The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.Learn More
Despite the fact that the Brazilian economy is mired in recession and the government in crisis, Brazil remains an attractive consumer market with Latin America’s highest level of total consumer expenditure and a burgeoning middle class. However, it can be challenging for companies to effectively reach the country’s 200+ million consumers and unlock the opportunities this vast market has to offer. Euromonitor International has identified weak infrastructure, high income inequality and a large informal economy as the top three challenges that could prevent consumer goods companies from achieving commercial success in Brazil.
Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), World Economic Outlook (WEO)
Note: Data for 215 are forecast; Consumer expenditure data are in constant 2014 prices, fixed 2014 exchange rates.
Brazil’s infrastructure is weak and inadequate, which poses a significant challenge for companies to reach consumers and do business in the country. In the Global Competitiveness Report 2015-2016, the World Economic Forum ranks Brazil at 123rd out of 140 countries for the quality of its overall infrastructure (down three places from the previous year), reflecting the poor state of the country’s roads, railroads, ports and air transport infrastructure. The proportion of paved roads in Brazil only reached 14.0% in 2014, compared to Latin America’s average of 22.0% and the OECD’s 70.0%.
Deficient infrastructure does not only undermine Brazil’s competitiveness and prevent productivity gains, but it also hinders distribution efforts, accentuates market fragmentation (already a challenge as a result of high income inequality) and restricts consumer market potential.
Despite rising government spending on various social programmes since the mid-2000s that has helped to reduce income inequality and boost the middle class expansion, economic inequality in Brazil persists and is expected to remain very high in the long term. Inequality in Brazil does not only manifest itself in the highly unequal distribution of income and the resultant gap between the rich and the poor, but also in the concentration of wealth and spending in a few regions with the Southeast in particular accounting for over half of the country’s total consumer expenditure.
Excessive economic inequality poses a considerable challenge to consumer-focused businesses because of it concentrates the purchasing power among a relatively small consumer segment at the top of the income pyramid and in a few wealthy regions while also creating vast variations in the spending patterns, wants and needs among consumers of different income types. This makes it difficult for businesses to understand and target the Brazilian consumer. Companies entering Brazil will need multiple strategies and business models which account for the uneven and fragmented consumer market, but which can be very complicated and expensive to implement.
Source: Euromonitor International from national statistics
Note: 1) ‘Other’ comprises the consumer spending categories of alcoholic beverages and tobacco; clothing and footwear; communications; and leisure and recreation. 2) The figures in brackets refer to the average household annual disposable income for respective deciles.
Brazil has a large informal economy which hinders tax collection and promotes piracy in technology, consumer goods and other products. The country’s informal economy stems from its difficult business environment with a high tax burden, corruption, red tape, a difficult customs system and complex regulations. This makes it hard for businesses to keep their prices low, but on the other hand high prices push consumers into buying smuggled, untaxed and counterfeit goods on the black market.
Even multinationals with deep pockets such as sportswear manufacturer Nike find it hard to cope with the prevalence of black market in Brazil. Having invested heavily to win a 10-year exclusive deal with the Brazilian Football Confederation in 2008 to design and produce jerseys for the national team, Nike found itself in the midst of a losing battle with literally hundreds of thousands of counterfeit products flooding the Brazilian market, despite the fact that Nike jerseys are already being retailed at a more competitive price in Brazil.