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.
Overall, the economy looks set to expand, with year-on-year (y-o-y) real GDP growth forecast at 3.1% and 3.5% in 2015 and 2016 respectively. However, due to recent currency fluctuations, BMI projects that total household income and total household spending, in USD terms, as well as household spending across all sub-sectors of the retail market we monitor, will see a significant contraction y-o-y in 2015. Nevertheless, this is expected be a short-term trend, as we predict a return to positive growth of household income and spending in 2016. Furthermore, we expect that in 2016, the number of households in the middle class bracket will increase by over 7%. Among other things, this should provide increased (as a % of total spending) "non-essentials" spending, on sectors such as recreation & culture, which is expected to see the highest growth rates over our forecast period, and decreased (as a % of total spending) spending on "essential" sectors, such as food & non-alcoholic drinks, which is expected to see the lowest growth rates over our forecast period.
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.
It was announced that Grupo Exito plans to acquire Super Inter, a Colombian supermarket chain with over 50 stores around the country. Mexican convenience chain OXXO announced its intent to operate 100 stores in the Colombian capital of Bogota. To do so, the retailer will open five stores per year over the next 10 years..
Internet retailing grew substantially in 2014, with Grupo Exito introducing their new portal CDiscount, an online discount electronic and home goods store, to complement their existing exito.com and carulla.com sites.
A study undertaken by Colombian E-Commerce Chamber and comScore in July 2014, found that a total of 7.02mn online users in the country access retail websites and that those using retail websites account for around 53% of total internet users in the country.
Key BMI Forecasts
We forecast that total household spending within the retail sector will increase from USD184bn in 2015 to USD255bn in 2019, representing an annual average growth rate of 8.4%.
Housing & utilities and personal, insurance & other spending look set to remain the two largest sectors of household spending throughout our period, with spending in 2016 forecast to reach USD44.6bn and USD40.7bn respectively.
The proportion of households reaching the middle-class income bracket of USD10,000 and above is expected to rise from 15.2% in 2015 to 19.4% in 2019.