The FINANCIAL — Despite the national economic crisis in Brazil, companies can find geographic and sectoral clusters of strong consumer spending—and even growth—using an analysis that focuses on actual expenditures, rather than on GDP or other macroeconomic data.
This nontraditional analysis shows spending in some city clusters growing by as much as 4% per year (in real terms) in the face of the national economic downturn, while sales in retail segments such as pharmacies and supermarkets in some cities have recorded growth rates of almost 10%.
A new report by The Boston Consulting Group (BCG) and Cielo S.A., a Brazilian technology and retail services company that is the leading electronic payments company in Latin America, Finding Islands of Consumer Spending Opportunity in Brazil’s Crisis finds that the impact of the economic crisis in Brazil varies widely by geography and by retail segment. Six clusters of Brazilian cities that share similar economic, demographic, and geographic characteristics have manifested their own consumption patterns, both before and in response to the crisis. A comparison of growth rates by cluster and retail segment shows a highly heterogeneous retail spending landscape.
“The impact of the crisis is far from evenly—or similarly—distributed,” said Daniel Azevedo, a BCG partner and coauthor of the report. “Smart retailers and consumer goods companies can use spending data from real people and places to adjust their strategies to make the most of the islands of opportunity.”
The BCG-Cielo study of Brazilian consumption is based on a database of more than 5 billion transactions per year from 2011 through 2015, involving 160 million credit and debit cards. It includes dozens of economic and sociodemographic variables related to consumption in more than 5,000 cities and 137 mesorregiões (regions, as defined by the Brazilian government’s statistical institute, IBGE).
In order of retail sales spending, the six clusters are: national metropolises, other metro cities, the south-southeast interior, the agro-export zone, the northeast interior, and the Amazon belt. The principal factors that determine a cluster’s consumption behavior and performance are its economic profile, its levels of wealth and education, the share of export agriculture in its overall economic activity, and the extent of social welfare it provides. The agro-export zone and the northeast interior have registered the highest spending growth rates since the advent of the crisis (3.3% to 4.2%); and national metropolises and the Amazon belt, the lowest. Most retail segments in the agro-export zone have continued to grow, some at rapid rates, but the national metropolises show few segments with positive growth, and the Amazon belt evidences broad and deep decline.
Throughout Brazil, consumers have concentrated their spending on essentials since the crisis—a trend reflected in sales at pharmacies and supermarkets compared with sales at electronics and furniture retailers and department stores. Specialty food shops have generally held up well, while apparel retailers have suffered. Tourism revenues have retreated in large urban areas but have increased in smaller cities within regions with popular vacation destinations.
As an example of the variations at work, sales at specialty food shops declined in national metropolises and the Amazon belt, but they showed growth (in real terms) of 1.2 % to 4.4% in other metro cities, the south-southeast interior, the northeast interior, and the agro-export zone.
One pocket of high performance nationwide is e-commerce sales, which have continued to provide a growth engine for most segments. Even as consumption stumbles, the influence of digital technologies on consumer shopping behavior is rising, driven by wider connectivity, advances in technology, and new services.
The research also shows that it pays to dig below the surface. Cielo’s detailed geographic data, combined with big-data analytics, enables companies to explore previously impractical tactical actions based on highly precise segmentations that reach down to street level. Companies can assess retail economic activity at the cluster level (such as major metropolises), at the city level (São Paulo, for example), in zones within cities (São Paulo north, south, east, west, and central), in neighborhoods within zones (Pinheiros), and on streets within neighborhoods; and they are likely to find significant variations in spending when they do.
“By applying advanced analytics to credit- and debit-card data, companies can find growth opportunities hidden in plain sight—at the level of individual neighborhoods and streets,” said Gabriel Mariotto, senior manager of business analytics at Cielo and a report coauthor. “Moreover, much of this data is readily available and accessible in close to real time. Companies can now react to shifts in consumption patterns as they occur, using real data.”
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