Also at the beginning of the 90’s, accelerating inflation, the population’s reduced purchasing power, the successive economic plans and low, and even negative (1992) GDP growth all helped to trim demand and both revenue and sales volume dropped alarmingly. Nevertheless, galloping inflation favored the giant chains, since consumers tended to make relatively few (but bulky) purchases per month and stock up. In the retail trade as a whole, financial income became a significant source of earnings, offsetting weak operating performance.

Following stabilization, low-income earners increased their supermarket purchases and the sales of low-cost items outpaced those of the more expensive products in 1995, a year in which takings and volume both began to rally. Since then, competition among the leaders has stepped up, forcing the sector to continuously improve efficiency and profits. This restructuring included the closure of smaller and less lucrative establishments, increasing the size of the more profitable ones and reducing in-house warehousing space, all part of an attempt to cut back on operating costs.

In 1997, the Brazilian supermarkets took in around US$ 46.6 billion, not even close to the figure for their US counterparts (US$ 400 billion in 1996), although well above those in Argentina (US$ 11 billion) and Chile (US$ 4 billion).

Merger and acquisition-driven consolidation is likely to continue in 1999, heating up competition even more. As a result, firms will have to find some way of not passing on increased costs from the CPMF and Cofins tax hikes to consumers.

Although perishables are not performing particularly well, they have been substantially less affected by the crisis than durables, thanks to the vary nature of the products involved (low unit value and dependent on current earnings). There has been no significant rerouting of purchases from durables to non-durables, however, since the overall economic situation is not amenable to any decline in default or unemployment, factors which have a strong direct bearing on sector performance. On the contrary, with unemployment expected to reach 12% and GDP to drop by 1.5%, we see no prospects of a reversal in falling demand this year. Sales of essential items should remain steady, but superfluous articles such as perfumery and cosmetics, electrical and electronic appliances and imports in general are likely to suffer, giving way to cheaper products and own-name items.

Consequently, we expect overall sales volume to slide by 3.0%. Competition-driven restructuring should therefore continue apace, characterized by stock rationalization, modernization and giving priority to the consumer. In this process, the biggest chains will undoubtedly have an edge due to their greater financial muscle. Nevertheless, given the slow-down, even these will probably concentrate on expanding existing outlets, including using former excess storage space for sales, rather than investing in new ones (with soaring interest rates and falling demand, high stocks mean losing money).