What is the potential of small Brazilian retail?*

3 de Dezembro de 2010

Categoria: Inglês

Small retail, characterized as being widespread and fragmented, holds a significant importance for industry, as, apart from representing a chance to increase the margin in negotiations with the large chain retailers, it is, in fact, a path through which to reach the low-income consumer (given that one of the differentials of the small retail outlet in relation to the hyper and supermarkets is its proximity with its public, which facilitates the development of the relationship between the store and the shopper).

What happens is that, due to the changes in behavior and preferences of the consumer, arising from the improvement in the standard of living, the more organized retail (composed predominantly of supermarkets, with more than 10 checkouts) and the large chains have started betting on the neighborhood model of store, as is the case of Extra Fácil, with the advantage of offering this public the shopping environment to which they had long aspired, but never had access.
On the other hand, the small retail outlet, that had taken advantage over recent years in the expansion of consumption in basic items, and offered a good solution in proximity and familiarity in service, has not been evolving at the pace of its target-public, which is proving to be more and more sophisticated. So, for the small retailer, it has become imperative to adapt to the changes in the market and follow the development of the economy.
An economy, indeed, which is going through a good moment and presenting encouraging perspectives: a trend of an increase in GDP between four and five per cent until 2014, industrial sector growth of eight percent in 2010, expectations for commerce to increase sales on the previous year by 73% and the increase in the annual income of Brazilian consumers (the forecast is that it will break the five billion Brazilian Real mark in 2014). This increase in income contributes to the growth of family consumer spending.

And it is known that the increase in spending happens first in retail foodstuffs, as this is the first segment of the economy to take advantage of the growth in consumption. Last year, 72% of total consumer spending was in foodstuffs, followed by hygiene products (16%), drinks (6%) and cleaning (5%).
Challenges for small retail

Considering that low-income consumers are the main shoppers of small retail, some of the main factors for pleasing them are paying attention to their aspirations, offering good service and quality selection. In accordance with research carried out by ToolBoxTM (“The structure of small retail”, 2009) in the south-eastern States of Brazil, credit-card services were only made available by half of the stores studied. This requires changes, given that the tendency is for an increase in the use of and in the number of credit cards for private individuals, apart from the fact that low-income consumers have a high regard for this form of payment.
Apart from that, with the increase in income, consumers are starting to buy better quality products. A study has shown that 26% of consumers are prepared to spend more to purchase better products. Classes C and D, for example, which had just 21 categories in their shopping basket back in 2002, today have 37 (yogurt, condensed milk, cremes and lotions, milk powder, ready-to-use seasonings and sauces and washing softeners have started to become part of the monthly shopping list).
Due to the trend in the reduction of store size in retail and, consequently, of the shelf space, the selection decision has become decisive in order to attend the needs and requirements of the customer. Finally, the lack of “quality with experience” in the labor force is one of the main problems that retail in general will have to face (it is estimated that for commerce, there is a lack of 187,000 workers across the country).
Five strategies for success

In order to help small retail owners face the challenges and attend the expectations of shoppers, we have formulated five strategies which, if well applied, will contribute to the attainment of success in this channel.
First, the small retailer must have professional management and develop “win-win” partnerships with good suppliers. Retail will, thereby, gain the possibility of delivering value to the customer and further find itself able to face up to the competition.
The second strategy consists of simplifying the operations, containing wastage. To achieve  this, the use of information technology is recommended, along with the correct revision of the selection. This will facilitate the administration of the establishment and further allow the retailer to direct time to applying the other strategies.
The third point refers to the customer, in other words, to understand what they want, stimulating the shopper to buy more and return more often to the POS. Research developed by ToolBoxTM (“Reason for buying new products”, 2010) for the magazine – Supermercado Moderno, revealed that 55.4% of consumers decide to buy a launch at the point of sale, with the visibility in the POS being considered by 29.8% of interviewees as the main factor for discovering a new product. Apart from this, it is not necessary to commission research studies. Mere attentive observation and contact with the shoppers has already supplied vast amounts of information to the retailer. Knowing how to see and listen in retail makes all the difference!
The fourth strategy deals with the question of offering “something more” to the consumer. Apart from making the shopper’s wants and needs available, one must further deliver the experience he/she dreams of. By adding value to offers, the satisfaction of the shopper will be greater, as will the chances of gaining their customer fidelity. Investing in store design, lighting, new services and attendance, as well as supplying convenient parking and other such conveniences are practices the good retailer should adopt.

And finally, the establishment must evolve alongside its customers, following the economic development of the neighborhood and of the shoppers, adapting itself to the reality and the daily routine of the region. To do this, retailers need to prepare themselves, take a good look around, organize themselves, train their teams and professionalize the management of their businesses.

* By Rafael D’Andrea and Flávia Teresa S. Fernandes