Spotting Opportunities in Brazil at Times of Economic Recession

Brazil’s economic recession and socio-political turmoil is the story of a major emerging market in crisis, with implications for many consumer goods companies. In the face of rising unemployment and falling wages, compounded with rising inflation and currency depreciation, consumer expenditure per household fell by 9.3% between 2014 (the year Brazil’s economic recession began in its earnest) and 2016. As well as spending less, Brazilian households are also changing their consumption habits with a shift away from the culture of ‘consumerism’ towards a greater focus on value for money. Insights into Brazil’s consumer spending in times of economic recession can help businesses adjust and adapt as well as identifying opportunities in the country.

• Between 2011 and 2016, Brazil’s consumer market as measured by total consumer expenditure expanded by 7.8% in real terms, equivalent to an average rate of only 1.5% per year. During this period, Brazilians made the largest spending cutbacks on communications and leisure and recreation while spending on clothing and footwear and transport saw no real increase;
• Interestingly, alcoholic beverages and tobacco was the fastest-growing spending category, consumer expenditure on which grew by 23.6% in real terms between 2011 and 2016. However, the volume sales of alcoholic drinks in Brazil has been declining steadily since 2012. This indicates that Brazilian consumers across the income spectrum had opted to purchase less in quantity but better in quality.

Brasil Kirin: Tapping the trend of consumers trading up in beer

• Recognising the trend of consumers trading up in beer, Brasil Kirin invested heavily to add two premium brands, Baden Baden and Eisenbahn, to its existing portfolio of domestic mid-priced beers;
• Despite the recession, Baden Baden and Eisenbahn have performed well, as they enjoy high brand-awareness and respect from consumers especially in the south and southeast regions. In 2015, the company opened an internet retailing channel for its premium brands, aiming to reach those that do not live in the key areas of operation. In 2015, Brasil Kirin ranked third in Brazil’s alcoholic drinks market, a position achieved thanks to its strong performance in the beer category.

Retail Sales Value of Brasil Kirin: 2008-2015

Source: Euromonitor International’s Competitor Analytics

Brasil Kirin was sold to Heineiken in early 2017 as Kirin’s Japanese owner shifts their strategic interest to Southeast Asia, but the company’s expansion hitherto was a case study of a business understanding the changing consumption pattern and successfully spotting opportunities amid a difficult economic climate.

Brazil’s real consumer expenditure is forecast to grow by 1.9% year-on-year in 2017 and 2.2% in 2018, rebounding from an annual real contraction of 3.7% in 2016. But overall, the Brazilian consumer market will remain challenging over the medium to long term, as annual household disposable income is not expected to overtake it 2014 level before 2025. In this context, companies will need a granular approach to pinpoint pockets of growth, because opportunities in Brazil will be uneven between different consumer spending categories, age cohorts and income bands, as well as across cities and regions.