Consumer Insights Latam: A turning point for FMCG

FMCG consumption across Latam has reached a turning point. In Q2 of 2018, for the first time in ten years, volume consumption in the region did not grow – in fact it shrank by -0.1%, following an increase of 0.5% in Q1. This is not great news for the industry, and we expect that growth for the FMCG sector for 2018 as a whole will not exceed 2%.

Spend on FMCG products has also slowed down, rising just 1.6% in Q2. This is lower than the rate of inflation, which is forecast to reach 3.6% over the year.

The erosion of the value of FMCG baskets is due to shoppers switching to different brands in order to control their budgets, choosing private labels and low-priced economy brands over premium brands. Many households are buying the same categories in the same volumes, but spending less. This has hit premium brands hardest: they have lost 2% of their market share in the last three years.

Unemployment across Latam remains high at 8%, while inflation has now stabilised at 3.6%. This has had an impact on the way people are buying, leading to declines in consumption in half of the countries in the region. These include Mexico (-3.9%), which has suffered the effects of steep price increases, and Venezuela, where volumes declined most sharply at almost -16% in Q2.

The markets which are growing are doing so at a very conservative rate. Brazil continues to be an engine of growth, but even there the volume increase was a modest 1.6%. It was Colombia that grew the most during Q2, with a rise in consumption of 3.5%, while Chile continues to recover from its -3.2% drop in 2016 with growth of 3.8%.

At first glance, the figures tell us a story of a market that is flat, with not much change happening. This could not be further from the truth, however: there have been a number of major, fast shifts within the Latam FMCG market, in shopper habits, the types of brands being bought, and the channel landscape.

A new rhythm: larger and less frequent purchases

Shoppers in most Latam markets are making fewer trips, but buying greater quantities of FMCG products each time. This means each visit becomes more important for retailers and brands, as they have fewer touchpoints and opportunities to interact with consumers. 

Shoppers are choosing necessities first

In terms of the FMCG basket, beverage volumes are declining in most countries, while food is performing slightly better, as people prioritise the essentials. In Q2 there was a slight improvement in volumes in the personal care category, following a rebound in Colombia and Argentina.

They are also changing the brands they choose

Consumers are downgrading to private labels and economy ranges, and as result the premium brands’ market share has dropped from 25% to 22.7% since 2015. Mainstream brands still retain a 58% share.

Private labels hold 3.6% of the market

Following sustained growth over three years, private labels now have a 3.6% share of the FMCG market across Latam. In Colombia they have hit a record high, doubling their share since 2015 to reach 15%, and they are also growing in Central America (8% share), Chile (6%) and Argentina (5%). Private labels perform best in the food and home care categories, although the biggest win is in dairy, where they now comprise 3.5% of all products bought.

The retail landscape is evolving at speed

New formats and new local players have changed the retail structure across Latam, in particular wholesalers, discounters, regional chains and pharmacies. Dollar City is expanding rapidly in Colombia, while ´ferias´ and distributors have grown their share in Chile, and 'tianguis' (open-air markets) are increasingly popular among lower income families in Mexico.

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