SAO PAULO, BRAZIL--(Marketwired - Apr 30, 2015) - Through 2020, consumers in the interior regions of Brazil are expected to account for more than 45 percent of growth in the retail sector, or $60 billion in new purchases. Yet few of the country's retailers are prepared to capitalize on this growth opportunity, largely because they've focused their efforts almost exclusively on Brazil's highly populated coastal cities. According to a new report by The Boston Consulting Group (BCG) and BCG's Center for Consumer and Customer Insight (CCCI), titled Capturing Retail Growth in Brazil's Rising Interior , companies must determine how they can profitably reach these emerging inland markets.
Concerns about the future are causing many Brazilian consumers to keep a tighter hold on their wallets. In contrast with the last 15 years, when Brazil enjoyed a period of economic stability that led to a strong consumer market, the country's economic growth now is slowing -- along with consumers' appetite for spending. Although purchasing is projected to slow overall, Brazil's interior cities are bucking the trend.
A Range of Challenges to Overcome Moving into Brazil's interior presents a new set of challenges. "Because inland populations are less dense, consumer demand is more fragmented," explains Olavo Cunha, a BCG partner and an author of the report. "As a result, companies have a more difficult time reaching the minimum thresholds needed to warrant the modern retail presence of branded stores seen in urban coastal areas."
Distribution and logistics are also problematic. The interior is harder to reach and more costly to serve with the typical retail supply chain. Another obstacle is finding local store managers and sales reps with the necessary skills, knowledge, and education. Finally, many retailers lack an understanding of the buying patterns, preferences, and behaviors of consumers in Brazil's interior. Because of these four challenges -- fragmented demand, high cost to serve, shortage of local talent, and lack of consumer insight -- most leading retailers have struggled to effectively reach Brazil's inland regions.
Five Actions for Winning Brazil's Interior BCG has identified five actions that can help retailers in Brazil move strategically inland:
- Map the landscape . To address the problem of fragmented demand, retail companies must think in terms of clusters -- groups of cities that are relatively close to each other. At the same time, retailers should identify the commercial hubs for each cluster and assess the extent to which competitors have a presence in those areas.
- Develop new store formats . To profitably enter Brazil's interior, companies must create a local presence in a cost-effective way. To succeed, it may be necessary to try out different formats such as smaller, mobile, pop-up, and "virtual" stores.
- Create a multichannel strategy . We expect e-commerce activity in Brazil's interior to grow significantly in the coming years, as it has in other developed countries. Forward-looking retailers must create a strategy that integrates multiple channels -- both on- and off-line. For example, retailers can combine showrooms with online and catalog offerings.
- Rethink operations . To reduce the high cost of serving interior regions, retailers must rethink their approach to logistics and inventory management. It may make sense to outsource logistics to a third-party provider, offer broad but shallow assortments of merchandise, and increase storage areas to reduce delivery frequency.
- Build a local work force . Given the shortage of local talent, retailers that want to compete in the country's interior must develop strategies to attract, develop, and retain human resources. One approach is to partner with local universities.
"Although most major retailers have yet to target Brazil's interior cities," notes Rim Abida, a BCG principal and an author of the report, "other companies are already winning market share and customer loyalty -- companies like Havan and Eletrozema. These five strategies can help companies make the leap to Brazil's interior -- and do so profitably."
To arrange an interview with a member of the research team, 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 82 offices in 46 countries. For more information, please visit bcg.com .
About BCG's Center for Consumer and Customer Insight The Boston Consulting Group's Center for Consumer and Customer Insight (CCCI) 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 CCCI is sponsored by BCG's Marketing and Sales and Global Advantage practices. For more information, please visit http://www.bcg.com/expertise_impact/capabilit...fault.aspx .
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The Boston Consulting Group Eric Gregoire Global Media Relations Manager Tel +1 617 850 3783 Fax +1 617 850 3701 gregoire.eric@bcg.com
