrupt and closing
thousands of stores) and Latin America is that the latter is not nearly as over-developed as the US, particularly
around category specialists.
The chart below compares 2007 openings vs. 2009E store openings, showing that a higher number of banners
opened more stores in 2007 than we expect for 2009E. In other words, while 205 banners opened two or more
stores in 2007 only 143 banners will do the same in 2009E - that's a 30% difference from '07 vs '09E.
Acquisitions & retail consolidation across markets are two key drivers here (click the slide below for summary sample
of key developments). In addition, we see more and more retailers going after different shopping trip occasions &
socio-economic segments, further consolidating sales in the markets where they operate while expanding into new
geographies.
Since the vast majority of the modern trade in Latin America takes place primarily around food related segments
(over 50% of RNG's chain retail sales in Latin America are concentrated in the grocery channel), we see need-based
segments outgrowing the market and want-based segments growing significantly below average (Figure
4).
In addition, six out of ten of the top ten retailers in our earlier list (Figure 1) have multi-market
operations. The other four operate almost exclusively in their home markets, which coincidentally happen to be
some of the largest modern retail markets in Latin America (Mexico with Soriana & Oxxo; Brazil with Lojas
Americanas & Casas Bahia; Colombia with Exito).
What does this mean?
A few things can be concluded from this, most of which we have talked about in past Strategy Alerts:
● This change appears to be structural, not cyclical. Retailers are evolving their strategies to match the
economic cycle and this will change how we go to market over the next 12-36 months.
● However, not all segments are created equal. Discretionary segments, like department, electronic,
furniture stores in Latin America operate under a much more "rent-to-own" model, where credit plays a huge
role in facilitating purchases. Unlike some modern markets, this market is still largely unexplored by many
retailers and presents a tremendous opportunistic upside for retailers to tap into consumers' pockets.
Still have questions? We are helping both our retailer & CPG clients work through a lot of these issues today. Simply
drop us a line to see how we can help.
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