Colombia: discounters D1 and Ara take market share from neighborhood stores
Updated: Aug 31, 2022
Discount Retail Chain Ara (owned by the Portuguese Jerónimo Martins), and Colombian discounter D1 (owned by the Colombian Valorem Group), the strongest, with sales of more than US$2.6 billion in 2021 and recently celebrated the opening of its 2,000th store.
Unlike other Latin American countries, this business model that has been operating since 2009 in Colombia is the first in terms of penetration, a position that it gains according to the most recent data for this year.
Jaime García, Country Manager of Kantar Worldpanel Colombia division, explains that the level of penetration of these chains that are in the neighborhoods of several municipalities in the country reaches 92%. "That means that 92% of the country's population, in the sample that we represent, which is 80% of urban coverage, already visits a hard discount at least once a quarter," he says. And he points out that a year ago that 4% difference corresponded to buyers who did not go to these stores to stock up.
Meanwhile, the neighborhood stores that “resisted” for years and that seemed unbeatable remained at the end of March 2022 at 88% penetration.
This hard discount channel also leaves behind the large chains that reach 65%, say studies by Kantar.
Another piece of data that shows the progress of this commerce format has to do with the purchase frequency, which has increased by 20% compared to 2021. Meanwhile, in mass consumption, this variable has decreased by 3%. "What people are doing is going to buy less often but they go to the discounter more often, so they build loyalty in the channel," says Jaime García.
When reviewing the growth that the discounter has, in value it was 7% for the first quarter, while in the period January-March 2021 it was 15%.
“The discounter is already reaching a very high level of penetration, so its growth rate is slowing down, but in a market where the context is complex in terms of higher inflation, there is a willingness of the homes to cheaper brands”, according to García.
In fact, 61% of households are stating that they are willing to prefer them due to the situation. In addition, 55% of households are concerned about the increase in prices of goods and services and when looking particularly at this concern in food and beverages, this percentage reaches almost 66%.
Inflation has increased 4.3% so far this year and the increase in prices of the mass consumption basket in the first quarter of the year is 19%, that is very strong, he adds.
Households express concern in line with the possibility that this price increase translates into lower volume, a challenge for brands and their plans to grow.
“This price increase would benefit discounters because if you look at the share of the entire household budget in the last quarter of 2021 it was 19% and in the first quarter of 2022 it grows to 20.8%. Earn a point of participation in the most critical period of inflationary growth”, concludes Jaime García.
TIME IN FAVOR OF THE WHITE MARKS
To ease the family economy, own brands manufactured by merchants are a solution because they generate savings. Although Tiendeo makes a general analysis of this phenomenon without discriminating the channel, it is true that the hard discounters have a strength with their offer.
Faced with an increase in prices, consumers tend to make fewer purchases and opt for what, offering similar quality and characteristics, have a significantly lower price, which is why the so-called white brands have been a kind of refuge from the crisis.
On the other hand, the effect that promotional offers have in motivating consumers to go to the store is indisputable. In this regard, Sergio San Martín, Country Manager of Tiendeo, specifies that "as a result of the rise in prices of basic products and in the face of this new economic situation, retailers and brands are designing more aggressive campaigns".
He assures that "to encourage consumption, in the first 4 months of the year, manufacturers and retailers have redoubled their efforts, increasing their promotions up to 76% compared to the previous year, hoping to arouse the interest of the consumer to go to their point of sale and not to that of the competition”.
They also apply a promotion on "hook" products (such as those of the basic basket or more expensive), adjusting their prices and placing them at the entrance of the stores or on the cover of their promotional brochures. Thus, in addition to capturing attention, it can also generate interest in carrying other products.
According to Tiendeo, food and beverages have been the categories that have been most affected by the effects of inflation, with a variation of 25.37%. The analysis shows that products such as milk have had a price increase of 56%, eggs (40%), avocado (31%), white bread (22%) and vegetable oil (18%). This brings a considerable rise in the average household spending at the time of doing the market or, on the other hand, the cut of some less necessary products at home.
See here for more: https://www.portafolio.co/negocios/empresas/discounter-desbancan-en-trafico-a-tiendas-de-barrio-565793?utm_content=Contenido_Portafolio&utm_medium=Social&utm_source=Facebook&fbclid=IwAR3dKAoEn2SGkK4tU_O09VSi9oyeqz1aCPjUi0zKnQO1zw6bv3jnPrDoaB8#Echobox=1653318235%20%20--