BMI View: With the fourth largest economy in Latin America, measured by GDP, Colombia ' s retail sector presents many opportunities for international and domestic retailers, as well as investors.
Years of economically sound policy have lowered barriers to entry for international firms, and sustained economic growth has brought lower unemployment rates and higher levels of affluence for a significant portion of the population. However, lingering poverty levels, a deficient physical and transportation infrastructure, and the slow rate of non-cash payment integration into the economy continue to remain a hindrance to achieving full economic growth potential. Nevertheless, significant opportunities remain. In particular, the continuing fall of the informal sector's market share and the continuing rise of e-commerce and online retail should provide meaningful incentive for further investment and expansion .
The Colombian economy is set for a sharp slowdown in the coming quarters, as the country struggles in the face of weaker trade dynamics and slowing household spending. Indeed, after real GDP growth of 4.6% in 2014, we forecast only a 2.9% expansion in 2015. Moreover, we expect real GDP growth will remain weak over the coming five years, averaging 3.3% compared to 4.8% in the past half decade, as the impact of weaker oil prices and falling crude production continue to temper the country's economic outlook. This will weigh on the retail sector's prospects, particularly in the luxury non-essentials segments, as disposable income levels remain subdued.
Colombia's rugged topography makes road network development a difficult endeavour. It is estimated that the road network is used for 80% of internal transportation, and is therefore the main means of distribution for retailers, yet the quality and coverage of the road infrastructure is not good. Road maintenance presents significant challenges due to frequent landslides and geographically unstable terrains. In addition, much of the country has no real road networks at all, and although this only prevents retailers from accessing a small portion of the population with ease, when the retail markets in the main cities become saturated and there is no further room for growth, it is the southern underdeveloped regions which will need to be accessed.
Labour market dynamics remain relatively robust for now, with the April national unemployment reading coming in at 9.5%. However, the steady decline in unemployment that we have seen over the last decade has largely levelled off; we expect the jobless rate to tick up in the months ahead as the country's rising economic headwinds undermine business confidence and dampen job creation. This is bad news for retailers across most subsectors, as it will further constrain growth prospects in an already-subdued market.
While a few international players, such as Almacenes Exito S.A. (or Grupo Exito) and Chilean retailer Cencosud, dominate Colombia's largest retail sub-sector, mass grocery retail (MGR), Colombia's retail sector overall contains some 12,000 small, independent retailers, many operating a "mom-and-pop" type format focused only on their local area. Colombia also has a substantial informal sector, which accounts for over half of total household retail spending. Over recent years, larger firms and formats have made substantial gains in market share; however, these small businesses still maintain a meaningful presence, especially in less urban areas, where low-income consumers often lack transportation options and have insufficient income to take advantage of bulk-purchase discounts. As transportation infrastructure continues to improve, new markets should emerge in these areas, and the informal sector in these locations should present a significant opportunity for urban-established retailers looking for further growth.
In urban areas, however, the retail sector displays a variety of formats, from hypermarkets to convenience stores and from high-end supermarkets to discount warehouses. As Colombia is one of the most urbanised nations in Latin America, at over 75% of the population. These urban markets see the highest levels of competition and customisation, as they represent the largest opportunities. Along with the continuing expansion of their hypermarket and supermarket formats, many larger firms, to compete effectively with small, independent retailers, have started to focus on proximity as well. This has resulted in existing retailers opening smaller, more convenience-oriented formats, such as Grupo Exito's Exito Express stores. It has also prompted successful international convenience store chains to enter the market, such as Mexican retailer OXXO. Urban areas have also seen the continuation of shopping mall development, as they represent the choice format for many international fashion and department store brands and as Colombia currently has one of the lowest shopping centre penetration rates in Latin America.
Online retailing in Colombia still remains underdeveloped, even as the country has one of the highest internet connectivity rates in the region. However, both 2013 and 2014 saw over 30% y-o-y growth, as some of the largest retailers have been developing an online presence to meet growing demand from younger, computer-oriented consumers. Although Colombia still lags a dependable logistics infrastructure, it looks set to make inroads in coming years, as the government has pledged USD15bn for basic infrastructure (roads and railways) improvement and firms like Servicomex plan to expand their portfolio of logistics parks.
Key BMI Forecasts
We forecast that total household spending within the retail sector will increase from USD178bn in 2015 to USD242bn in 2019.
Housing & utilities will remain the largest sector of household spending throughout our period, with spending in 2016 forecast to reach USD42.8bn.
The proportion of households reaching the middle-class income bracket of USD10,000 and above is expected to rise from 14% in 2015 to 17.8% in 2019.
The Colombia Retail Report has been researched at source and features BMI Research's independent assessment and forecasts for the retail sector. The report examines key drivers of retail sales growth and future prospects, including consumer spending and private sector investment.
BMI's Colombia Retail Report also examines the level of development and potential for growth of the retail sector, the commercial initiatives of major players, changing consumer demographics that influence demand and the regulatory environment. Key sub-sectors include mass grocery retail, autos, over-the-counter pharmaceuticals, computers and consumer electronics.
- Benchmark BMI's independent retail industry forecasts for Colombia to test other views - a key input for successful budgeting and strategic business planning in the Colombian retail market.
- Target business opportunities and risks in Colombia through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
BMI Industry View
Summary of BMI’s key forecasts and industry analysis, plus a discussion of major industry developments and a snapshot of key short-term demand-driving macroeconomic movements.
Industry SWOT Analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the retail sector and within the broader political, economic and business environment.
BMI Industry Forecasts
There are four separate 5-year forecast modules in the retail reports. These are:
- Headline Retail Forecast: Total household spending (local currency and USDbn, % growth, % GDP, per capita, per household), spending by retail sector (food & non-alcoholic drink, alcoholic drink, clothing & footwear, housing & utilities, furnishings & home, health, transport, recreation, education, restaurants & hotels, personal care & insurance (local currency and USDbn, % growth, % GDP, % of total spending)
- Retail Sector Forecast: Breakdown of Food, Non Alcoholic Drink, Alcohol, Tobacco, Clothing, Footwear, Household Goods, Furnishings, Appliances, Glass and Tablewear, Household Textiles, Consumer Electronics, Garden Toys and Pets, Home and Garden tools, Personal Care, Personal Effects Spending (USDbn, % Growth)
- Household Income and Numbers Forecast: Number of Households (‘000, % growth); gross income per household and per capita; net income per household and per capita; tax and social contributions per capita; breakdown of household incomes – USD5000+, USD10,000+ USD50000+ (‘000, % of total); labour force, employment and unemployment (‘000, % change)
- Demographic Forecast: Total population; Babies 0-12 months; Young Children 0-4yrs; Children 5-9yrs; Young Teens and Older Children 10-14yrs; Older Teens 15-19yrs; Adults 21yrs +; Young Adults 21-29yrs; Middle Aged 40-64yrs (‘000, % growth, male, female); Urban Population (‘000, % population); Rural Population (‘000, % population).
BMI’s Retail Risk Reward Index
BMI’s Risk Reward Indices provide investors looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide indices of highest to lowest appeal to investors, with each position explained.
Provides a detailed country-specific analysis of the key trends and developments in the retail sector as a whole, as well as an assessment of the main drivers affecting the major retail segments including mass grocery retail, fashion, pharmacies, consumer electronics, home improvement and personal care. The market overview also considers the most effective store formats in a given country and the impact of these factors on the main international and domestic players’ development strategies.
This provides a brief overview of the key players in each subsection of the retail sector including MGR, Fashion, Home Improvement, Consumer Electronics, Pharmacies, and Department Store chains.
The Retail Reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.