Winning Omnichannel 2022 Latam - p
COVID-19 impacted everyone and every industry differently. The way we shopped was transformed. Some of the trends we have seen in previous years...
Winning Omnichannel Latam 2022
The reshape of Latin American retail
3rd edition, 2022
It looks as if the global pandemic is finally running its course, leaving behind a once familiar world that has now changed forever. The impact of COVID-19 has fundamentally shifted the way in which people live and work, how they meet, communicate and spend time together, how they eat and drink, and above all, how they shop and pay for goods and services. This has forced many FMCG brands and retailers to react to the changing needs of consumers and adapt to the ‘new normal’.
But as we leave one global crisis behind, it was inevitable perhaps that another would follow. While the end of the global health pandemic may be in sight, the spread of the economic fallout is now being felt by many regions around the world, particularly in countries that are less wealthy and more vulnerable to social, economic and political turmoil.
The pandemic has seriously impacted the world economy and will have a disproportionate effect on those living in countries that lack the necessary resources to deal with such disruption and upheaval.
Latam is bracing itself as these shockwaves hit the region. It’s expected that Latam will have a more challenging year than the rest of the world, due to rising interest rates slowing the economy even further and the instability in global commodity markets caused by the Russian invasion of Ukraine. When you add the halving of GDP growth with the doubling of inflation (from 4% to 8%) and unemployment (from 5% to 9%) then it’s easy to see why this might be the case.
Furthermore, Latam’s inflationary increases rose higher than value growth rates for the first time in three years, while price increases are 30% higher in foods vs. FMCG. We see a direct correlation between levels of unemployment and inflation and the rate of FMCG growth per country, which further compounds the economic challenges brought about by the global pandemic. Where levels of unemployment and inflation are below the regional average, consumers are better off.
The Online brings about results
in a higher growth rate to the channels
Despite the challenging socio-economic circumstances faced by many countries in the Latam region, and strict mobility restrictions, the pandemic has accelerated the growth and increased the value of online channels. The widespread digitalisation of retail shopping services provides consumers with multiple options to purchase FMCG goods, providing better range selection, convenience and ease of access. The range of online shopping services now available varies from pure online ecommerce platforms, messaging apps - including the growing use of WhatsApp - and supermarkets’ own ecommerce platforms.
As we pick up the pieces left behind in the wake of COVID-19 and face new challenges head-on, this third edition of Winning Omnichannel Latam retail takes a look at the rapid change of retail channels in the region, the impact wider online penetration is having, and the role customer segmentation will play in the future growth of the industry.
of Latam retail channels
Despite mass vaccination programmes and increased levels of immunity throughout the region, the impact of COVID-19 and the changes brought about by the pandemic in consumption habits over the last two years have not gone away. Shoppers, accustomed to mobility restrictions and difficult economic conditions, continue to spend carefully and seek out those retail channels that offer the best value for money.
From 2019 onwards, Retail has undergone significant transformation. These changes have played a key role in the speed at which channels have adapted to meet shoppers’ needs. Overall, the value index of spend per channel in Latin America increased by +26% (2021 v 2019).
The more recently developed unconventional channels, such as Specialized Stores and Pharma-Cosmetics, grew more quickly towards the end of 2021. However, growth was slower for the conventional wholesaler channel. This has paved the way forward for new retail and shopper experiences during 2022.
During this new period of retail transformation, in which Online has played such an important role in offering greater convenience for the shopper, important and mature channels, such as Traditional, Hyper & Supermarkets, experienced below average growth in 2021. This has allowed other channels, such as Convenience and Specialized Stores, to make their mark, which creates more competition between channels.
In fact, some global effects are reflected at the regional level in Latam, where Cash & Carry and Convenience experienced accelerated growth in 2021. Meanwhile, Hyper- and Supermarkets and Traditional channels saw a rapid slowdown.
Competition increases as Unconventional channels grow
Compared to 2019, the diversification of Retail has led to more than half (51%) of the growth of overall consumer spending in channels where competition is unusual. This was buoyed by three important factors; value for money, stock-up proximity and specialization.
That means that economic pressures felt in the region, which has more inflation and unemployment and less growth than the global average, influence consumer choices of where to go:
1. Shoppers demand high quality products at affordable prices
2. Channels that previously had fewer assortments available, now allow slightly larger purchase missions
3. More informal channels, such as neighbourhood stores and street markets, offer more affordable local brands at competitive prices
Retail diversification supports channel growth
Over the last two years, retail channels have supported their growth by attracting increasing numbers of shoppers in-store and online. As lockdown restrictions eased throughout Latam, stock-up missions became less important, and more frequent shopping trips allowed shoppers to purchase more brands and categories across a wider range of channels.
Digitalization and online shopping have been key to channel growth, together with in-store diversification. Offer a better experience at the point of sale through a product offering that meets the needs of buyers, which has allowed them to capitalize on each shopping trip.
Convenience demonstrates channel transformation
In-home purchases through Convenience Stores offer a useful benchmark when we talk about channel transformation. In Mexico, this channel is more important than in any other Latam country, with penetration reaching its peak in 2021.
Basket size also increased by +23% (2020 vs. 2021) with 63% penetration as shoppers are more likely to choose basic products of the Food basket and even non-core products from this channel such as Cooking Oil, Liquid Milk, Detergents and Softeners. This was a common trend in Latam countries, including Mexico and Central America, that saw growth in the number of shopping trips.
Unconventional channels choose
digital platforms in a bid to win more customers
Digital platforms have allowed unconventional channels to succeed, contributing higher growth margins than Modern Trade. In 2021, there were more than 7 million new shoppers thanks to the messaging platform WhatsApp. Pure Ecommerce platforms and delivery Apps also accounted for 2.8 million and 2.2 million new shoppers respectively, helping to increase competition with services offered by more traditional channels. Modern channels have already figured out what ecommerce platforms can do to increase access to shoppers and also to growing amounts of valuable FMCG data. Today, 75% of spending through Non Pure platforms stays in the Modern channel. As shoppers interact across more platforms and channels, retailers also have the chance to connect via several touchpoints. Note that diversifying is leading to fewer face-to-face shopping occasions (-1% in 21 vs. 20).
and growth of the ‘phygital’ shopper
The future of online FMCG in Latam remains uncertain for now, and depends on how quickly technologies, channels and shoppers evolve. However, despite the easing of COVID-19 restrictions and increased mobility during 2021, FMCG Online penetration continued to grow in all countries, with Argentina recording the highest growth (39.2%). During Q4 2021, this started to slow down throughout Latam, having sustained consistent growth throughout the year.
Widespread digitalization is a stage-by-stage process that takes time to fully develop. New shoppers will jump in, while early adopters, who are first to embrace technology, will evolve their relationship with channels as they are provided with a more efficient experience. This will result in more frequent visits and higher ticket spending.
Without a doubt, channel digitalization will be essential for consolidating the basket size of ‘phygital’ shoppers – i.e. physical and digital. Even though Latin Americans have only recently started to embrace digital, they are on their way. The FMCG environment increasingly demands that manufacturers and brands are present in both the physical and virtual worlds. If not, they are less likely to survive in the future. Understanding the behaviour of digital (and physical) shoppers and capitalizing on these opportunities is the key to staying relevant.
Online platforms raise omnichannel awareness
Today, growing numbers of FMCG shoppers are connected to more channels through digital platforms, helping to promote omnichannel awareness throughout Latam and accelerating brand growth in certain channels.
In 2021, more households were shopping online for FMCG products in every country measured by Kantar, compared with the previous year. This was highest in Argentina (39%), followed by Chile (38%) and Bolivia (35%).
This is where we are seeing a new concept emerging that will set the tone for the years to come. O2O (offline to online) is growing as shoppers migrate to channels that offer a better online experience compared with in-store encounters.
The level of co-existence between digital platforms has increased by 18% vs. 2019, while shoppers were connected to more purchase channels throughout 2021.
Consequently, shopper spend in Latam is more fragmented. So, to encourage growth, both manufacturers and retail channels must work together to design and implement an effective omnichannel strategy that aligns with the modern-day shopper’s persona.
The omnichannel shopper
will reshape the future of retail
The pandemic has allowed shoppers to become more familiar with the wide choice of conventional and new retail services. But, it is useful to try and identify the persona of this new shopper and ask what impact omnichannel will have on future industry growth.
Based on the average number of channels visited, Kantar has segmented Latam shoppers into three distinctive groups. We call these Cautious, Willing and Experienced.
Reshaping the future of retail
As digitalization evolves and shoppers are offered more diverse channels, omnichannel will continue to grow in use and popularity. But, just how influential will it be for future growth?
Over the last two years (2020/1), the percentage of ‘experienced’ shoppers has increased following the pandemic. They represent 36% of shoppers and 40% of total FMCG spend in the region. Perhaps more importantly, this group of omnichannel shoppers has contributed 79% value growth of the FMCG basket compared to pre-pandemic times. Today, they represent the most enthusiastic group of online shoppers, having adapted to new routines and embraced modern technologies.
As we look ahead to the second half of 2022 and beyond with more hope and optimism, we prepare to meet the challenges ahead, embracing new technologies and adapting to the needs of the omnichannel shopper. Today, retailers and manufacturers have the challenge of adapting their omnichannel strategies, and being present in more channels that shoppers are interacting with today and where they previously didn’t compete.
Over the last 12 months, three important developments have led to the remodelling of retail in Latin America:
1. Channel transformation and digitalization
By the end of 2021, more formats were forced to adapt to the changing habits and routines of the omnichannel shopper, which in turn led to a rapid change in the pace of channel developments in the Latam region. As we move forwards, several improvements will continue to set the tone for channel transformation. These include larger assortment, improved accessibility, wider access and more choices of new shopping missions, along with improved payment options.
2. Value for money, proximity and specialization boosted
In 2021, the wholesaler channel reached peak penetration, surpassing half of the Latin American population, while Supermarkets, Hypermarkets and Traditional Trade continued to lose ground. This loss was absorbed by the accelerated development of unconventional channels, which experienced strong growth in this new environment.
3. ‘Phygital’ and Omnichannel
Increasing numbers of different digital channels have led to shoppers being given wider exposure to FMCG brands, bringing them closer to them. This has helped accelerate brand growth and strengthened the offline to online (O2O) trend – online category growth was 10 times higher than offline, so understanding the phygital shopper journey has became more relevant than ever.
The new shopper demands more, and as digitalization continues, omnichannel strategies can improve their experience and be the key factor that facilitates and accelerates growth.
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