As concerns rise over job security, personal debt, and Brazil’s economic future, new BCG research finds that consumers are planning to cut discretionary spending in virtually all product categories.
The economic crisis in Brazil, one of the world’s most important growth markets, is taking a toll on consumer sentiment. Anxiety over job security, personal debt, and Brazil’s economy has risen significantly since 2014, and 72% of consumers say they intend to cut discretionary spending in the year ahead. These are among the findings of new research released recently by The Boston Consulting Group (BCG).
Consumer worries have reached the highest levels since BCG began surveying Brazilian consumers, in 2009. The shift in consumer sentiment in the past few years has been dramatic. Fifty-one percent of Brazilian consumers say they are “anxious about the future,” according to the survey of more than 2,000 Brazilians of all income levels conducted by BCG’s Center for Customer Insight. In contrast, 39% of Brazilians in 2014 and only 30% in 2012 expressed anxiety about the future. Spending cuts can be expected to varying degrees nearly across the board, including in luxury goods, services, food, clothing, and home appliances.
Despite its economic challenges, however, Brazil remains one of the world’s biggest markets for many products. Brands that scale back in Brazil now could lose customer loyalty, which will be difficult to regain when the economy eventually recovers.
“Companies cannot afford to bail out of Brazil,” said Daniel Azevedo, a BCG partner. “But consumer product companies that have ramped up for dramatic growth will have to streamline their operations and be very strategic in their approach to the market.”
The findings reflect how deeply Brazil’s economic crisis has affected consumers. After a decade during which GDP growth averaged 3% to 4%, Brazil slipped into recession in mid-2014. GDP contracted by 3% in 2015. Eighty percent of consumers surveyed by BCG said they believe Brazil is facing an economic crisis, and 58% said they believe that recovery will take more than three years.
Rising personal debt burdens are one significant constraint on spending. Forty-three percent of respondents reported that they are devoting more than 30% of their incomes to paying off debt, compared with 33% who gave that response in 2014. Another 18% are paying 20% to 30% of their incomes to service debt. The survey also found that 54% of Brazilian consumers are borrowing in order to pay routine expenses such as rent, utilities, and groceries — a 5 percentage-point increase since 2014. Thirty-two percent are borrowing to buy clothes and shoes.
The weak Brazilian real, which has lost more than 40% of its value against the U.S. dollar over the past year, also is hurting Brazilian consumers by making imported electronics, luxury items, foods, and other products more expensive. The weakened real also indirectly inflates the prices of goods that use imported materials and machinery.
The research found that financial anxieties are significantly altering consumption patterns in Brazil. Ninety-five percent of consumers said they have changed their shopping and saving behavior in some way. Sixty-three percent said they are eating at home more often, 60% said they are “buying fewer things overall,” and 58% are saving more. All are significant increases from 2014. A greater percentage also said they are hunting for better prices.
Although Brazilians plan to spend less on all kinds of foods and beverages, many respondents indicated that health and quality remain high priorities — in keeping with findings in previous BCG surveys. Sixty-four percent of respondents cited “healthier or better for you” as a reason for trading up to higher-value products. For the fifth year in a row, “fresh food” was cited as the top food category for trading up in 2015. Fresh fruits and vegetables, locally grown food, natural products, “super foods,” and organic milk were also high trading-up priorities. In addition to fast-service restaurants and sit-down restaurants, the leading categories cited for trading down were snack foods, energy drinks, and sugar confectionaries.
Sixty-seven percent of respondents said they plan to “trade down” to lower-value non-food items, compared with only 33% who gave that response in 2011. Magazines, luxury brands, fashion jewelry, and travel purchases were the top trading-down priorities.
For consumers who intend to trade up, the categories cited most often were beauty and personal care products. But even these consumers want value for money. The highest priorities cited by respondents are products that “give better results” and offer “meaningful technical differences” relative to competing products. By contrast, only 48% said they intend to trade up because they “deserve it,” compared with 81% who cited that reason in 2011.
“While many consumers are still willing to pay a premium for goods and services that are most important to them, they are paying much more attention to whether a product offers tangible benefits and value,” said Rim Abida, a BCG principal.
Many companies will need to overhaul their approach to Brazil in order to succeed in the challenging years ahead, according to the authors. They will need to take a fresh look at their product portfolios, brand positioning, pricing strategies, and marketing messages to make sure they are in line with the priorities of key consumer segments and Brazil’s new economic context. And rather than trying to achieve growth through higher sales volume, many companies should seek to boost profitability by improving the efficiency of their operations.
“For companies that really understand the wants and needs of today’s Brazilian consumers — and the best ways to reach them — the downturn offers great opportunities to win market share for the long term,” said Eduardo Leone, a BCG partner. “But with the easy growth years over, they will have to be much more strategic in the way they target consumers and will need to make their organizations much leaner. For many companies, this will require a transformation of their Brazilian organizations.”
Source: Boston Consulting Group’s Center for Customer Insight