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Whether it is an expensive shampoo or a gourmet chocolate bar, a pair of fashionable sunglasses or the latest smartphone, the new class of Brazilian consumer that has emerged over the past decade loves quality products. But during the past couple of years, the country’s taste for top-of-the-range goods has been checked by economic reality. Brazilian families have found growing difficulty in servicing their debts and, as a result, what consumer goods companies sometimes refer to as premiumisation has come under relentless pressure. Since the beginning of this year, as the economy slides into recession and unemployment rises from recent record lows, growing numbers of urban consumers have reined in their spending habits to an unprecedented extent.
A new survey by FT research service Latam Confidential (LC) — based on interviews with 6,500 people conducted between February 27 and March 23 in Brazil and five other Latin American countries — gives a good indication of the extent of the decline. In the four categories of products surveyed — clothes, food, personal care products and electronics — more Brazilians favoured cheaper and lower quality items than in the previous quarter.
For example, 698 out of 1,500 Brazilian respondents said quality was the most important factor when buying personal care products in March, while 785 had done so in December. By contrast, the number citing price as the most important factor had risen from 373 to 462. Not surprisingly, that trend has tended to benefit cheaper economy brands such as razor blades made by BIC of France or Colgate’s standard toothpaste, with premium products losing ground. Latam Confidential’s Brazil brand survey (based on the same sample) also showed a decline in preferences for premium brands across 13 out of 14 products surveyed, with chocolate — in which a number of small local companies have made big investments — being the one exception. Considerations such as health and diet or convenience remained important only for a minority of Brazilian consumers.
The broader Latin American trend is a complex one, however. Other regional economies are slowing (regional growth is expected to average 0.8 per cent this year, down from 1 per cent in 2014 and 2.7 per cent in 2013) and retail sales have come under pressure across the region. But although there are wide variations between countries, the evidence from the LC survey suggests a longer term “premiumisation” trend is very much intact.
Take Mexico, for example. Although retail sales have grown only modestly in the past 12 months (with the economy only gradually picking up speed), the LC survey showed more Mexicans put most value on quality when buying consumer products than was the case six months ago. In personal care, for example, 407 of 1,000 respondents prioritised quality in March, compared with 363 in September 2014, with 416 opting for quality in clothes purchases, up from 380 six months ago. In some segments — food and electronics — preferences for quality are still higher in Brazil than elsewhere in spite of recent declines. But in others, premiumisation appears to be stronger in the faster growing Andean markets. In the most recent LC survey, Peruvians, Colombians and Chileans were all more likely to favour quality personal care goods. And in clothes, Brazilians were the least likely of all six nationalities surveyed to favour quality.
Our conclusion: the Brazilian consumer is undoubtedly under pressure and consumer goods companies looking to advance their market share by promoting higher quality products may need to re-evaluate their strategies. Yet the trend is by no means region-wide. In spite of the economic slowdown, consumers in most of the region are no longer quite so price-led as they once were.
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