The transformation 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.
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
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.
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.
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).
