From an AI Perspective

The State of Grocery Retail in Latin America (2024)

Articles

By Jorge Garrido, Regional Commercial Director LATAM at Ailet

A few months ago, McKinsey & Company released a report in collaboration with Kantar titled ā€œThe state of grocery retail in Latin America". As usual, I couldn't resist sharing some thoughts.

Overall, the Latin American grocery retail sector is showing signs of stabilization after a period of volatility marked by the pandemic, inflation, and unemployment. Despite this recovery, challenges persist. The report highlights four key trends that retailers must address: the ongoing search for value by consumers, the transformation of the retail channel mix, the rapid rise of private-label brands, and the resurgence of e-commerce growth.

1. The Pursuit of Value Continues

The decline in purchasing power, driven by inflation and low GDP growth, has led consumers to adopt smarter purchasing behaviors. They prioritize essential products (food and beverages) over discretionary goods (personal care) and seek lower prices by opting for smaller formats and exploring different channels. While the trend leans toward essentials, an interesting behavior emerges: despite the focus on low prices, spending on "cheap" brands is decreasing, while spending on own brands and, surprisingly, premium brands is increasing, suggesting a trend of "selective indulgence."

2. Value and Convenience Drive Channel Transformation

The demand for value and convenience is reshaping preferred shopping channels. Modern retail (supermarkets, hypermarkets, discount stores, wholesalers, and health and beauty stores) is consolidating as the main option, achieving a value share of more than 50% in most countries. While traditional channels remain relevant, consumers are increasingly frequenting modern channels, which in turn drives higher average spending. Discounters, in particular, stand out as the fastest-growing format, especially in countries with high penetration.

3. Private labels continue to gain ground

Driven by the pursuit of value and an improved perception of quality, private labels are rapidly gaining ground. Initially focused on home care products, consumers are now expanding their private label purchases to include non-perishable foods, dairy products, and personal care items. Colombia and Mexico lead in private label sales share, while Ecuador is experiencing exponential growth. Discount stores remain a key channel driving the expansion of private labels.

How are leading retailers responding?

Leading retailers are responding to these changes by:

  • Evolving strategic positioning: Adapting store formats, offering essential products in strategic locations, expanding assortments, and introducing new services (such as prepared meals).
  • Transforming the core business: Leveraging data and AI across the value chainā€”from commerce and merchandising to marketing, operations, and support functions. This approach drives increased sales and margins while delivering more personalized omnichannel experiences.
  • Expanding into adjacent businesses: Developing ecosystems to diversify, including marketplaces and retail media networks.

And where does all this end?

The grocery retail sector in Latin America faces a dynamic environment and to thrive, retailers must respond strategically, leveraging the power of data as a key differentiator for decision-making, as well as to reduce response time to a rapidly changing consumer.

If you'd like to read the full report,Ā download it here.

About the autor

Jorge Garrido
Regional Commercial Director LATAM

Jorge has extensive experience in retail and consumer goods, specializing in artificial intelligence. He excels in business planning and managing stakeholder relationships to drive growth across industries.