THE NETHERLANDS, Utrecht. The coronavirus pandemic has inflicted significant pain on the Brazilian consumer, with unemployment rising and incomes set to decline in the coming months. Beyond the initial shock of the lockdown period, in which supermarkets and pharmacies have done well, consumer habits are set to change and resemble some of the trends seen during the last recession in 2015-2016.
A large part of the country remains in social isolation mode, with no clarity as to when and how such measures will be relaxed or lifted. São Paulo state is signalling a continuation of the quarantine period until at least April 22. On April 13, Santa Catarina became the first state to announce the reopening of some retailers, with restrictions remaining on schools and shopping malls.
Supermarkets and pharmacies reported higher sales in March and early April nationally. Cielo, an electronic payments company, reported an increase of 3% in March and an increase of 4.7% in the first week of April, compared to the same period in 2019. The company also showed that sales in the services sector contracted by 45% in March in Brazil, while durable goods declined by 33%. For the first week of April, services declined by 73% and tourism tumbled by 91%.
Elo, another electronic payments group, reported a sharp contraction of 65% in sales at bars and restaurants in the last week of March, while Cielo indicated that sales at bars and restaurants contracted by 71% in the first week of April.
Online sales are set to expand significantly this year, with supermarkets reporting an increase of 80% in March, according to a report by ABComm.
The animal protein sector is facing significant challenges too. According to IBGE (Brazilian Institute of Geography and Statistics), beef slaughter rates declined by around 50% in March, compared to the same month in 2019. Domestic consumption is contracting at a rapid rate, and, as a consequence, major processors are closing some of their plants temporarily.
Poultry sales are performing better than beef, with consumers looking for affordability. Pork exports to China have seen no impacts, which is helping that sector maintain steady production.
Brazilian consumers are experiencing unprecedented stress levels in April 2020, with a rapid decline in income, higher unemployment, and fear of Covid-19 shaping their spending behavior. The first key point to project is when the economy will reopen and whether consumers will start behaving in the same way as they did before March. For now, the base case scenario is a sharp contraction in Q2, followed by a return to growth in Q3 and Q4 that will enable consumption to recover for most key sectors.
However, this projection can change rapidly. First, because health problems are still unresolved, and second, because consumers are unlikely to go out and spend in foodservice locations in the same way as long as there are virus cases present and no vaccine or proven treatments.
Beer and spirits are likely to be hardest hit by the foodservice contraction. But other sectors, like animal protein, will also be impacted. One of the lessons from the 2015-16 recession was that consumers traded down to more affordable alternatives. This could benefit poultry over beef.
Delivery platforms, like Rappi and iFood, are clear winners of this crisis and will further increase their share of sales in food and beverages as a channel. This is likely to be a permanent gain, as consumers will likely be less willing to go out to public places even as the worst of the epidemic ends.
Restaurants will need to adapt to a new reality, in which deliveries make up an even bigger share of their overall sales. More investments into specialized kitchens for deliveries are also likely. While the Brazilian congress has now approved a support measure of BRL 600/month for three months for workers with no formal jobs, which is around 60% of the monthly minimum wage, many consumers will cut purchases to the absolute essential whether they have formal or informal jobs.