Brazilian Retail Market

Brazilian Retail Industry

According to the Brazilian Supermarket Association (Associação Brasileira de Supermercados), or ABRAS, the Brazilian retail food industry represented approximately 5.2% of Brazil’s GDP in 2018, and the food retail industry in Brazil had gross revenues of approximately R$356 billion in 2018, representing a 0.7% nominal increase compared to approximately R$353 billion in 2017.

The Brazilian retail food industry is highly fragmented. According to ABRAS, the five largest supermarket chains that disclosed their revenues to ABRAS represented approximately 37.0% of the retail food industry in 2018, as compared to 39.7% in 2017 and 40.6% in 2016. Our consolidated gross sales represented 15.1% of the gross sales of the entire retail food industry in 2018, as compared to 13.8% in 2017, also according to ABRAS.

According to data published in February 2019 by the IBGE, the volume of sales in the food retail sector increased by 4.4% in 2018 compared to 2017.

The cash and carry segment was created in order to serve customers within a market niche that was neither reached by self-service retail nor by direct wholesale. According to data published by The Nielsen Company (US), LLC, or Nielsen, in February 2019, the cash and carry segment in Brazil experienced an increase of 13.9% in sales and 12.8% in volume, respectively, in 2018.

According to the IBGE, the total population of Brazil was approximately 209 million in 2018, representing a 1.4% growth since 2016. Given that more than 84% of the population lives in urban areas (where most of our operations are located) and the urban population has been increasing at a greater rate than the population as a whole, our business is particularly well positioned to benefit from Brazil’s urban growth and economies of scale related to urban growth. According to an IBGE survey, in 2018, the city of São Paulo had a population of approximately 12.2 million and the city of Rio de Janeiro had a population of approximately 6.8 million. These are the two largest cities in Brazil. The state of São Paulo has a total population in excess of 45 million, representing 22.0% of the Brazilian population and is our largest consumer market, with 709 stores as of December 31, 2018. The state of Rio de Janeiro is our second largest consumer market,with 141 stores as of December 31, 2018.

During 2018, private consumption in Brazil increased 1.9% while the country’s GDP increased 1.1%. The GDP increase was mainly due to growth in the services segment, especially with respect to the performance of the retail and real estate sectors.

The following table sets forth the different income class levels of Brazilian households, according to the Consumption Potential Index (Índice de PotencialdeConsumo),or IPC Maps 2018 published by IPC Marketing Editora.

Class Level Average Monthly Income (in R$)
A 20,888
B1 9,254
B2 4,852
C1 2,705
C2 1,625
D/E 768

According to a study by IPC Maps 2018, class A households account for only 2.6% of all urban households and classes B1 and B2 households account for 22.3% of all urban households. Classes C1 and C2, the most representative in Brazil, collectively represent 48.2% of all urban households and classes D and E collectively represent 27.0% of all urban households. In recent years, the number of class C, D and E households has increased in terms of total urban households and their average purchasing power has increased.

We expect that increased consumption by the lower income class levels will occur over time as a result of gradual salary increases and a steadily growing population. The Brazilian monthly minimum wage increased 4.6% from R$954 in January 2018 to R$998 in January 2019.

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