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."
Source: The Boston Consulting Group
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