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Research launched for:The Coca-Cola Retailing Research Council Latin America by:McKinsey&CompanyInside the minds and pockets of Inside the minds and pockets of Inside the minds and pockets of Latin American consumersLatin American consumersLatin American consumersHow consumers build price perception and its How consumers build price perception and its How consumers build price perception and its impact on retailersimpact on retailersimpact on retailersTHE COCA-COLA RETAILING RESEARCH COUNCIL LATIN AMERICAThe 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 MembersJonathan BergerCIES USAHoward Butt IIIHEB MexicoGuillermo DAndreaCouncil Research DirectorAna Maria DinizGrupo Pao de Acucar BrazilPaulo GoelzerIGA,Inc.BrazilAntonio Coto GutierrezDia Internacional ArgentinaTim HammondsFMI USANicols IbezD&S ChileGonzalo Restrepoxito ColombiaEduardo Castro WrightWal*Mart Mexico1REVIEWING THE STUDY GOALS AND OBJECTIVESUnderstand the drivers of consumer price perception in Latin AmericaOverall goals and focus levelSpecific objectivesUnderstand the implications of pricing approaches on retailers and manufacturersUnderstand high level implications for retailers in terms of organization,supply chain and vendor relationsUnderstand high level implications for manufacturers in terms of capabilities and requirements to deliver under different retailer price approaches*Source:Team analysisMatch consumer price perception with reality to understand which are the most effective levers for retailersUnderstand the relative importance of different drivers of consumer price perception,across major consumer segments,product categories,shopping occasions*and selected marketsUnderstand how price ranks among the key factors in the consumer preferred store selection process*10%of study focus90%of study focus2THE STUDY LEVERAGED THREE MAIN SOURCES OF INFORMATION*AC Nielsen conducted the focus groups in So Paulo and the field research in all five marketsSource:Team analysis15 in-depth interviews with executives of key retailers in the regionMethodologyQualitative surveyFocus groups to test initial hypothesisQuantitative survey3,000,30-minute interviewsCorrelate consumer research results with AC Nielsen scantrack informationUnderstand retailer perspective on consumer price perceptionObjectiveCapture insights on consumer price perceptionSegment consumersEnrich findings with AC Nielsen proprietary databasesMatch price perception with actual pricesIn-depth interviewsConsumer survey*ACNielsen database3CONSUMER SURVEY DETAILS Source:AC Nielsen,team analysisBogot673 consumer surveys6 retailers(90%market share)30 categories(3,500 SKUs)Santiago600 consumer surveys 11 retailers(95%market share)30 categories(3,700 SKUs)Buenos Aires600 consumer surveys11 retailers(70%market share)33 categories(2,500 SKUs)So Paulo600 consumer surveys13 retailers(87%of the market)30 categories(2,500 SKUs)Mexico City612 consumer surveys6 retailers(90%market share)30 categories(3,000 SKUs)4ONLY CONSUMERS WHO SHOP REGULARLY IN AT LEAST ONE MODERN FORMAT STORE ARE RELEVANT FOR OUR ANALYSIS*Includes hypermarkets,supermarkets,mini-markets and suburban supermarketsSource:Team analysisConsidered for our analysisConsumers who only shop in traditional formatConsumers who shop in it least one modern format*store regularly Typically low-end consumersUseful to gain insights on the low-end market,already studied by CCRRCAnalysis more useful in a study to increase the penetration of modern format,what is not the scope of this projectPrimary population of interest for the CCRRCOnly respondents able to provide answers and crossable data for:Accuracy of price perceptionPrice perception drivers for modern formatEffectiveness of promotional activity in price perception buildingOur sample is representative of modern format shoppers521-34 years35-49 years50+yearsTHE CONSUMER SURVEY IS REPRESENTATIVE OF THE MAIN SOCIO-ECONOMIC CLASSES AND AGE GROUPSAge*Based on AC Nielsen socio-economic classification for each marketSource:Consumer survey%MiddleLowHighSocio-economic class*Results take into account the behavior and attitudes of low income consumers6 Source:AC Nielsen,National Marketing Associations of each countryCOUNTRY-LEVEL ACCEPTED STANDARDS GUIDED OUR INCOME LEVEL CLASSIFICATIONWe adopted the principles suggested by the National Marketing Associations of each countryHigh incomeMiddle incomeLow incomeSo PauloBuenos AiresMexico D.F.Santiago Bogot AABC1ABC+ABC1Clase alta Clase mdia altaBCC2C3CC2C3Clase mdiaDED1D2ED/EDClase baja67%of modern format shoppers in So Paulo belong to classes B and C,classified as middle income7KEY TAKEAWAYS FROM STUDY1.Latin America:diversity of consumers,and not just in the depth of their pockets2.The few key levers that matter in building price perception and the one that doesnt3.Consumers(mostly)getting it right in their search for value4.Retailers have an opportunity to get it right more often in their search for a better price proposition8CONSUMERS IN LATIN AMERICA CAN BE SPLIT INTO FIVE MAIN SEGMENTSSource:Consumer survey,team analysisAvid bargain hunters Invest a lot of time and are willing to visit multiple stores for the best dealsQuality seekers and time saversWilling to pay a slight price premium to save time and have access to high quality products“Indifferent shoppers on a budgetDo not care about shopping,hence invest little time in itRange-seekers on a budgetWant to bring home the best quality products,but limited by a tight budgetHigh income consumers who are willing to visit multiple stores to find the best dealsHigh-income bargain hunters 9WE RAN A TWO-STAGE CLUSTER ANALYSIS COMBINING ATTITUDINAL AND SOCIO-DEMOGRAPHICS ELEMENTS*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 hypothesisSource:Team analysisSample of 3,084 consumers in 5 countriesTwo main segmentation driversAttitudinal elements(most common method)Clean and intuitive attitudes across all segmentsLacks actionability(difficult to find consumers)Selected 4 most robust scenariosCrossed with shopping behaviorKey buying factors Average monthly spendFormat of main store Socio-economic/demographicsSimple way to segment,facilitate identificationLacks insights and does not reflect attitudes Two-stage cluster analysis Combines both methodologies to reach meaningful and actionable segments Process*developed and refined by McKinsey experts for segmentations with strategic objectivesRan 20+statistically relevant scenariosSelected 1 scenario with 5 clusters10ALLOWING THE IDENTIFICATION OF SOME CONSUMERS TO WHICH SEGMENT THEY BELONGSource:Team analysisLow income level Age 21-34 years oldOnly one person on the householdMiddle income level Large householdShops primarily on hypermarkets84%probability that this person is an Avid Bargain Hunter86%probability that this person is a Range seeker on a budgetEXAMPLE11INCLUDING A HANDFUL OF ATTITUDINAL STATEMENTS,ONE CAN IDENTIFY MOST CONSUMERSSource:Team analysisWould you sacrifice service for lower prices?Would you spend a lot of time looking for offers?Probability of 64%to be an“Indifferent shopper on a budget”YesNo21-3435-4950+Age groupA handful of attitudinal statements allow us to identify over 50%of all consumersEXAMPLE12AVID BARGAIN HUNTERSRely less on modern formatsWhen shopping on modern formats,tend to prefer discountersHow do they behave?Lowest average expenditure when compared with other segments(12%below market average)Less likely to do stock-up tripsAlways compare prices at different storesTend to be the least loyal consumersShopping around for the best dealsPurchasing only products they had planned onWilling to sacrifice services for lower pricesSpending a lot of time looking for promotionsShopping in larger number of stores recently What do they not value?Paying more to shop close to homePaying more to save timePaying more for higher quality What do they value?Source:Consumer survey,team analysisShopping behaviorMonthly spendFormatTypically low income Disproportionate number of males and older consumers(50+years old)13AVID BARGAIN HUNTERS14HIGH INCOME BARGAIN HUNTERSTypically high income consumerAverage age and household sizeTend to spend more(16%)than the average spend on groceriesRely more on modern format storesTend to prefer hypermarkets and avoid shopping on discountersTend to have higher loyalty than average(So Paulo is the exception)How do they behave?Shopping behaviorMonthly spendFormat Source:Consumer survey,team analysisShopping around for the best dealsStocking-up when they find attractive promotionsGoing to a grocery store they hear is offering good specialsShopping in more stores recentlyWhat do they not value?Paying more for the convenience of shopping closer homeWhat do they value?15HIGH INCOME BARGAIN HUNTERS16RANGE SEEKERS ON A BUDGETTend to shop more on hypermarketsFormatHighly price sensitiveTend to make fewer trips(So Paulo is the exception)and stock up once a monthNormally below average loyaltyHow do they behave?Tend to spend less(6%)than the market average on groceriesMonthly spendShopping behavior Source:Consumer survey,team analysisTypically young,low income mothersLarge household(6 or more people)Getting good quality products and a large assortmentStocking-up when they find attractive promotionsProviding the best possible quality for their family,despite their tight budgetWhat do they not value?Sacrificing services for lower pricesShopping at upscale storesWhat do they value?17RANGE SEEKERS ON A BUDGET18INDIFFERENT SHOPPERS ON A BUDGETTypically low/middle incomeTend to spend 10%less than the market average on groceriesTend to rely less on modern format storesWhen shopping on modern formats,tend to choose hard discounters How do they behave?Tend to shop less frequentlyDisplay relatively high loyalty to their main grocer storeShopping behaviorMonthly spendFormat Source:Consumer survey,team analysisSacrifice service for lower prices What do they not value?Spending time looking for dealsStocking-up when they find good promotionsReading store pamphletsWhat do they value?19INDIFFERENT SHOPPERS ON A BUDGET20QUALITY SEEKERS AND TIME SAVERSHow do they behave?Highest average basket,22%higher than market average spending on grocery shoppingRely primarily on modern format storesWilling to shop more on supermarketsTend to shop less frequentlyTend to be the most loyal segment in all marketsRarely compare pricesShopping behaviorMonthly spendFormat Source:Consumer survey,team analysisTypically high income consumersSmall familiesSaving time rather then moneyThe convenience of shopping closer to homeHigher quality,even at higher pricesWhat do they not value?Spending time looking for promotionsShopping in many stores to pay less What do they value?21QUALITY SEEKERS AND TIME SAVERS22Avid Bargain HuntersIndifferent shoppers on a budgetQuality seekers and time saversHigh-income bargain huntersRELATIVE SIZE OF THE SEGMENTS IN THE REGION100%=2,818Number of respondentsSource:Consumer surveyRange-seekers on a budget23THE MARKETS SHOW SIGNIFICANT DIFFERENCES IN SEGMENT BREAKDOWN%,number of respondentsQuality seekers and time saversRange seekers on a budgetIndifferent shoppers on a budgetAvid bargain huntersS.Paulo B.AiresMexico Santiago Bogot Source:Consumer survey,team analysisOverall5835685505515652,818High income bargain hunters100%So Paulo and Buenos Aires have a disproportional share of“Bargain hunters segments“Quality seekers and time savers”are more relevant in Santiago and Bogot24DETAILED SEGMENT DESCRIPTION SO PAULONumber of respondents,R$000,%Source:Consumer survey,team analysisAvid bargain hunters$spendRange seekers on a budgetIndifferent shoppers on a budgetQuality and timeHigh income bargain hunterNumber of consumersRange seekers on a budgetAverage spend:R$500Monthly visits to modern format:16Share of wallet of main retailer:63%Income levelHigh:0%Medium:70%Low:30%Quality seekers and time saversAverage spend:R$543Monthly visits to modern format:10Share of wallet of main retailer:74%Income levelHigh:20%Medium:75%Low:5%Indifferent shoppers on a budgetAverage spend:R$327Monthly visits to modern format:8Share of wallet of main retailer:71%Income levelHigh:6%Medium:63%Low:32%High income bargain huntersAverage spend:R$516Monthly visits to modern format:11Share of wallet of main retailer:55%Income levelHigh:34%Medium:66%Low:0%249565Store formatHyper:47%Super:19%Disc.:35%Store formatHyper:57%Super:3%Disc.:40%Store formatHyper:77%Super:12%Disc.:11%Store formatHyper:79%Super:12%Disc.:10%Avid bargain huntersAverage spend:R$429Monthly visits to modern format:7Share of wallet of main retailer:55%Income levelHigh:0%Medium:66%Low:33%Store formatHyper:55%Super:14%Disc.:32%Significant deviations from averageBold=Market averageAverage spend:R$441Monthly visits to modern format:9Share of wallet of main retailer:62%Income levelHigh:10%Medium:67%Low:23%Store formatHyper:60%Super:12%Disc.:28%25ALTHOUGH OTHER FACTORS VARY IN RELEVANCE,LOCATION AND PRICE ARE THE TWO MOST IMPORTANT FACTORS FOR ALL SEGMENTS Source:Consumer surveyLocation PromotionsQuality of perishable products AssortmentOverall product quality Indifferent shoppers on a budget Range-seekers on a budgetQuality seekers and time saversAvid bargain huntersWhy did you choose to shop at that particular store?Price%of consumers that selected the factor as importantBrand varietyService levelPrivate label qualityHigh income bargain hunters26BUT SEGMENTS VARY WIDELY IN THE FREQUENCY OF PRICE COMPARISON%,number of respondentsHigh income bargain huntersIndifferent shopper on a budgetRange seeker on a budgetQuality seeker and time saver100%Source:Consumer survey,team analysisAvid Bargain Hunters493655530493636AlwaysOccasionallyHow often do you compare prices between stores?NeverVery often27FROM RETAILERS STAND POINT,SOME SEGMENTS APPEAR TO BE MORE ATTRACTIVE THAN OTHERSQuality seekers and time saversHigh income bargain huntersIndifferent shoppers on a budgetRange seekers on a budgetAvid bargain huntersSource:Consumer surveyLoyalty compared to averageShare of wallet of main storeMonthly spendCompared to market average“Quality seekers and time savers”and“High income bargain hunters”spend more than any other segment and tend to be more loyal customers“Avid Bargain hunters”and“Range seekers on a budget”are the least loyal segments and have small basket sizes%28BUENOS AIRES AND BOGOT HAVE THE LOWEST LOYALTY RATIO OF ALL MARKETSSo Paulo Santiago Mexico Bogota Buenos AiresAverage loyalty ratio*Share of wallet of main storeSource:Consumer survey29SHOPPING BEHAVIOR BY SEGMENT AND MARKETAverage basket size(vertical axis)vs.loyalty index*(horizontal axis)*Share of wallet of main storeSource:Consumer surveySo Paulo(R$)Santiago(CLP)Bogot(COP)Mexico(MXN)Buenos Aires(ARS)QualityHIBHRangeAvid BHIndifferentQualityHIBHIndifferentAvid BHRangeQualityHIBHRangeIndifferentAvid BHHIBHQualityIndifferentAvid BHRangeQualityHIBHIndifferentAvid BHRangeQuality seekers and High income bargain hunters spend more than any other segment across all markets and generally have the highest loyalty ratioAvid bargain hunters and range seekers on a budget tend to spend less than all other segments and are also less loyal customersOn average,So Paulo,Santiago and Mexico have the highest loyalty ratio on all segments30WHERE THE DIFFERENT SEGMENTS SHOP*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 MexicoSource:Team analysisRange seekers on a budgetAvid bargain huntersFrustrated shoppersQuality seekers and time saversHigh income bargain hunters%,across all metropolitan areas studiedPercentage spent on modern formatHigher income segments spend more on modern formatPreferred format*Range seekers on a budgetAvid bargain huntersFrustrated shoppersQuality seekers and time saversHigh income bargain huntersSuperHyperDiscounterHigher income segments prefer super&hyper;lower tend towards discounters&hyper31SOME RETAILERS“ATTRACT”DISPROPORTIONATE SHARE OF CERTAIN SEGMENTS(1/3)OverallABCD54374904793High income bargain huntersRange seekers on a budgetAvid bargain hunters100%Source:Consumer survey,team analysisQuality seekers and time saversIndifferent shoppers on a budgetPercentage of primary shoppers by segment,main retailersSo PauloBuenos Aires322937151OverallABC32SOME RETAILERS“ATTRACT”DISPROPORTIONATE SHARE OF CERTAIN SEGMENTS(2/3)Overall410591145137High income bargain huntersRange seekers on a budgetAvid bargain huntersSource:Consumer survey,team analysisQuality seekers and time saversIndifferent shoppers on a budgetABCDBogotSantiagoOverallAB521114316Percentage of primary shoppers by segment,main retailers33SOME RETAILERS“ATTRACT”DISPROPORTIONATE SHARE OF CERTAIN SEGMENTS(3/3)AverageABCDE49566203576835High income bargain huntersRange seekers on a budgetAvid bargain hunters100%Source:Consumer survey,team analysisQuality seekers and time saversIndifferent shoppers on a budgetMexicoPercentage of primary shoppers by segment,main retailers34McKINSEY PROPRIETARY RESEARCH IDENTIFIED SEVEN SEGMENTS IN THE U.S.GROCERY RETAIL MARKETShop around at many different stores to hunt down the latest specialWant broad selection and national brands for a low priceUse coupons 100%of the time,usually at a store close to homePure PriceWilling to pay more and drive farther for quality and serviceWant great service and ambience at any costWilling to pay more to get in and out quickly at a store close to homeUse every means available to get the lowest price will not pay more for anythingBargain HuntersSelection for LessCoupon ClippersQualitySuperior ExperienceConvenienceSource:McKinsey North American Retail Practice35LATIN AMERICA SEGMENTS ARE FAIRLY SIMILAR TO THOSE IN THE U.S.Selection for Less(12%)Coupon Clippers(10%)Quality(14%)Superior Experience(20%)Convenience(22%)Source:Team analysisRange-seekers on a budget(22%)Quality seekers and time savers(21%)United StatesLatin America()Percentage of total spendBargain Hunters(10%)High-income bargain hunters(20%)Avid bargain hunters(20%)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 USSegments broadly similar in key characteristicsPure Price(12%)Indifferent shoppers on a budget(17%)79%44%56%21%More price orientedLess price oriented“Less price oriented”segments in the U.S.more defined and significantly larger share of total population than in Latin AmericaS S36KEY TAKEAWAYS FROM STUDY1.Latin America:diversity of consumers,and not just in the depth of their pockets2.The few key levers that matter in building price perception and the one that doesnt3.Consumers(mostly)getting it right in their search for value4.Retailers have an opportunity to get it right more often in their search for a better price proposition37MAIN MESSAGESReference price,range architecture and promotions are the three most important levers in determining consumer price perception in Latin AmericaReference 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 importantA limited number of KVIs appear to particularly important in driving consumers perception of r
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