One new digital business per minute - the Brazilian reality.

Context scenario

Even before the pandemic, the proportion of issues relating to the digitization and automation of processes in our reorganization and transformation projects in Brazil was increasing. Now the pandemic has changed a lot, and some things will certainly return to the way they were before. But what has definitely changed is the buying behavior in the B2C, as well as the B2B area. So how will the change in buying habits affect retail and services in the post-pandemic period in Brazil?

In any case, a decisive factor is the average age of the Brazilian population. At about 30 years old on average, the country is one of the youngest nations on the globe.

There is a new focus on the horizon

With the closure of trade during the quarantine, our way of buying and selling has become almost a good 50% digital. Basically, only hypermarkets, supermarkets and small grocery stores kept their doors open during the harshest period of social isolation. Even then, many Brazilians preferred to shop online when possible - and businesses had to work hard to serve them.

Keyword: logistics.

closed store in the Jardins district, São Paulo

With the reopening of retail, high street stores, such as those in the Jardins district of São Paulo, which had lost space in recent years, also gained new momentum. At the same time, delivery services massively expanded their share of sales, became more sophisticated and gained a new customer base. We can observe this concretely in some projects. The most massive example of this steady development is our emblematic project with a local coffee shop franchise in São Paulo.

Due to high vaccination rate, stores are reopened since 3rd quarter of 2021, Jardins district, São Paulo, Brazil

We can clearly observe the following trends here in Brazil since Q3 2021.

1. E-commerce expansion

During the period of social isolation, e-commerce, which had been on the rise for years, grew exponentially, albeit at a slower pace. Suddenly, almost everyone, across all age groups, began shopping online.

As the quarantine was relaxed and retailers reopened, online sales experienced a slight setback, but remained well above pre-pandemic levels.

According to data analysis by Nielsen and the Brazilian E-Commerce Association (Abcomm), the number of orders placed in online stores increased by approximately 110% from January 2020 to December 2021 compared to the same period in 2019, while total sales also increased by 105%. Before the pandemic, the forecast was for a 27% increase in sales for the same period.

As we have been accompanying our client of the coffee shop franchise chain for several years in a wide variety of projects, we can clearly confirm such massive increases.

Coffee Shop, São Paulo, Brazil

In 2022, if there is no new tightening of social isolation measures, there will be a tendency for Brazilian e-commerce growth to slow down, although growth should still be robust. According to the report, online sales are expected to grow 25% this year compared to 2021. Looking at our coffee shop franchise chain client, we assumed growth of about 15%. However, the current trend gives hope that online orders can now develop towards +20%. As a reason, the further diffusion of the own app, a further improvement of the user friendliness, as well as a further integration of delivery services by third-party providers can help here.

Potential Brazil

If we consult the most diverse sources available to us, Brazil has about 42 million online consumers today, almost twice as many as before the pandemic. Nevertheless, we should not forget that this represents only 20% of the Brazilian population. So the real growth potential is very large. One should never lose sight of the fact that the average age of Brazilians is around 30.

Brazil has one of the youngest populations in the world.

E-commerce and Brazilian small and medium-sized enterprises

At the peak of the 2020/21 crisis, about 30,000 new online stores were created per month - an average of almost one new store per minute, while in the pre-pandemic period the average was 10,000 stores per month.

At the same time, many companies have begun to ask themselves whether it makes sense to maintain physical stores whose rents are expensive, rather than simply staying in the virtual world, plus an operational base in less prestigious locations.

The business concepts are differentiated.

And this raises a fundamentally strategic question: what does prestige-rich mean in this new age?

Whereas in the past it was increasingly the traditional high-priced locations to suggest premium and luxury, this axis has shifted noticeably. Today's question is much more in the direction of where to best pick up the tribes to be addressed with one's product or service. The metropolitan area of São Paulo has about 20 million people. Thus, this question has now suddenly become a central one, incorporating the lessons learned from the pandemic and online commerce.

São Paulo is one of the three most populous urban areas in the world.

They are doing better?

It seems interesting to take a look at the large retail chains operating in Brazil. They are being frenetically celebrated by investors on the Brazilian stock exchange B3 because of the sharp increase in e-commerce sales during the crisis. But what is apparently not at all clear is whether their digital business models are really profitable, or remain so. It doesn't seem to be that easy to make money in this market while having to compete with the supposedly smaller and locally operating providers. Even for Amazon Brazil it is difficult to generate profitability. Apparently, the cloud service and not e-commerce is the racehorse.

Brazilian stock exchange B3, formerly known as BOVESPA

When you generate your own chaos from scale.

Also, canibalistic competition occurred in Brazil within the same company and between sales channels. For example, if a product X was offered on webpage A for R$ 1,000.00 and on webpage B at R$ 999.00, most of the market naturally went to B with one click.

But beyond that, the manufacturers in the quarantine with closed stores themselves started to offer their products directly to consumers through the Internet, which further increased competition. This put them in competition with their own web channel.

One can probably guess that there is still a lot to do in this area, and the dispute for the market tends to increase. Better for the Brazilian, who has integrated e-commerce into his daily life once and for all.

2. Revitalization of street shops

One of the main effects of the retail pandemic was the revitalization of street stores, which Brazil had been losing floor space for years. This was accompanied by a reduction in the attractiveness of shopping malls. After the reopening of shopping centers during 2021, they still have not managed to regain the space they held before the crisis. Currently, it is difficult to say if they will ever make it.

Many brands that had pushed street stores aside returned to see them as an alternative to monetize their business models, stimulated by growth and in combination with e-commerce. At the same time, it is still possible to observe a significant decrease in mall movements compared to the pre-pandemic period. A look at our coffee shop franchise chain client also confirms exactly this trend.

Street stores are growing

With the decrease in sales, the profitability of maintaining a point of sale in a shopping center was questioned.

We have also worked through these scenarios in transformation projects with our clients. It quickly becomes clear that in very many business models, converting and focusing on the point of sale in the street can reduce costs and create a separate warehouse. From this, online retail can be served efficiently and and e-commerce can continue to grow steadily.

Shopping center in São Paulo, Brazil

3. Delivery is also on the menu

Disentangling product from delivery was a reality in Brazil long before the pandemic. But in quarantine, motoboys took over the urban supply chain.

Delivery boys in the streets of São Paulo, Brazil

Not coincidentally, Burger King Brazil opened the world's first ghost kitchen to handle the increased demand for deliveries and optimize face-to-face delivery at the group's restaurants. In turn, delivery service iFood received approval from the National Civil Aviation Agency (Anac) to begin operations using drones. The idea is to use the device to make the first part of the trip to a stopover, where orders will be distributed to delivery drivers who will take them to customers' addresses.

Drone flight, south district São Paulo, Brazil

The bet for the future

These are bets that reinforce the perception that delivery should continue to have a relevant presence in the life of every Brazilian, even after the pandemic has subsided.

The implementation of e-commerce business models, under agile application of the design thinking philosophy, is rapidly increasing. This means that even in the design phase, these projects are becoming noticeably more professional.

At iManagementBrazil, we have responded to this. Consistent training in digital engineering topics, no-code app builder practices and the Python programming language were on the curriculum during the pandemic. Combined with our deep understanding of tactical and strategic thinking in reorganization and transformation, we provide unique value to our clients in Brazil. We also actively assist interested investors in the Brazilian market.