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.FEBRUARY
2001
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Snack
Foods
The business news headlines across Latin America tend to focus on industries like telecom, energy, banking and the automotive sector. Often ignored by the media, the food industry continues to quietly grow and prosper, year after year. The snack food segment, in particular, has enjoyed nothing less than spectacular growth over the past five years. Companies in this segment have prospered even in the face of devaluations and recessions in all of the region's major markets over this period.
Global players like Nabisco, Frito-lay, and PepsiCo all report that Latin America is the fastest growing region in their global empires. Growth is driven by societal changes that stimulate demand, combined with more aggressive supply channels that offer consumers a broader range of choices. In the final analysis, most snack food items are unplanned impulse purchases. As Roger Enrico of PepsiCo notes: "…With more variety, more people will consume the product. You put more merchandise in to get more sales out." Cultural change drives demand Lifestyles are changing in urban Latin America. The proliferation of large cities and the traffic they generate forces people to spend more time commuting to work. So they have less time for traditional home-prepared mid-day meals. In Mexico, the government declared in 2000 that it would shorten the government "comida" break from 3 hours to 1.5 hours. Though the new schedule has yet to take hold, the motives behind the change remain. By reducing the length of the lunch break, people will avoid the double commute each day, raising productivity. As a result, smaller packed lunches and heavy doses of snack foods are gradually replacing the full mid-day meal. The Latin American working and middle classes can no longer afford to live on one household income. In spite of all the wishful thinking, the middle has shrunk over the last 20 years, not expanded. Real wages have dropped by 20%-to-50% in countries throughout the region. That forces both parents (and often teenagers) into the workplace, leaving no one at home to prepare meals. Relying on street food and snack food has become the norm for the working class Latin American. In a recent study of work schedules, white collar workers in cities like Sao Paulo, Buenos Aires, Santiago, Mexico City, and Lima all worked longer hours than their counterparts in New York, London, and Paris. More hours in the office means more snacking. In 1990, only 4% of Latin Americans claimed to be on a diet. In 2000, the proportion went up to 12%. Ironically, dieters are more likely to eat snack foods, because of their specific nutritional content (low fat bars, etc) or simply because they tend to skip meals and need to snack.
. Traditional tastes have staying power Building brands in Latin America requires enormous investment in marketing and advertising. This is partly because television, controlled by one or two companies in each market, is an expensive advertising medium. Furthermore, brand names do not easily cross borders. Argentines are neither aware nor attracted to brands developed in neighboring Chile and Brazil. Foreign food brands from the US and Europe rarely penetrate beyond the upper classes of Latin American society. Latins will experiment with new flavors that are introduced, but they inevitably return to their roots. To think that Mexicans will stop eating chile or Brazilians will stop drinking Guarana is underestimating the strength of the region's cultural icons. In fact, more Americans are adopting Latin flavors into their diets than vice-versa.
Large retailers dominate distribution Supplier consolidation and takeover by multinationals is in part driven by a similar pattern in retail channels. Before the 1990s, Latin America's snack food distribution was divided roughly evenly between large retailers, small retailers and informal channels such as street stands, street markets, and roaming street vendors. Today, the retail landscape looks very different. Large retail chains including supermarkets, discount stores, and convenience chains hold a 55% market share. Small independents have fallen to 20% with the informal market holding onto a share of about 25%. Selling to large retail chains requires huge marketing, advertising, and POP promotion commitments on the part of suppliers. With between 3 and 5 retail groups controlling each market, retailers dictate onerous payment terms ranging from 90 to120 days. Alternatively, they demand discounts of 2% or more per month for earlier payment. Retailers make almost as much on the financing terms extracted from suppliers as they do on operating margins. Competing in such an environment is next to impossible for all but the largest suppliers. Future growth potential is strong All signs point to continued growth in Latin America's snack food industry. In spite of supplier consolidation, more product and more variety is reaching more points of sale across the region. Latin Americans, perhaps lamentably, are modernizing their eating habits, cooking less and snacking more. In spite of rapid consumption growth in recent years, per capita consumption is still tiny compared with levels north of the Rio Grande. For most product categories, per capita consumption between the two markets is not very meaningful. But food and beverages defy such thinking. Just ask Coca-Cola. Latin America is their largest global division thanks to the fact that Mexico and Brazil are their 2nd and 3rd largest soft drink markets. Snack food sales will have to double or triple to achieve half the success of soft drinks in Latin America. That's a lot of room for growth.
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INDUSTRY
ANALYSIS
