Inflation’s Impact in LATAM: Strategies for 2024

May 6, 2024
Rebecca Wine profile picture
Rebecca Wine

Here’s how the challenging socio-economic outlook is changing shopper behavior and how retailers and direct sellers can adapt.

What to expect

According to The Mastercard Economics Institute (MEI) latest annual Economic Outlook Report 2024, Latin America's economy is expected to slow down. Although the economy is improving, both regular consumers and businesses will still have to tighten their belts a bit. Consumer spending will become more cautious due to a looming threat of the increase in borrowing costs. This is in large part due to what’s going on outside the region, like slowdowns in other major economies.

According to Fitch Ratings, how much people spend on non-essential goods will vary across LATAM countries: 

  • In Brazil and Chile, where interest rates are starting to drop and inflation is under control, people's buying power should slowly bounce back. While in Mexico, it's going to be tough to match the spending spree of 2023. 
  • In Colombia, inflation is still high and the country's monetary policy isn't showing signs of easing up, thus discretionary spending might stay weak.

Shopper behavior in 2024:

​​Since the pandemic, Latin American shoppers have changed their shopping strategy and increased the number of channels they visit. Households across the socioeconomic spectrum have expanded their shopping horizons by about 10% – that's equal to adding an extra channel to their buying journey.

Demand for necessities, like groceries and medicine, is holding strong, as consumers are prioritizing essential goods and are more price-conscious. As a result, it is important for retailers to focus more on their value product offerings.

In addition, shoppers aren't hitting the stores as often as they used to, and when they do, they're not spending as much. According to iPaper’s 2023 LATAM shopper survey  89% of shoppers who use printed leaflets say that they use them “to compare and evaluate prices”, underlining their price-conscious focus.

5 Strategies for Retailers

Leverage non-traditional channels

Expand presence in pharmacies, convenience stores, and specialized stores. Since consumers are trading down AND increasingly drawn to personalized shopping experiences pharmacies are pulling shoppers away from direct selling companies by offering both cheaper prices and more of a personalized experience. They have expanded their beauty offerings, deploying specialized sales representatives, and providing additional "medical" assistance through consultations with dermatology experts and nutritionists. These efforts aim to provide consumers with holistic solutions encompassing both supplements and beauty products at a reasonable price.

Go digital

Due to the fact that LATAM consumers are trading down there has been a proliferation of private label lines. In an attempt to recapture shoppers who are now going to more budget-friendly places, direct sellers have been forced to develop new ways to reach their customers. Some have found digital interactive catalogs to be a great solution to this challenge. Offering engaging and user-friendly digital catalogs will appease the shopper’s focus on price and makes their shopping journey easier. Armando Cisneros, Business Development Specialist for LATAM markets, says that Andrea, the Mexican Direct Seller "has seen a noticeable increase of revenue since they implemented an interactive digital solution. It is therefore important to Andrea to keep investing in making their catalogs user friendly and easy to shop."

Price matters

Offer competitive pricing, promotions, and smaller pack sizes. For example, Walmart Mexico offers a "precios bajos todos los días" (low prices every day) strategy with a strong focus on their "Great Value" brand for everyday essentials. They say that this strategy helps them build trust with their customers.

Embrace omnichannel strategies

Be present across multiple channels, including online, mobile, and physical stores. The Chilean retail giant Falabella underwent a digital transformation journey to implement a successful omnichannel strategy. This strategy focuses on personalized customer experiences and future innovations like frictionless checkout, and gamified shopping. Furthermore, it enhances customer experiences (for example with 37% shorter transaction times), increased operational efficiency and agility in meeting evolving market demands.

Cater to smaller trips

Provide convenient shopping experiences and targeted promotions for smaller purchases. Ara, a Colombian neighborhood store chain’s main pillars are competitive prices, proximity, and assortment of quality products all meeting the basic needs of Colombian consumers. Ara positions themselves to be an ally to Colombian families in the face of hard times by addressing difficult urban mobility and high levels of poverty.

Wrapping up:

As Latin America's economy braces for a slowdown, businesses must prepare for shifting consumer behaviors. With cautious spending on the rise, retailers and direct sellers can adapt by focusing on value products, embracing omnichannel strategies, catering to smaller shopping trips, expanding into non-traditional channels, and investing in digital solutions.

By staying agile and responsive to these changes, businesses can navigate the challenges of inflation's impact and position themselves for success in the evolving market landscape.

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