RSi COVID-19 Insights From Around the Globe – Latin America
Luis Osornio, Strategic Account Director – Latin America, Latin America Retail Update – May 12
LATAM Facing COVID-19
The Coronavirus landed in Latin America on February 26, when the first case was confirmed in São Paulo, Brazil. Since then, governments across the region have taken an array of actions to protect their citizens and contain COVID-19’s spread. By the second week of April, reported cases in the whole region exceeded 65,000, while the death toll rose to more than 2,500.
As of May 11, Brazil has reported more than 162,000 cases. It was followed by Peru, with 67,307 confirmed cases of COVID-19. In total, the region has registered more than 371,000 infected patients, as well as a growing number of fatal COVID-19 cases.
To reduce the spread of the virus, countries started to implement mitigation measures such as social distancing and travel bans. Total and partial lockdowns included shutting down borders, prohibiting transit for non-essential reasons, cancelling events, closing non-essential business, and stopping or virtualising schools and universities.
What Are the Regional Challenges?
- 9% of the population is aged over 65
- Health systems limited capacity
- High levels of informality
Most Latin American and Caribbean countries have been hit by the COVID-19 crisis in the context of low potential growth, high inequalities and rising social discontent.
Nevertheless, the Pan American Health Organization (PAHO) director highlighted the solidarity in the region and the need to continue sharing resources, expertise and joint decisions to accelerate access to health services, research and innovation.
How Has the Economy Been Affected?
On March 2, the OECD decreased global GDP growth expectations for the year by half a point down to 2.4 percent. Prior to the epidemic, the IMF predicted 1.6 percent GDP growth for the region for 2020. Due to unforeseen impacts, such as oil price reductions, recent estimations of GDP growth for 2020 tend to be negative – between -1.8% and -5.5%.
The socio-economic impact has different sources. The confinement measures adopted have made a large immediate drop-in economic activity. Households are also drastically cutting consumption on most goods and services during confinement. Containment measures and restrictions on border crossing affect key sectors such as tourism and international travel.
Other sectors such as retail, wholesale and manufacturing will also be heavily affected. Global slowdown and the disruption of regional value chains will generate a sharp decline in LATAM exports. Other major impacts in energy sectors, such as oil prices, are affecting fiscal and external accounts of several South American countries, as well as Mexico and Trinidad and Tobago. Chile and Peru are suffering a decline in copper prices as well.
In opposition, the adoption of digital technologies has been a bedrock to maintaining continuity in governmental communication (as example, COVID Apps), business, jobs and education.
As the OECD mentioned, policy reactions to the crisis have been bold, but further measures will be needed. In the immediate term, the priority must be to prevent contagion and support most vulnerable families, workers and firms. In the phasing out of the containment and lockdown measures, continued income support to stimulate consumption and support inclusiveness, as well as investment efforts to promote activity, are fundamental to spur a swift economic recovery. In the midterm, the aftermath of this crisis must be turned into an opportunity to redefine the social pact, putting well-being at the center, based on stronger social protection systems, better healthcare, more robust and inclusive public finances, and implementing inclusive development strategies. Coordinating a global response to address the impact of the COVID-19 crisis in the region remains vital.
The State of Consumption in LATAM
A study driven by the Boston Consulting Group (BCG) mentions that, “the current economic perception, mostly negative, is reflected in the intention to cut expenses in the coming months and in a demand that is postponed.” As an example, in Argentina, discounts powerfully influence the choice of products to buy, 85% of consumers are willing to change brands based on offers.
According to BCG study, 81% of Peruvians surveyed say they will reduce their expenses. In other countries, the contraction in spending is similar, Chile estimates a reduction of 77%, and Argentina estimates 74%.
Nielsen researched consumption changes in the region as COVID-19 spreads and found that:
- Peru generated an 18% increase in the consumption of alcoholic beverages
- In Colombia, the pandemic caused a negative change in cigarettes sale, when prior to the outbreak sales were growing by double digits.
- Chile doubled its investment in electronic acquisitions, with an increase of 57% compared to 2019.
The fear of shortages for certain products caused people to alter their buying habits. Purchases of Health and Cleaning products skyrocketed in one week. In Peru, purchases Medical supplies increased 589%. In Argentina, Hygiene products shot up 196% in sales.
Starting in March, sales in the Food Products category increased 63% week over week in comparison to last year. Meanwhile, there was a decrease in the purchase of alcoholic beverages. Unfortunately, similar to what has been seen in Mexico, many essential products, such as soap and detergent, increased in price.
Around 44% of Retailers in LATAM suspended services due to logistical challenges in March, and another 44% had issues with logistics but were still able to provide services. However, there are brands that reconfigured their production lines and developed high-need products in just 60 days or less. There are also those who donated products or money to guarantee the survival of the most needed.
Colombia Faces an Ascending Curve
Colombia confirmed the arrival of Coronavirus on March 6. The first case reported by the Ministry of Health was that of a 19-year-old girl who arrived in Bogotá after a trip to Italy. Since then, the virus has spread, and more than 11,000 cases have been confirmed.
On March 25, Colombia announced quarantine measures in an additional effort to control the spread of the virus. The president, Iván Duque, decreed a state of emergency, and the closure of land, sea, and river borders until May 30.
A Mandatory Preventive Isolation strategy was also implemented, restricting mobility and requiring children as well as adults over the age of 70 years to remain at home.
The country also shutdown colleges and universities, bars and restaurants.
Potential Mitigation of Economic Impact
Colombia can lead regional recovery, said the IMF’s Alejandro Werner, due to its resilience and strong internal demand. The IMF projects an economic contraction around 2.4% in 2020 (compared to a 5.4% contraction for Latin America and the Caribbean as a whole) and could rebound to see over 3.5% growth in 2021.
In order to contain the impact, the President announced a series of economic relief measures, including:
- Tax refunds
- Elimination of import taxes on medical supplies and technology
- Reinstatement of water services
- A grace period on mortgage and loan payments for small- and medium-sized businesses
- Special lines of credit for the agriculture, tourism, and aviation sectors
Consumption in COVID-19 Times
During the last week of February, sales of over-the-counter medications saw an 82% increase. In addition, sales of personal hygiene products, such as soap and toilet paper, also experienced higher demand with a growth of 35% and 26%, respectively.
The National Federation of Trade (FENALCO) published its monthly opinion poll which reported that during March, sales in general had a strong contraction due to the direct effect of COVID-19. In counterpart, wholesale and retail sectors for food and groceries, drugstores and toiletries, as well as those who sell technological goods such as cell phones, computers and printers, saw an increase in overall sales.
According to Nielsen, during the week of March 8, frozen vegetables, chickpea and flour were the products with the highest growth among Colombian markets. Supermarket sales had a growth of 12%. Within the region Bogota led the growth with an increase in 10% followed by Medellin, with 8%; Barranquilla, with 8%; and Cali, with 4%. Other products with high growth were:
- Hand Soaps: 36.9%
- Food supplements: 34.1%
- Bleaches: 31.1%
- Anti-flu: 28.2%
The list of categories with a decrease in sales includes deodorants at -8.3%, jams at -8.9%, and beers at -9.7%. Figures reflect the pandemic purchasing mindset, in which consumers focused on stockpiling essentials.
With the quarantine decree set in place to combat the advance of COVID-19, online orders in Colombia have greatly increased. Surprisingly, there has been no collapse in logistics to date.
The Colombian Retail Association (ACR) Strategic Director commented that, “the grocery store is essential in the country’s economy. Nearly 47% of food sales are served by corner stores and constitute the largest retail distribution channel, it is a vital bridge between the basic products basket and households.” There are around 14 million confined households in the country.