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2.3. Distribution and Import Channels

Overall Retail Scene

The large pool of consumers in Brazil gives rise to one of the world’s largest retail markets. Retail sales have been growing vibrantly in recent years, and are expected to continue in the medium to long term. The continued expansion of real wages has helped further sustain the rising demand for consumption goods in general, while improving credit conditions have fomented the demand for durable consumer goods in particular. More importantly, the expanding middle-class base and their willingness to spend also bode well for the development of the retail sector in Brazil, which for the time being is still considered outdated and fragmented.

Retail Sales by Sector: 2003-2007 (in billion Brazilian real)

 

2003

2004

2005

2006

2007

Stored-based retailing

204.2

240.5

271.1

296.0

326.5

 Grocery

82.3

93.8

100.3

110.9

121.2

 Non-grocery

121.9

146.7

170.8

185.1

205.3

Non-store retailing

8.8

11.3

13.7

16.7

20.6

 Vending

0.04

0.04

0.05

0.05

0.05

 Homeshopping

0.73

0.80

0.86

0.91

0.97

 Internet retailing

1.23

1.70

2.35

3.61

5.50

 Direct retailing

6.84

8.78

10.42

12.13

14.03

Total

213.0

251.8

284.8

312.7

347.1

Source: Euromonitor

Leading Grocery Retailers

(by sales value)

Cia Brasileira de Distribuição

Carrefour Comércio e Indústria Ltda.

Wal-Mart Brasil SA

Sonae Distribuição Brasil SA

Cia Zaffari Comércio e Indústria

Sendas Distribuidora SA

 

Leading Non-grocery Retailers

(by number of outlets)

Casa Bahia Comercial Ltda

Globex Utilidades SA

Arthur Lundgren Tecidos SA – Casas Pernambucanas

Lojas Americanas SA

C&A Modas Ltda

 

In the period 2003-2007, Brazil’s retail sales recorded a 63% growth, demonstrating a compound annual growth rate (CAGR) of 13%. Stored-based retailing increased by 60% between 2003-2007, while non-store retailing (though insignificant in terms of industry share) grew by nearly 134% over the same period, with internet retailing and direct selling demonstrating a CAGR of 45% and 20%, respectively. Regarding its structure, the Brazilian retail market is considered fairly organised, when compared with other emerging markets, with the top 20 retailing companies representing some 25% of the total market sales in 2007. Apart from numerous small-scale and unorganised street retailers, major retailing channels in Brazil, as at the end of 2006, included 260 shopping centres/malls, 352 hypermarkets, 2,274 supermarkets, 215 discount stores, 3,821 convenience stores, 29,702 independent grocers, 143,408 food/drink/tobacco specialists and 211,791 other grocery retailers.

The Brazilian Retail Market – Grocery Retailers

Remark: Percentages shown above are calculated according to sales value.

Source: Brazilian Association of Supermarkets (ABRAS), Euromonitor

Hypermarkets and Supermarkets

Hypermarkets and supermarkets are important players in the Brazilian retail industry. According to the Brazilian Association of Supermarkets (ABRAS), supermarket sales have continued to grow in recent years. As per the latest statistics, supermarket sales expanded by 5.9% year-on-year in real terms in 2007. Major hypermarkets and supermarkets in Brazil include Pão de Açúcar, Extra, Carrefour and Wal-Mart. In recent years, more and more hypermarkets and supermarkets have forged partnerships with banks or financial institutions to offer wider choices of credit facilities to their customers such as private label credit cards. Some typical examples include Brazil’s largest private bank, Bradesco, collaborating with the country’s biggest retail chain, Casa Bahia; and the second largest private bank, Itau, entering a partnership with Pão de Açúcar, the country’s leading supermarket chain.

With their vast distribution networks, these large retailers are certainly good business counterparts with whom Hong Kong exporters should make contact. However, many of these hypermarket/supermarket chains are international retailers which adopt global sourcing, Hong Kong exporters need not fly to Brazil, but approach directly their regional offices or agencies in China or other Southeast Asian countries for business. While these regional sourcing offices or agencies could become direct customers for Hong Kong exporters, Hong Kong companies, however, cannot take it for granted that they will automatically receive Brazilian orders from their current contacts. It is not uncommon for these sourcing offices or agencies to have a separate operation to deal with purchasing for the Brazilian as well as other Latin American markets, due mainly to the differences in consumer demand. Hong Kong companies should therefore locate clearly the right potential sourcing offices or agencies to which they can most effectively promote and sell their products.

Shopping Centres and Malls

Shopping centres and malls are another major distribution channel in Brazil. According to the Brazilian Shopping Centres Association (ABRASCE), they attract over 175,000 visitors per month, contributing 18% of Brazil’s retail turnover every year. These shopping centres and malls are largely clustered in the southeast region, responsible for 61% of all the shopping centres and malls in the country. The commonest type is full-serviced shopping centres, which include anchor stores, flagship stores, restaurants and movie theatres. As per ABRASCE’s estimates, over 90% of shopping centres nowadays provide entertainment and leisure areas, while beauty salons, medical and fitness centres are becoming more commonplace as Brazilian consumers are being more conscious about health and personal care.

Selected Major Shopping Centres and Malls in Brazil

Location

Centre Name

São Paulo

Iguatemi

São Paulo

Morumbi

São Paulo

Metro Tatuape

São Paulo

Pátio Higienópolis

Rio de Janeiro

Rio Sul

Rio de Janeiro

Barra da Tijuca

Rio de Janeiro

Gavea

Minas Gerais

BH

Minas Gerais

Diamond Mall

Minas Gerais

Pátio Savassi

Nowadays, many retailers (especially chain stores) in large-scale shopping malls sell goods manufactured via OEM arrangements with China. Other than supplying to OEM clients, Hong Kong exporters who want to market their own-brand products, however, can, for example, arouse buyers’ awareness by advertising in the specialised magazine published quarterly by ABRASCE.

Informal Channels

Like many emerging markets, “informality” is commonplace in the Brazilian retail industry. It is estimated that over 55% (in terms of number) of the retailers in Brazil are informal. This is especially true among retailers selling consumer goods such as clothing, spectacles, electronic products, household electrical appliances, watches and clocks. The informal market is said to have hindered the growth of the Brazilian retail sector, as informal retailers can offer prices as low as 20% of the price charged by formal retailers for a similar brand-name item. Other than a large number of street retailers (including cross-border traders), the informal market is largely characterised by some commercial streets/clusters. The presence of such an informal sector suggests that Hong Kong companies should not focus on low-end products, but products with better and fancier design.

Major Commercial Clusters in São Paulo

Product Categories

Location

No. of Stores

Garments and Footwear

Bom Retiro

Rua José Paulino

Rua Maria Marcolina

≈ 400

≈ 500

Wedding Dresses

Rua São Caetano

≈ 50

Electronics, Gifts, Toys, Christmas Decorations, Party Customs, Decorations

Rua 25 de março

≈ 400

Electronics, Electronic Components and Audio-visual equipment

Rua Santa Ifigênia

≈ 400

Lighting and Lamps

Rua da Consolação

≈ 100

Auto Parts & Accessories

Av. Duque de Caxias

≈ 100

Motor Parts & Accessories

Rua Barão de Limeira

≈ 100

The most cited reason for informality is domestic taxation and heavy import tariffs, which can be as high as more than 90% on top of the CIF value. Apart from the traditional and costly red tape to import and certify products, the business-deterring labour laws (an employee can cost about 2.5 times his salary in government determined benefits and other taxes) further discriminate formal retailers.

Wholesalers and Importers

While the Brazilian retail sector is fairly organised, national and regional wholesalers, as well as large-scale buying co-operatives, are not commonplace in Brazil. Yet there is a mesh of small and medium-sized companies engaging in foreign trade. As of the end of 2007, there were some 28,900 importing companies in Brazil, although they are falling in number, compared with around 35,600 in 1997.

Importing Routes

For goods exported from Hong Kong to Brazil, most importers now have the goods delivered directly to major Brazilian ports. On average, it takes around 30 days for goods shipped from Hong Kong to arrive at ports in Brazil. Major transit points for sea freight from Hong Kong to Brazil are South Africa (Durban, Port Elizabeth and Cape Town) and Asia (Singapore, Port Kelang (Malaysia) and Tanjung Pelepas (Malaysia)).

Major Ports in Brazil

Ports

Santos

Vitória

Paranaguá

Rio Grande

Sepetiba

Source: SECEX/MDIC

Major ports in Brazil include Santos, Vitória, Paranaguá, Rio Grande and Sepetiba. With its modern technical resources for cargo movement, the port of Santos is considered the biggest port in Latin America. In 2007, it recorded a 5.9% growth in freight traffic, with more than 80 million tonnes of cargo passing through its terminals, compared to 76 million tonnes in the previous year. Regarding shipping costs, the average cost of shipping a 20-foot container to the port of Santos from Hong Kong is around US$2,100, while the average shipping cost to the port of Sepetiba in Rio de Janeiro is about US$2,500. In general, non-time-sensitive and bulky products, such as finished electronic and electrical products, are usually shipped by sea, while small but more expensive items such as electronic parts and components, and fast-moving consumer goods are usually delivered by air to Brazil.

Since Brazil shares borders with almost all South American countries, except Chile and Ecuador, it further provides plentiful trade opportunities to neighbouring countries. In particular, owing to its landlocked geographical location, Paraguay depends very heavily on Brazilian consumers. Being one of the founding members of Southern Cone Common Market (Mercosur) and members to various treaties, Brazil has granted free ports to Paraguay. The most important of these free ports is the one at Paranaguá on the Brazilian Atlantic coast, while the Friendship Bridge over Rio Paraná at Foz do Iguaçu (a city in the Paraná state, Brazil) provides Paraguayans land access to Paranaguá. A commercial hub is therefore being developed near Ciudad del Este (a major trading city in Paraguay) and Foz do Iguaçu. In 2007, bilateral trade between Brazil and Paraguay totalled US$2.1 billion.

Apart from the formal channel, being one of the poorest countries in Latin America, Paraguay has a large informal sector characterised by re-exports of electronics, toys and clothing to neighbouring countries, such as Brazil and Argentina. According to industry sources, most of these re-exports are supplied to “informal” retailers in Brazil. The Paraguayan city, Ciudad del Este is widely considered one of Latin America’s most popular cross-border trading centres, with informal traders (“sacoleiros”) dealing in almost all types of products through the Friendship Bridge over Rio Paraná.

Other than Paraguay, to the south of Brazil, along the border with the city of Rivera, Uruguay, Santana do Livramento (a city in Rio Grande do Sul, Brazil) is also a shopping paradise for low-end and mid-range Brazilian consumers to buy cheap imports (mainly electronics and electrical appliances) from Uruguay. According to some active traders in both Ciudad del Este and Livramento, consumers can buy a digital camera of 5.1 mega pixels for US$240 and a DVD player for less than US$80[1]. While most people shopping in Livramento are consumers, people shopping in Ciudad del Este are mainly dealers who are buying to resell.


[1] For comparison, a Sony 5.1 mega pixels costs US$350 and a DVD player costs US$100 in formal retail outlets in Brazil.

Content provided by Hong Kong Trade Development Council
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