Brazilian Retail News

Year 10 - Issue # 389 - São Paulo, May, 30th, 2011

Phone: (5511) 3405-6666

Supermarket sales rose 13.6% in April

Supermarket sales had in April a 13.6% rise over the same month last year, according to trade group Abras. Month-on-
month sales rose 7.17% and year-to-date sale have gone up 5.5% over the first four months in 2010, already excluding
the effects of inflation. April figures were leveraged by the calendar effect, due to Easter.

Economy rises 1.4% in Q1

According to Serasa Experian, the country’s economic activity remained stable in March over February, ending the
first quarter of the year with an 1.4% growth over the last quarter of 2010. Year-on-year, the economy went up 4.6% and
in the 12 months ended in March, 6.3%. The family spending rose 7.4%.

Consumer confidence falls for third month in a row

Brazilian consumer confidence dropped in May for the third straight month, according to Fundação Getúlio Vargas
(FGV). The index fell from 118.2 to 115.4, the lowest level since January. Evaluations on today’s moment and on the
expectations for the next months dropped to the lowest levels in almost a year.

Wholesale segment rises 14.6% in 2010

Sales in the wholesale segment rose last year 14.6% over 2009, reaching R$ 151.2 billion (US$ 91.08 billion). Excluding
inflation, sales rose 8.2% year-on-year, according to trade group Abad. The expansion of the segment was driven by the
growth of lower income groups, specially in the North and Midwest regions.

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Brazilian Retail News
Year 10 - Issue # 389 - São Paulo, May, 30th, 2011
Phone: (5511) 3405-6666

Hypermarkets lose ground in the Brazilian retail

For the first time in five years, Brazilian hypermarkets reported its sales dropped. In 2010, the segment had a 5.9%
fall over 2009, while supermarket sales rose 12.2% year-on-year, according to Supermercado Moderno magazine. Since
2005, hypermarkets have been losing 1% market share per year. Consumers have been looking for smaller stores, more
convenient, and have been purchasing goods more frequently.

Domino’s Pizza to build a 150-store chain in

Brazil
Domino’s Pizza chain, today with 33 stores in Brazil
operated by Umbria group, intends to end this year with 94
stores, opened or signed. The brand, that last year saw its
sales rise by 10%, will more than double this pace in 2010,
to 22%. To keep growing, Domino’s is betting on lower
prices (in average, 30% off in the best-selling ones), stores
in less premium places, localized menus and new store
design. The company’s goal is to end 2016 with 150 stores
running in Brazil.

Pão de Açúcar denies Carrefour merger talks

Grupo Pão de Açúcar, Brazil’s largest retailer, has denied talks on a merger with Carrefour’s local branch. Last week,
French press said there were a deal under way, which strongly reverberated on the Brazilian media. Casino, Pão de
Açúcar’s partner, sent a letter to Carrefour’s CEO stressing its unhappiness with the way this issue has been led, and
then Pão de Açúcar denied there were talks of a merger. Brazilian web portal iG, however, declared that about one month
ago the two companies started studying the issue.

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Brazilian Retail News
Year 10 - Issue # 389 - São Paulo, May, 30th, 2011
Phone: (5511) 3405-6666

Momentum
The same consumers, but very different
Marcos Gouvêa de Souza - CEO, GS&MD - Gouvêa de Souza
Consumers who have gone through periods of economic recession and market turbulence resume many of the prior behaviors when
the environment becomes stable again, but also adopt behaviors started in the harsh times, as part of a process of maturement and
development.
And what has been happening in the United States today is an excellent example of how this process goes on.
The average US consumer in the period prior to the real estate, economic and financial crisis of the last years, had from the Nasdaq
crash in 2000 to 2007 an age of consumerist rush, with some hiccups.
Hit hard by the strongest of all recent crisis, that started with the “tsunami” in the real estate market in 2007 and had consequences in
all economic and financial activities, this consumer changed radically its shopping and purchasing behavior.
Affected in the short term by the strong rise of the unemployment rate; pressed by the need to honor its real estate investments; scared
by the loss of value of the retirement funds; and with a dramatic short, medium and long term perspective, this consumer adopted a
new, very pragmatic, behavior when deciding what, where and how much to buy.
Luxury brands and stores were banned from the range of shopping alternatives and to carry a bag of a store considered high-end was
deemed as an incorrect political and social behavior. Michelle Obama is the symbol of this new attitude, mixing some high-end clothes
with other sold in fast fashion chains.
Visits to stores considered as more expensive were reduced, while value-oriented formats, as hypermarkets, supercentes, discount
stores, outlet centers and, mainly, warehouse clubs (as Costco, Sam’s Club and BJ’s) started receiving customers not used to it.
Supermarkets took advantage of it as consumers who were used to make meals at restaurants flocked back, ending a time when
foodservice segment accounted for more than 50% of the food spending in the US. In this return, however, customers did not return
to the old habit of preparing meals from scratch, but started shopping more ready-to-eat or pre-cooked meals, to be eaten at home or
office, and did not come back to restaurants or other foodservice formats.
The endgame is an expressive growth of the ready-to-eat or pre-cooked food area in super and hypermarkets, as well as in warehouse
clubs, with a broader, deeper and better offer. The store environment, lighting and visual merchandising have also changed to address
this new demand.
For sure, the retail store format who better took advantage of this new shopping scenario was the warehouse club, who started hosting
customers much more value-driven, willing to spend much more in less store visits. A customer specially impacted by the rise of fuel
costs. In a warehouse club, average sale goes in the US$ 100 range, and consumers go to stores twice a month. The US consumers,
today extremely pragmatic, has gone deep in these changes.
Due to this, this is one of the fastest-growing retail formats in the US, only behind the internet, another sales channel deeply driven by
a change in consumers’ behavior, as it offers the opportunity to directly compare prices, in a convenient way, with less visits to stores.
Similarly, the process of changes regarding drugstores was accelerated, as these stores expanded their food, health, beauty and
convenience areas and reduced the space dedicated to medicine, due to the consumer behavior changes. The new, revamped shops
of a Duane Reade, Walgreens or CVS are much closer to the celebrated approach of British Boots, that offers sandwiches, drinks,
snacks and so on, and in the back of the store medicine and other products that were the origin of the format.
But the economy recover, the job market improvement and a brighter mood that has been showing up in the business will not bring
back the old pre-crisis behaviors, as in the maturement process consumers change forever their behavior, understanding that in some
aspects the world has changed and there are no reasons to go back to the past.
From the many changes done, maybe the most significant are all the ones regarding the digital retailing, with purchases, information
and product and price comparison through the internet and the mobile phones. The same way as the shopping frequency to warehouse
clubs, the increasing presence of ready-to-eat or pre-cooked meals in the super and hypermarkets, or the use of drugstores as
convenience stores.
The identification of some of these habits that have been brought in and their impacts in the mix of changes regarding the evolution
of store formats, businesses, channels and brands is one of the most fascinating elements of the structural and strategic distribution
process. And it offers huge opportunities to everyone making the correct and anticipated reading of these movements.

Brazilian Retail News (BRN) is a weekly newsletter published by GS&MD - Gouvêa de Souza with the most important news
on the Brazilian retailing. The content can be freely used, once the source is quoted. If you want any information on BRN or our
services, please send an email to publicacoes@gsmd.com.br or access GS&MD - Gouvêa de Souza at www.gsmd.com.br.

Gouvêa de Souza & MD Desenvolvimento Empresarial Ltda.

Av. Paulista, 171 - 10º floor
Paraíso – São Paulo – Brazil – Zip Code: 01311-904
Phone: (5511) 3405-6666 – Fax: (5511) 3263-0066

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