The stark contrasts in the urban-rural divide, the widening gap between skilled and unskilled workers and the polarization of the formats and products needed by highly differentiated consumer segments at each end of the social spectrum have significantly reshaped retail and consumer strategy. This is just one of the key findings of the fifth edition of PricewaterhouseCoopers annual study, ‘From São Paulo to Shanghai – New consumer dynamics: the impact on modern retailing’, which also includes case studies highlighting practical examples from both multinational and regional players across the six specific markets of Argentina, Brazil, China, India, Poland and Russia.
All the countries in the study this year have in common a major income disparity between the haves and the have-nots. Rural populations are traditionally seen as the poorest, but a significant influx of workers to the biggest cities in the emerging markets has created an equally massive aggregation of the urban poor. Argentina, Brazil and Russia have predominantly urban populations, whereas in China, India and Poland, the majority of the populations still live in rural areas or small regional towns.
Yet, at the same time, a large shift in global consumption patterns is being driven by the dramatic growth of three increasingly powerful consumer groups. A fast-emerging, mainly urban dwelling, middle-class segment is spending less on food and groceries and more on equipping homes. At the upper end of the middle class, the new rich and upwardly mobile young are driving luxury brands and lifestyle products sales. Finally, the impact of the increasing number of working women is evident in all six countries, and is particularly marked in China, Brazil and India.
All six countries offer valuable investment opportunities for companies in the retail and consumer sector. But the development of these economies is extremely complex, as parts of the population move ahead faster than others. This is where the challenge lies, as companies are confronted with extreme diversity of income and lifestyle, even within single markets.
According to the study, the retailers that perform best in the six countries, adopt a multi-format approach and are able to adapt to the widely variant shopping patterns that can exist within regions. In general, foreign players have developed the discount segment in each of the six countries; however, in Russia, this market is dominated by domestic operators. There are also correlations of trends like the competition between the traditional supermarket and large hypermarket.
Successful expansion can be accelerated by constant innovation in tailoring products and advertising to widely different consumer segments. Knowledge of local markets is also essential and can be achieved through partnerships with domestic companies. With research and development being so crucial to innovative and successful product development, global suppliers are increasingly establishing research and development centers in emerging consumer markets. For example, a leading global company in household and personal goods sees local adaptation and innovation as the driver to organic growth and on average, introduces one new brand of product in the Chinese market every six months.
Carrie Yu, Global Retail & Consumer Leader, PricewaterhouseCoopers, said:
“Global players are becoming increasingly local-minded or ‘glocal’. On one hand, the international companies are driving the modernization of retail and consumer goods development with the introduction of new concepts, formats and products. On the other hand, local players are adopting the global best practices in their operational approach.”
The retail and consumer companies in most of the countries covered in the study place great emphasis on talent management and investment in infrastructure to support the business expansion. A leading retail group in Brazil has been constantly investing in information technology and supply chain management to improve the operational effectiveness and enhance customer relationship.
Carrie Yu added:
“Attracting, training, and retaining skilled staff continue to be a major challenge for foreign investors. This is exacerbated by the fact that in certain countries, for instance China and India, there is an increasing lack of skilled workers. Some companies are developing their own training facilities to fill this gap.”
For example, in Russia, a project has been initiated to support business schools in more than 14 cities. There is also collaboration with local leading universities in India on specific retail training programmes.
The retail and consumer sector can do a great deal to accelerate the improvement of lifestyles through modernizing supply chains, employing and training workers and selling high quality products in the countries in which they invest. Factors like the rise in the number of credit cards and growth in car ownership are all pushing consumption to much higher levels that can only favour the retail and consumer goods sector’s expansion.