Inside the minds and pockets of
Latin American consumers
How consumers build price perception and its
impact on retailers
Research launched for:
The Coca-Cola Retailing Research
Council Latin America by:
McKinsey&Company
THE COCA-COLA RETAILING RESEARCH COUNCIL – LATIN AMERICA
The Coca-Cola Retailing
Research Council – Latin
America (CCRRC - LA) is
dedicated to developing a
better understanding of
the food retailing and
allied merchandise
distribution business in
Latin America. It
concentrates in
identifying and then
studying selected
relevant issues,
presenting its findings to
the manufacturing and
retailing communities, in
order to assist in the
development and
enhancement of the food
retailing business.
Latin America Council
Members
Jonathan Berger
CIES USA
Howard Butt III
HEB Mexico
Guillermo D'Andrea
Council Research Director
Ana Maria Diniz
Grupo Pao de Acucar Brazil
Paulo Goelzer
IGA, Inc. Brazil
Antonio Coto Gutierrez
Dia Internacional Argentina
Tim Hammonds
FMI USA
Nicolás Ibáñez
D&S Chile
Gonzalo Restrepo
Éxito Colombia
Eduardo Castro Wright
Wal*Mart Mexico
1
REVIEWING THE STUDY GOALS AND OBJECTIVES
Overall goals and focus level
Specific objectives
Understand how price ranks among the key factors in the consumer
preferred store selection process*
90% of study focus
Understand the drivers
of consumer price
perception in Latin
America
Understand the relative importance of different drivers of consumer price
perception, across major consumer segments, product categories,
shopping occasions* and selected markets
Match consumer price perception with reality to understand which are the
most effective levers for retailers
10% of study focus
Understand the
implications of pricing
approaches on retailers
and manufacturers
Source:
Team analysis
Understand high level implications for retailers in terms of organization,
supply chain and vendor relations
Understand high level implications for manufacturers in terms of
capabilities and requirements to deliver under different retailer price
approaches**
2
THE STUDY LEVERAGED THREE MAIN SOURCES OF INFORMATION
In-depth interviews
Methodology
• ~15 in-depth
interviews with
executives of key
retailers in the region
Objective
• Understand retailer
perspective on
consumer price
perception
Consumer survey*
• Qualitative survey
– Focus groups to test
initial hypothesis
• Quantitative survey
– ~3,000, 30-minute
interviews
ACNielsen database
• Correlate consumer
research results with
AC Nielsen scantrack
information
• Capture insights on
• Enrich findings with
consumer price
perception
• Segment consumers
AC Nielsen proprietary
databases
• Match price perception
with actual prices
* AC Nielsen conducted the focus groups in São Paulo and the field research in all five markets
Source: Team analysis
3
CONSUMER SURVEY DETAILS
Mexico City
• 612 consumer surveys
• 6 retailers (90% market share)
• 30 categories (~3,000 SKUs)
São Paulo
Bogotá
• 673 consumer surveys
• 6 retailers (90% market share)
• 30 categories (~3,500 SKUs)
• 600 consumer surveys
• 13 retailers (87% of the market)
• 30 categories (~2,500 SKUs)
Buenos Aires
Santiago
• 600 consumer surveys
• 11 retailers (95% market share)
• 30 categories (~3,700 SKUs)
Source: AC Nielsen, team analysis
• 600 consumer surveys
• 11 retailers (70% market share)
• 33 categories (~2,500 SKUs)
4
ONLY CONSUMERS WHO SHOP REGULARLY IN AT
LEAST ONE MODERN FORMAT STORE ARE
RELEVANT FOR OUR ANALYSIS
Considered for our analysis
• Typically low-end consumers
Consumers who
only shop in
traditional format
• Useful to gain insights on the low-end market,
already studied by CCRRC
• Analysis more useful in a study to increase the
penetration of modern format, what is not the
scope of this project
Consumers who
shop in it least
one modern
format* store
regularly
• Primary population of interest for the CCRRC
• Only respondents able to provide answers and
crossable data for:
– Accuracy of price perception
– Price perception drivers for modern format
– Effectiveness of promotional activity in price
perception building
* Includes hypermarkets, supermarkets, mini-markets and suburban supermarkets
Source: Team analysis
Our sample is
representative
of modern
format shoppers
5
THE CONSUMER SURVEY IS REPRESENTATIVE OF THE MAIN SOCIOECONOMIC CLASSES AND AGE GROUPS
%
Age
Socio-economic class*
High
50+ years
17
23
21-34
41 years
36
35-49
years
43 Low
40
Middle
Results take into
account the behavior
and attitudes of low
income consumers
* Based on AC Nielsen socio-economic classification for each market
Source: Consumer survey
6
COUNTRY-LEVEL ACCEPTED STANDARDS GUIDED OUR INCOME LEVEL
CLASSIFICATION
We adopted the principles suggested by the National Marketing Associations of each country
High
income
São Paulo
Buenos Aires
Mexico D.F.
Santiago
Bogotá
•A
• AB
• C1
• ABC+
• ABC1
• Clase alta
• Clase média
alta
Middle
income
•B
•C
• C2
• C3
•C
• C2
• C3
• Clase média
Low
income
•D
•E
• D1
• D2
•E
• D/E
•D
• Clase baja
67% of modern format
shoppers in São Paulo
belong to classes B and C,
classified as middle income
Source: AC Nielsen, National Marketing Associations of each country
7
KEY TAKEAWAYS FROM STUDY
1. Latin America: diversity of consumers, and not just
in the depth of their pockets
2. The few key levers that matter in building price
perception – and the one that doesn’t
3. Consumers (mostly) getting it right in their search
for value
4. Retailers have an opportunity to get it right more
often in their search for a better price proposition
8
CONSUMERS IN LATIN AMERICA CAN BE SPLIT INTO FIVE MAIN
SEGMENTS
"High-income
bargain hunters"
"Range-seekers on a
budget"
High income
consumers who are
willing to visit
multiple stores to find
the best deals
Want to bring home the
best quality products,
but limited by a tight
budget
"Avid bargain hunters"
Invest a lot of time
and are willing to visit
multiple stores for the
best deals
Source: Consumer survey, team analysis
“Indifferent shoppers
on a budget"
Do not care about
shopping, hence invest
little time in it
"Quality seekers and
time savers"
Willing to pay a slight
price premium to save
time and have access
to high quality
products
9
WE RAN A TWO-STAGE CLUSTER ANALYSIS COMBINING ATTITUDINAL
AND SOCIO-DEMOGRAPHICS ELEMENTS…
Attitudinal elements (most
common method)
Ran 20+ statistically
relevant scenarios
Selected 1
scenario with 5
clusters
• Clean and intuitive attitudes
across all segments
Sample of 3,084
consumers in
5 countries
• Lacks actionability (difficult to
find consumers)
• Selected 4 most
Two main
segmentation
drivers
Two-stage cluster analysis
• Combines both methodologies
to reach meaningful and
actionable segments
• Process* developed and
refined by McKinsey experts for
segmentations with strategic
objectives
robust scenarios
• Crossed with
shopping behavior
– Key buying factors
– Average monthly
spend
– Format of main
store
Socio-economic/ demographics
• Simple way to segment, facilitate
identification
• Lacks insights and does not reflect
attitudes
* Note that none of the elements are unique, however, this methodology provides managers with unprecedented control over the process,
by allowing maximum managerial input and the testing of early hypothesis
Source: Team analysis
10
…ALLOWING THE IDENTIFICATION OF SOME CONSUMERS TO
WHICH SEGMENT THEY BELONG
• Low income level
• Age 21-34 years old
• Only one person on
the household
84% probability that
this person is an Avid
Bargain Hunter
Source: Team analysis
EXAMPLE
• Middle income level
• Large household
• Shops primarily on
hypermarkets
86% probability that this
person is a Range
seeker on a budget
11
INCLUDING A HANDFUL OF ATTITUDINAL STATEMENTS, ONE
CAN IDENTIFY MOST CONSUMERS
Would you
sacrifice service
for lower prices?
EXAMPLE
Yes
Probability of 64% to
be an “Indifferent
shopper on a budget”
Age group
67
21 - 34
35 - 49
50+
Would you spend
a lot of time
looking for offers?
Source: Team analysis
No
65
59
A handful of attitudinal
statements allow us to
identify over 50% of all
consumers
12
AVID BARGAIN HUNTERS
• Typically low income
• Disproportionate number of
males and older
consumers (50+ years old)
What do they value?
• Shopping around for the best deals
• Purchasing only products they had
•
•
•
planned on
Willing to sacrifice services for lower
prices
Spending a lot of time looking for
promotions
Shopping in larger number of stores
recently
Monthly
spend
Source: Consumer survey, team analysis
• Lowest average expenditure
when compared with other
segments (~12% below
market average)
Format
• Rely less on modern formats
Shopping
behavior
• Less likely to do stock-up
What do they not value?
• Paying more to shop close to home
• Paying more to save time
• Paying more for higher quality
How do they behave?
– When shopping on modern
formats, tend to prefer
discounters
trips
• Always compare prices at
different stores
• Tend to be the least loyal
consumers
13
AVID BARGAIN HUNTERS
14
HIGH INCOME BARGAIN HUNTERS
• Typically high income
consumer
• Average age and
household size
What do they value?
• Shopping around for the best deals
• Stocking-up when they find attractive
•
•
promotions
Going to a grocery store they hear is
offering good specials
Shopping in more stores recently
How do they behave?
Monthly
spend
(~16%) than the
average spend on
groceries
Format
• Rely more on modern
format stores
– Tend to prefer
hypermarkets and
avoid shopping on
discounters
What do they not value?
• Paying more for the convenience of
shopping closer home
Shopping
behavior
Source: Consumer survey, team analysis
• Tend to spend more
• Tend to have higher
loyalty than average
(São Paulo is the
exception)
15
HIGH INCOME BARGAIN HUNTERS
16
RANGE SEEKERS ON A BUDGET
What do they value?
• Getting good quality products and a large
•
•
assortment
Stocking-up when they find attractive
promotions
Providing the best possible quality for
their family, despite their tight budget
• Typically young, low
income mothers
• Large household (6
or more people)
Monthly
spend
How do they behave?
• Tend to spend less (~6%)
than the market average on
groceries
Format
• Tend to shop more on
hypermarkets
What do they not value?
• Sacrificing services for lower prices
• Shopping at upscale stores
Shopping
behavior
• Highly price sensitive
• Tend to make fewer trips
(São Paulo is the exception)
and stock up once a month
• Normally below average
loyalty
Source: Consumer survey, team analysis
17
RANGE SEEKERS ON A BUDGET
18
INDIFFERENT SHOPPERS ON A BUDGET
• Typically low/
middle income
What do they value?
• Sacrifice service for lower prices
Monthly
spend
How do they behave?
• Tend to spend ~10% less
than the market average
on groceries
Format
modern format stores
– When shopping on
modern formats, tend
to choose hard
discounters
What do they not value?
• Spending time looking for deals
• Stocking-up when they find good
•
promotions
Reading store pamphlets
• Tend to rely less on
Shopping
behavior
• Tend to shop less
frequently
• Display relatively high
loyalty to their main
grocer store
Source: Consumer survey, team analysis
19
INDIFFERENT SHOPPERS ON A BUDGET
20
QUALITY SEEKERS AND TIME SAVERS
• Typically high
income consumers
• Small families
What do they value?
• Saving time rather then money
• The convenience of shopping closer to
•
home
Higher quality, even at higher prices
How do they behave?
Monthly
spend
Format
• Highest average basket,
~22% higher than market
average spending on
grocery shopping
• Rely primarily on modern
format stores
– Willing to shop more on
supermarkets
What do they not value?
• Spending time looking for promotions
• Shopping in many stores to pay less
Shopping
behavior
• Tend to shop less frequently
• Tend to be the most loyal
segment in all markets
• Rarely compare prices
Source: Consumer survey, team analysis
21
QUALITY SEEKERS AND TIME SAVERS
22
RELATIVE SIZE OF THE SEGMENTS IN THE REGION
Number of respondents
100% = 2,818
High-income
bargain hunters
Avid
Bargain
Hunters
18%
22%
Quality
seekers and
time savers
18%
23%
Range-seekers
on a budget
19%
Indifferent
shoppers on
a budget
Source: Consumer survey
23
THE MARKETS SHOW SIGNIFICANT DIFFERENCES IN SEGMENT
BREAKDOWN
%, number of respondents
2,818
100%
Range seekers
on a budget
565
8
23
551
550
568
29
29
583
15
11
• São Paulo and
35
15
Quality seekers
and time savers
Indifferent
shoppers on a
budget
High income
bargain hunters
18
22
12
24
26
19
18
16
14
18
16
22
11
15
40
Avid bargain
hunters
25
20
30
25
23
16
Buenos Aires
have a
disproportional
share of
“Bargain
hunters"
segments
• “Quality seekers
and time savers”
are more
relevant in
Santiago and
Bogotá
5
Overall S. Paulo B. Aires Mexico Santiago Bogotá
Source: Consumer survey, team analysis
24
DETAILED SEGMENT DESCRIPTION – SÃO PAULO
Number of respondents, R$ 000, %
565
249
Quality and time
11
14
Avid bargain
hunters
40
Indifferent
shoppers on a
budget
Range seekers on
a budget
High income
bargain hunter
Bold = Significant
deviations
from average
Quality seekers and time savers
• Average spend: R$ 543
• Monthly visits to modern format: 10
• Share of wallet of main retailer: 74%
• Income level
• Store format
– High: 20%
– Hyper: 47%
– Medium: 75%
– Super: 19%
– Low: 5%
– Disc.: 35%
Indifferent shoppers on a budget
• Average spend: R$ 327
• Monthly visits to modern format: 8
• Share of wallet of main retailer: 71%
• Income level
• Store format
– High: 6%
– Hyper: 57%
– Medium: 63%
– Super: 3%
– Low: 32%
– Disc.: 40%
Range seekers on a budget
• Average spend: R$ 500
• Monthly visits to modern format: 16
• Share of wallet of main retailer: 63%
• Income level
• Store format
– High: 0%
– Hyper: 77%
– Medium: 70%
– Super: 12%
– Low: 30%
– Disc.: 11%
High income bargain hunters
• Average spend: R$ 516
• Monthly visits to modern format: 11
• Share of wallet of main retailer: 55%
• Income level
• Store format
– High: 34%
– Hyper: 79%
– Medium: 66%
– Super: 12%
– Low: 0%
– Disc.: 10%
Avid bargain hunters
• Average spend: R$ 429
• Monthly visits to modern format: 7
• Share of wallet of main retailer: 55%
• Income level
• Store format
– High: 0%
– Hyper: 55%
– Medium: 66%
– Super: 14%
– Low: 33%
– Disc.: 32%
Market average
• Average spend: R$ 441
• Monthly visits to modern format: 9
• Share of wallet of main retailer: 62%
• Income level
• Store format
– High: 10%
– Hyper: 60%
– Medium: 67%
– Super: 12%
– Low: 23%
– Disc.: 28%
39
16
22
9
8
18
21
Number of
consumers
$ spend
Source: Consumer survey, team analysis
25
ALTHOUGH OTHER FACTORS VARY IN RELEVANCE, LOCATION AND
PRICE ARE THE TWO MOST IMPORTANT FACTORS FOR ALL
SEGMENTS
Why did you choose to shop at that particular store?
% of consumers that selected the factor as important
Avid bargain
hunters
Location
84
Price
76
High income
bargain
hunters
Quality seekers
and time
savers
84
83
80
79
64
57
Promotions
Range-seekers
on a budget
Indifferent
shoppers on a
budget
71
52
70
52
52
47
39
Quality of perishable products
41
46
50
39
50
Assortment
36
44
49
40
45
Overall product quality
28
34
31
27
Brand variety
18
29
26
22
25
Service level
11
25
24
21
26
Private label quality
9
Source: Consumer survey
11
6
5
40
7
26
BUT SEGMENTS VARY WIDELY IN THE FREQUENCY OF PRICE
COMPARISON
%, number of respondents
How often do you compare prices between stores?
636
Never
530
9
21
493
655
16
19
493
100%
32
Occasionally
32
37
Very often
42
21
43
18
Always
44
13
15
38
13
24
27
24
12
Avid
Bargain
Hunters
Source: Consumer survey, team analysis
Indifferent
shopper
on a
budget
High
income
bargain
hunters
Range
seeker on
a budget
Quality
seeker
and time
saver
27
FROM RETAILERS’ STAND POINT, SOME SEGMENTS APPEAR
TO BE MORE ATTRACTIVE THAN OTHERS
%
Loyalty compared to average
Share of wallet of main store
Quality seekers and
time savers
16
3
Indifferent shoppers
on a budget
-7
0
• “Quality seekers
and time savers”
and “High income
bargain hunters”
spend more than
any other
segment and tend
to be more loyal
customers
• “Avid Bargain
Range seekers on a
budget
Source: Consumer survey
18
8
High income bargain
hunters
Avid bargain hunters
Monthly spend
Compared to market average
-6
-4
-6
-14
hunters” and
“Range seekers
on a budget” are
the least loyal
segments and
have small basket
sizes
28
BUENOS AIRES AND BOGOTÁ HAVE THE LOWEST LOYALTY RATIO OF
ALL MARKETS
Average loyalty ratio*
62
58
54
40
34
São Paulo Santiago
* Share of wallet of main store
Source: Consumer survey
Mexico
Bogota
Buenos
Aires
29
SHOPPING BEHAVIOR BY SEGMENT AND MARKET
Average basket size (vertical axis) vs. loyalty index* (horizontal axis)
São Paulo (R$)
Santiago (CLP)
600
200
• Quality seekers and High income
Quality
Quality
HIBH
bargain hunters spend more than
any other segment across all
markets and generally have the
highest loyalty ratio
• Avid bargain hunters and range
seekers on a budget tend to
spend less than all other
segments and are also less loyal
customers
• On average, São Paulo, Santiago
and Mexico have the highest
loyalty ratio on all segments
HIBH
Range
450
150
Avid BH
Range
Indifferent
Indifferent
Avid BH
300
100
25
50
75
100
Bogotá (COP)
25
50
75
100
Mexico (MXN)
600
Buenos Aires (ARS)
2.250
600
Quality
Quality
HIBH
HIBH
HIBH
Quality
450
1.750
Indifferent
Range
450
Range
Indifferent
Indifferent
Avid BH
300
Avid BH
Range
25
50
Avid BH
1.250
75
100
* Share of wallet of main store
Source: Consumer survey
300
25
50
75
100
25
50
75
100
30
WHERE THE DIFFERENT SEGMENTS SHOP
%, across all metropolitan areas studied
Percentage spent on modern format
Preferred format*
Super
Quality seekers
and time savers
70
High income
bargain hunters
Frustrated
shoppers
67
59
Discounter
Quality seekers
and time savers
High income
bargain hunters
Frustrated
shoppers
Avid bargain
hunters
56
Avid bargain
hunters
Range seekers
on a budget
55
Range seekers
on a budget
Higher income segments
spend more on modern
format
Hyper
Higher income segments prefer super
& hyper; lower tend towards
discounters & hyper
* Indicate store format that capture a disproportional share of the segment compared to the market average. H (Hyper), S
(Super) and D (Discounters). Discounters include Bodegas in Mexico
Source: Team analysis
31
SOME RETAILERS “ATTRACT” DISPROPORTIONATE SHARE OF
CERTAIN SEGMENTS (1/3)
Percentage of primary shoppers by segment, main retailers
São Paulo
543
Buenos Aires
74
90
47
93
322
93
71
51
100%
Avid bargain
hunters
40
21
27
26
42
31
30
46
9
26
22
Indifferent shoppers
on a budget
Range seekers on
a budget
High income bargain
hunters
Quality seekers
and time savers
22
14
28
3
3
8
A
Source: Consumer survey, team analysis
20
11
B
25
19
34
19
12
Overall
13
18
27
23
10
1
19
18
19
39
22
8
61
18
16
6
4
C
D
16
14
8
2
Overall
A
B
C
32
SOME RETAILERS “ATTRACT” DISPROPORTIONATE SHARE OF
CERTAIN SEGMENTS (2/3)
Percentage of primary shoppers by segment, main retailers
Bogotá
410
Avid bargain hunters
Indifferent shoppers
on a budget
4
Santiago
59
0
7
10
114
4
8
4
2
21
32
24
114
316
14
4
7
16
16
18
28
18
23
33
27
29
37
22
Quality seekers and
time savers
521
27
27
30
High income
bargain hunters
37
10
21
Range seekers on
a budget
51
16
48
42
32
31
Overall
A
Source: Consumer survey, team analysis
B
25
25
26
C
D
Overall
15
18
A
B
33
SOME RETAILERS “ATTRACT” DISPROPORTIONATE SHARE OF
CERTAIN SEGMENTS (3/3)
Percentage of primary shoppers by segment, main retailers
Mexico
495
Avid bargain
hunters
23
66
17
203
26
57
32
68
27
17
Indifferent shoppers
on a budget
20
Quality seekers and
time savers
21
17
21
25
44
29
32
High income
bargain hunters
100%
14
17
Range seekers on
a budget
35
32
35
24
17
12
Average
Source: Consumer survey, team analysis
17
A
9
10
16
17
9
9
7
5
B
C
D
E
34
McKINSEY PROPRIETARY RESEARCH IDENTIFIED SEVEN SEGMENTS IN
THE U.S. GROCERY RETAIL MARKET
Pure Price
Bargain Hunters
Use every means
available to get the
lowest price – will not
pay more for anything
Shop around at many
different stores to
hunt down the latest
special
Selection for Less
Coupon Clippers
Want broad selection
and national brands
for a low price
Use coupons 100% of
the time, usually at a
store close to home
Convenience
Quality
Superior Experience
Willing to pay more to
get in and out quickly at
a store close to home
Willing to pay more
and drive farther for
quality and service
Want great service and
ambience at any cost
Source: McKinsey North American Retail Practice
35
LATIN AMERICA SEGMENTS ARE FAIRLY SIMILAR
TO THOSE IN THE U.S.
United States
S
Coupon
Clippers (10%)
More price
oriented
Bargain
Hunters (10%)
Pure Price
(12%)
44%
Selection for
Less (12%)
Convenience
(22%)
21%
Less price
oriented
Quality (14%)
Superior
Experience
(20%)
Source: Team analysis
Latin America
Avid bargain
hunters (20%)
79%
56%
( ) Percentage of
total spend
High-income
bargain hunters
(20%)
Indifferent
shoppers on a
budget (17%)
• In Latin America,
“more price oriented
segments” are
significantly larger
than in the U.S.,
noticeably “Bargain
Hunters” even adding
the “Coupon Clippers”
in the US
Range-seekers
on a budget
(22%)
• Segments broadly
Quality seekers
and time savers
(21%)
• “Less price oriented”
similar in key
characteristics
segments in the U.S.
more defined and
significantly larger
share of total
population than in
Latin America
36
KEY TAKEAWAYS FROM STUDY
1. Latin America: diversity of consumers, and not just
in the depth of their pockets
2. The few key levers that matter in building price
perception – and the one that doesn’t
3. Consumers (mostly) getting it right in their search
for value
4. Retailers have an opportunity to get it right more
often in their search for a better price proposition
37
MAIN MESSAGES
1• Reference price, range architecture and promotions are the three most important
levers in determining consumer price perception in Latin America
2• Reference price is the most important lever:
– in all consumer segments, although other levers have disproportionate influence
depending on the segment, such as range architecture for “Quality seekers and
time savers” and “Indifferent shoppers on a budget”.
– in all markets except Mexico City, where range architecture is slightly more
important
3• A limited number of KVIs appear to particularly important in driving consumers’
perception of reference price
4• From matching price perception with price reality, it is clear that consumers are able
to quite accurately identify retailers with low average prices in markets where
promotional activity is relatively low. Promotions do not drive price perception in any
market and in fact obscure price reality in Sao Paulo and Buenos Aires.
5• There are indications however, both in low and high promotional markets that some
retailers are able to get more credit more value than they “deserve”
38
HOW DO CONSUMERS DEVELOP THEIR PRICE PERCEPTION?
How do consumers
perceive prices?
• What are the different
elements that can help
explain price perception?
• What are the elements
that are most relevant to
explain price perception?
• Are these different for the
various markets?
• Are these different for
various segments?
Source: Team analysis
How does price
perception match with
price reality?
• Do Latin American
consumers accurately
perceive low price retailers?
• Are there differences in
price perception accuracy
when we look at the
different regional markets
and segments?
• What elements might
explain regional differences
in price perception?
39
THERE ARE SEVERAL POTENTIAL DRIVERS OF PRICE PERCEPTION
Drivers
Reference
price
• Low prices on items bought most often
• Low prices on well-known items
• Prices are usually low
Promotions
• Frequent discounts
• Frequent interesting promotions (e.g., 2x1, wow deals)
Range
architecture
• Low priced alternatives for everyday basics (i.e., OPP)
• Broad range of price and quality levels
• Private label with good price/quality ratio
Communications
In-store
environment
Source: Team analysis
• Believable low price ads
• Frequent promotion pamphlets
• In-store signs that clearly point to sales
• Overall store environment
• A lot of people shopping
40
PRICE PERCEPTION IN LATIN AMERICA IS DRIVEN MAINLY BY TWO
ELEMENTS
% total weight
• Reference price
Communications
Promotions
Believable
price ads
Frequent
discounts
8
8
Environment
30
Upscale store
environment
10
Broad range of quality
& price levels
4
19
Range
architecture
Source: Team analysis
Reference
price
Cheap
alternative
brands
Prices are
usually low
is the key lever
of price
perception, with
KVIs as a very
relevant
component
• Range
architecture –
namely cheap
alternative
brands (OPPs) –
are also very
important
• Together they
21
Prices on wellknown items/bought
most often
make up for 75%
of the way a
consumers
builds price
perception
41
DRIVERS OF PRICE PERCEPTION BY METROPOLITAN REGION
% total weight
São Paulo
Buenos Aires
Santiago
Mexico D.F.
Bogotá
• Prices are
Reference price
•
usually low
Low prices on
items bought
most often/well
known
• Good
Promotions
•
promotions
Frequent
discounts
• Cheap
Range
architecture
Environment
Communications
•
alternative
brands
Broad range
• Upscale store
environment*
• Believable
price ads
* Causes poorer price perception
Source: Team analysis
32
25
41
34
31
14
31
63
16
14
9
14
26
26
19
27
18
18
16
16
42
DRIVERS OF PRICE PERCEPTION BY SEGMENT
% total weight
Avid bargain
hunters
Frustrated
Quality
High income
Range seekers shoppers on a seekers and
bargain hunters on a budget
budget
time savers
• Prices are
Reference price
•
usually low
Low prices on
items bought
most often/wellknown
20
17
• Good
Promotions
13
24
10
35
12
•
alternative
brands
Broad range
• Upscale store
environment*
18
10
15
18
5
25
14
20
20
17
• Pamphlets
Communications
27
promotions
• Frequent
• Cheap
Environment
21
23
13
discounts
Range
architecture
42
21
• Believable
price ads
* Causes poorer price perception
Source: Team analysis
22
25
13
43
A LIMITED NUMBER OF KVIs APPEAR TO BE ESPECIALLY
IMPORTANT FOR BUILDING PRICE PERCEPTION
Do you base your
assessment of store
prices on a few key
products?
No
How many items do you normally
memorize the price of to assess the
price level of a store?
Different consumers have
different KVIs, as a result
an individual store can
have up to 100 KVIs*
Average number of items consumers
claim to memorize the price on to assess
retailer prices
3,8
5,1
3,9
4,0
Mexico
Santiago
26
3,0
3,1
Bogotá
Buenos
Aires
74
Yes
Overall
* Based on McKinsey previous experience
Source: Consumer survey
São
Paulo
46
OUR SURVEY HAS IDENTIFIED ABOUT 500 KVIs IN EACH METROPOLITAN
REGION – ONLY ABOUT 150 ARE COMMON TO MULTIPLE SEGMENTS…
Number of different KVIs mentioned – spontaneous responses
Mentioned by only 1 segment
Mentioned by at least 2 segments
638
150
545
474
474
461
130
147
154
344
327
307
Santiago
São Paulo
Mexico D. F.
139
488
406
Buenos
Aires
Source: Consumer survey, team analysis
Bogotá
48
… AND, OUT OF THESE, ONLY A DOZEN ARE ULTRA-KVIs
Number of different KVIs mentioned – spontaneous responses
Ultra KVIs
Mentioned by:
All Segments
154
150
14
8
147
21
139
11
19
45
3 or 4 segments
67
130
50
55
53
97
Only 2 segments
76
73
Mexico D. F.
Source: Consumer survey, team analysis
Buenos
Aires
São Paulo
73
Bogotá
58
Santiago
49
TOP TEN KVIs BY METROPOLITAN AREA
Ultra-KVIs (mentioned by all segments)
% of unaided consumer responses
São Paulo
Buenos Aires
21.7
Sugar União 1 kg
7.2
Sugar Ledesma 1 kg
6.4
Rice Camil 5 kg
13.9
Milk Sachet La Serenísima 1 liter
Oil Lisa 900 ml
13.4
Sugar Domino 1 kg
4.1
Sugar – no brand 1 kg
3.6
Detergent Ala 800 g
3.3
3.3
12.5
Coffee Pilão 500 g
8.3
Detergent Omo 1 kg
Rice Tio João 5 kg
6.9
Oil Natura 1.5 liter
Detergent Omo
Multiação 1kg
6.7
Sugar Chango 1 kg
2.6
Rice Camil type 1 5 kg
6.2
Oil Cocinero 1.5 liter
2.3
Rice Camil 1 kg
5.3
Coca-Cola 2.25 liter
2.2
Beans Camil 1 kg
5.1
Milk Fortuna 1 liter
2.1
Source: Consumer survey
50
TOP TEN KVIs BY METROPOLITAN AREA
Ultra-KVIs (mentioned by all segments)
% of unaided consumer responses
Santiago
Mexico D.F.
23.8
Sugar Iansa 1 kg
18.0
Rice Tucapel 1Kg
9.5
Beef 1 kg
6.7
Oil Chef 1 liter
15.0
Aceite 1 2 3 1 l
10.3
Detergente Ariel 1 kg
Detergente ACE 1 kg
4.5
Suavisante de telas Suavitel
4.3
4.1
Aceite Belmont 1 l
5.3
Aceite Capullo 1 l
Leche Soprole 1 l
4.8
Shampoo Caprice 1 l
2.7
Aceite A cuenta 1 l
4.7
Café Nescafé 200 gr
2.7
Azucar Iansa 5 kg
4.5
Arroz Morellos 1 kg
2.5
Azucar Dama Blanca 1 kg
3.7
Papel Higiênico Petalo 4 rollos
2.2
Aceite Miraflores 1 l
3.6
Detergente Salvo 1 kg
2.1
Source: Consumer survey
51
TOP TEN KVIs BY METROPOLITAN AREA
% of unaided consumer responses
Bogotá
Aceite Óleo Soya
4.9
Panela
3.6
Aceite (no recuerda marca)
3.3
Crema dental Colgate
3.3
Arroz Flor Huila
3.3
Arroz Roa
3.2
Arroz Diana
3.0
Detergente en polvo Ariel
2.8
Chocolate/Sol
2.6
Detergente en polvo FAB
2.5
Source: Consumer survey
52
KEY TAKEAWAYS FROM STUDY
1. Latin America: diversity of consumers, and not just
in the depth of their pockets
2. The few key levers that matter in building price
perception – and the one that doesn’t
3. Consumers (mostly) getting it right in their search
for value
4. Retailers have an opportunity to get it right more
often in their search for a better price proposition
53
DO CONSUMERS GET IT RIGHT? PRICE PERCEPTION ACCURACY BY
METROPOLITAN AREA
+
-
Accuracy of price perception
79
72
62
57
43
33
Market
average
Santiago
Source: Team analysis
Mexico
D.F.
Bogotá
Buenos
Aires
Universe of
primary shoppers
and respondents
that correctly
identified retailers
with low prices
(retailers that had
the price reality
index at the bottom
quartile of the
market)
São
Paulo
54
RELATIONSHIP BETWEEN PRICE PERCEPTION AND PRICE REALITY
R2
Price reality (vertical axis) vs. Price perception index (horizontal axis)
Santiago
Mexico D. F.
Bogotá
110
110
110
0,75
0,82
105
105
100
100
95
0,72
105
‘
100
‘
‘
95
95
Relevant
Relevant
90
Relevant
90
0
20
40
60
80
100
90
0
São Paulo**
20
40
60
80
100
0
20
40
60
80
100
Buenos Aires
110
110
0,23
0,21
105
105
100
100
• Unlike the other markets,
•
95
95
Not Relevant*
Not Relevant*
90
price perception in São
Paulo and Buenos Aires,
cannot be explained using
actual prices
These results are in line the
lower accuracy of price
perception of these cities
90
0
20
40
60
80
100
0
20
40
60
80
100
* T-Stat lower than 2,0
** The assessment of the São Paulo market was made without a clear high price player
Source: Consumer survey, team analysis
55
RELATIONSHIP BETWEEN PRICE PERCEPTION AND
PROMOTIONAL ACTIVITY
R2
Proact index (vertical axis) vs. Price perception index (horizontal axis)
Santiago
Mexico D. F.
10
Bogotá
10
10
Not Relevant*
0,06
Not Relevant*
0,19
Not Relevant*
8
8
8
5
5
5
3
3
0
0
‘
3
‘
‘
0
20
40
60
80
0
0
100
São Paulo**
0,03
20
40
60
80
100
0
20
40
60
80
100
Buenos Aires
10
10
0,16
0,01
8
8
• Promotional activity does
5
5
3
3
not explain price perception
in any of the Latin American
cities analyzed
Not Relevant*
Not Relevant*
0
0
0
20
40
60
80
100
0
20
40
60
80
100
* T-Stat lower than 2,0
** The assessment of the São Paulo market was made without a clear high price player
Source: Consumer survey, team analysis
56
REGIONAL DIFFERENCES OF LATIN AMERICA RETAIL MARKET
DYNAMICS
Promotional
intensity
Proact index
Santiago
Mexico
Bogota
Buenos
Aires
São
Paulo
Price reality index
R2 of real vs.
perceived prices
0,75
2,2
0,82
2,2
Consumers’
perception is
influenced by
price reality
0,72
3,0
7,0
7,6
0,21
0,23
* Does not consider high price player
Source: AC Nielsen, market research, team analysis
*
Consumers’
perception is less
influenced by price
reality
• Actual
promotional
activity does not
drive price
perception
• However,
promotional
activity seems to
relate to a less
accurate
assessment of
prices from
consumers –
promotion creates
price opacity
57
IN MOST MARKETS, PRICE LEADERSHIP IS CONSISTENT OVER TIME
Price reality index over eight four-week periods
Santiago
Number of periods
of same leadership
Bogotá
110
110
8
8
105
105
100
100
95
95
1
2
3
4
5
6
7
8
1
2
3
São Paulo
Buenos Aires
110
110
4
5
6
7
105
100
100
95
95
2
3
4
Source: AC Nielsen, team analysis
5
6
7
8
8
105
1
7
8
1
2
3
4
5
6
7
8
58
HOWEVER, IN MEXICO, OTHER PLAYERS ASSUME THE PRICE
LEADERSHIP POSITION FOR A SHORT PERIOD OF TIME
Number of periods
of same leadership
Price reality index over eight four-week periods
Mexico D.F.
110
5
• Even though price
leadership is lost
for three periods,
consumers’
perception is not
influenced by
short-term price
investments
• Rather a
consistent longterm strategy
seems to be more
effective to build a
sustainable price
perception with
consumers
105
100
95
1
2
3
Source: AC Nielsen, team analysis
4
5
6
7
8
59
DIFFERENT SEGMENTS CAN HAVE DIFFERENT PRICE RATINGS FOR THE
SAME RETAILER
% of consumers who rated retailer as inexpensive or very inexpensive
Retailer in Buenos
Aires
Retailer in São Paulo
Retailer in Santiago
62
45
45
40
26
High
income
bargain
hunters
Price ratings
can be
uneven
across
segments
25
Quality
seekers
and time
savers
Quality
seekers
and time
savers
Source: Consumer survey, team analysis
High
income
bargain
hunters
Quality
seekers
and time
savers
Frustrated
shoppers
on a
budget
60
KEY TAKEAWAYS FROM STUDY
1. Latin America: diversity of consumers, and not just
in the depth of their pockets
2. The few key levers that matter in building price
perception – and the one that doesn’t
3. Consumers (mostly) getting it right in their search
for value
4. Retailers have an opportunity to get it right more
often in their search for a better price proposition
61
MAPPING OUT THE COMPETITIVE CHARACTERISTICS OF EACH PLAYER
Price
reality
More
expensive
retailers
Market
average
100
Less
expensive
retailers
EDLP (Every day
low prices)
working definition
• EDLP retailers
are those that
consistently
have lower and
more stable
prices
Every day
lowest price
Less
promotional
retailers
(stable prices)
Source: Team analysis
Highly
promotional
retailers
(variable prices)
Promotional
activity
Proact index
62
THE MARKETS ARE AT DIFFERENT POSITIONS ALONG THE
PROMOTIONAL ACTIVITY CONTINUUM
Promotional activity index
7,6
3.5x
7,0
3,0
2,2
2,2
Mexico
Santiago
Source: AC Nielsen, McKinsey analysis
Bogotá
Buenos
Aires
São Paulo
68
SÃO PAULO AND BUENOS AIRES HAVE HIGH LEVELS OF PROMOTIONAL
ACTIVITY IN ALL PRODUCT CATEGORIES
Average promotional activity index by category quartile
Quartiles
Top
Average of ~8
categories with the
highest promotional
activity in each country
Santiago
3,7
Mexico D.F.
Bogotá
3,8
2,6
2,7
2,6
Third
2,1
2,1
2,1
1,2
–
Source: AC Nielsen, McKinsey analysis
1,1
São Paulo
5,6
Second
Bottom
Average of ~8
categories with the
lowest promotional
activity in each country
B.Aires
1,8
9,8
7,8
6,0
4,6
Overall promotional activity index
10,3
8,8
7,2
5,4
+
69
THERE IS NO PURE EDLP PLAYER IN THE REGION, AND
THE CONCEPT IS BEST THOUGHT OF A AS CONTINUUM
Buenos Aires
São Paulo
Santiago
Bogotá
110
Mexico D.F.
Reality price (actual price index)
Highest prices
Lowest prices
105
100
95
90
0
1
Low
promotional
activity
Source: AC Nielsen, team analysis
2
3
4
5
6
Promotional activity index
7
8
9
10
High
promotional
activity
70
THERE ARE MANY DIFFERENT PRICING STRATEGIES EVEN WITHIN THE
SAME MARKET
Price index vs. promotional activity index
Buenos Aires
São Paulo
Mexico D.F.
110
110
110
105
105
105
100
100
100
95
95
95
90
90
90
0
2
4
6
8
10
0
Santiago
Bogotá
110
110
105
105
100
100
95
95
90
90
0
2
4
6
8
Source: AC Nielsen, team analysis
10
0
2
4
6
8
10
0
2
4
6
8
10
• In Mexico, promotional
2
4
6
8
10
activity range from
very low to very high
• Most retailers in São
Paulo and Buenos
Aires have high
promotional activity
• Retailers in Santiago
and Bogotá have low
promotional activity
71
THE COMPETITIVE GAME AMONG RETAILERS VARIES ACROSS
MARKETS
Correlation between promotional levels of
each category
0,74
Bogotá
0,46
Santiago
Mexico D.F.
0,41
São Paulo
0,41
Buenos
Aires
Source: Team analysis
0,32
Mutual followership
Players have the same
promotional intensity for the
same categories
Independent behavior
Players have different levels
of promotions for same
categories
72
IN BOGOTÁ, A “MUTUAL FOLLOWERSHIP” PREVAILS, AS PROMOTIONAL
INTENSITY IS SIMILAR FOR ALL PAYERS IN ANY GIVEN CATEGORY
Promotional activity index, ranked from highest to lowest market average
0
Categories
Hair dyers
5
10
15
Retailer A
Retailer B
Retailer C
Retailer D
Toilet paper
Edible oils
Beer
Laundry detergent
Face cream
Coffee
Processed meat
Shampoo
Deodorants
Toilet soap
Milk
Cosmetics
Cleaners
Margarine
Chocolate (candies)
Dairy beverages
Detergent
Tooth paste
Cereals
Source: AC Nielsen, team analysis
73
IN ALL OTHER MARKETS, LIKE BUENOS AIRES, RETAILERS HAVE
DIFFERENT LEVELS OF PROMOTIONS FOR THE SAME CATEGORIES
Promotional activity index, ordered from highest to lowest market average
0
Categories
5
10
15
20
25
Retailer A
Retailer B
Retailer C
Retailer D
Toilet paper
Retailer E
Crackers
Cheese
Pasta
Breads
Personal hygiene
Juices
Wine
Tooth paste
Laundry detergent
Edible oils
Toilet soap
Shampoo
Fresh milk
Body deodorants
Soft drinks
Yoghurt
RTE desserts
Beer
Sugar
Source: AC Nielsen, team analysis
74
FEW CATEGORIES HAVE SIMILAR PROMOTIONAL ACTIVITY
ACROSS MARKETS
Buenos Aires
São Paulo
Category promotional activity index
0
5
10
15
Santiago
Bogotá
Mexico D.F.
Toilet paper
+
Diapers
Average promotional intensity across markets
Sugar
Yoghurt
RTD Juices
Laundry detergent
Industrialized Breads
Edible oils
Shampoo
Toilet soap
Beer
Cookies
Deodorant
Soft drinks
Snacks
Coffee
Cereals
Source: AC Nielsen, team analysis
75
THERE IS NO CONSISTENT PATTERN AS TO WHICH CATEGORIES WILL
BE SELECTED FOR PROMOTIONS
ARGENTINA EXAMPLE
Promotional activity index
-
0
5
10
15
20
25
Categories
Laundry detergent
Deodorants
Retailer A
Retailer B
Retailer C
Retailer D
Retailer E
Shampoo
Toilet soap
Sanitary protection
Toothpaste
Level of expandability*
Toilet paper
Sugar
Fresh milk
Edible oils
Packaged bread
Yoghurt
RTE desserts
Soft drinks
Beer
Juices
Wine
Pasta
Crackers
Cheese
+
* Expandable categories are those in which overall consumption increases when income increases (i.e., it is possible to
increase per capita consumption)
Source: AC Nielsen, team analysis
76
UNDERSTANDING DIFFERENCES IN PRICE PERCEPTION AT THE SAME
LEVEL OF ACTUAL PRICES
Price reality (index of actual prices) vs. Price perception index
São Paulo
Price reality
110
105
B
Significant differences
in price perception in
situations with very
similar real prices
index
A
100
95
90
0
20
40
60
80
100
Price perception
Source: Team analysis
77
SOME RETAILERS GET MORE CREDIT THAN THEY DESERVE
ILLUSTRATIVE
Average % of consumers that selected top 2 box (agree/strongly agree)
Price perception
Retailer with better
price perception
Retailer A
Retailer with worse
price perception
Retailer B
GAP
Reference price
86
Range
architecture
85
87
-2
In-store
environment
84
90
-6
Promotions
81
Communications
80
72
Source: Team analysis
69
17
10
71
92
48
-12
• Out of the three
main drivers of
price perception for
São Paulo, retailer
A has higher
performance on
Reference Price
and Promotions,
and similar
performance on
Range Architecture
• One possible
explanation for a
better perception
on reference price
despite similar
price reality might
be execution (i.e.
better choice of
KVIs and
categories, etc)
78
AND THIS DIFFERENCE IS EVEN STRONGER WHEN ONLY
THE MAIN CONSUMER SEGMENTS ARE CONSIDERED
Breakdown of main store shoppers by
segment
Performance on key levers according to
"bargain hunters"
%
% top 2 box (agree/strongly agree)
Indifferent
shoppers
0 100%
100%
11
9
Quality and time
Range seekers
High income
bargain hunters
19
23
23
Retailer A
Reference
price
Retailer B
89
ILLUSTRATIVE
Price
perception
Gap
24
65
Communications
82
Range
architecture
81
86
-5
In-store
environment
80
90
-10
Promotions
75
93
-11
22
19
Avid bargain
hunters
47
26
59
16
Retailer A
delivers
superior
performance
on Reference
price and
Promotions,
which account
for 60% of the
drivers of
price
perception for
"bargain
hunters"
Retailer with Retailer with
better price worse price
perception perception)
Bargain hunters’
price perception
80
Source: Team analysis
36
79
DIFFERENT SEGMENTS ARE ATTRACTED BY DIFFERENT PRICING
STRATEGIES
Highest prices
Reality price (actual price index)
Quality seekers and time savers
Indifferent
shoppers on
a budget
Range seekers
on a budget
High
Income
Bargain
hunters
Avid Bargain
Hunters
Lowest prices
Low
promotional
activity
Source: AC Nielsen, team analysis
Promotional activity index
High
promotional
activity
80
MARKETS WITH HIGH PROMOTIONAL ACTIVITY TEND TO HAVE A
DISPROPORTIONAL SHARE OF THE BARGAIN HUNTERS SEGMENTS
Size of “Bargain
hunters” segments*
%
Promotional activity
Proact index
Buenos Aires
Bogotá
58
7,6
São Paulo
7,0
3,0
Santiago
2,2
Mexico D.F.
2,2
44
30
31
39
* Includes both “Avid bargain hunters” and “High-income bargain hunters”
Source: Consumer survey, AC Nielsen, team analysis
• Significant impact
on retailers’
strategy as:
– Avid Bargain
hunters tend to
have the lowest
basket size and
the least loyalty
among all
consumers
– High-income
bargain hunters
tend to visit
more stores and
have low loyalty
in some markets
(e.g., São Paulo)
81
ISSUES TO CONSIDER FOR INDIVIDUAL RETAILERS
• Which segments of consumers are most attracted to you? Which do
you want to be? Which format is most appropriate to each segment?
• What is driving your promotional activity? Your suppliers, your
category managers or the consumer?
• Where are you at the EDLP-HiLo continuum versus your
competitors? Where should you be?
• Are you getting credit for value? What are the drivers of price
perception for your consumers?
• What would it take to change your pricing approach? What are the
implications for you, your suppliers and your consumers?
82
KEY TAKEAWAYS FROM STUDY
1. Consumers are different - 5 distinct consumer segments in Latin America with different
characteristics, attitudes, behaviors and preferences for retailers
2. Forget pure EDLP - No pure EDLP player exists and the concept is best thought of as a
continuum, with retailers employing different price and promotional strategies
3. You get the consumer you deserve – Hi-lo retailers in São Paulo and Buenos Aires have
significantly more promotional activity and attract disproportionately more bargain hunters
4. Reality equals perception – almost - Reference price is the key driver of consumer price
perception, but with important variations by segment. Consumers generally figure out the
low price players, but not in a highly promotional environment
5. Some of you get more credit for value than others – Some retailers have better price
perception than reality through working different levers on different segments
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