C&B Notes

Reaching the Rising Middle Class

As the middle class grows in emerging and frontier countries, branded consumer products companies are working hard to figure out the best way to reach them.  Traditional large retail stores are obviously a big part of the solution, but so are much smaller than retail outlets and formalized direct sales forces.  Firms in Brazil are selling to consumers in a variety of ways, including floating boat stores deep in the Amazon and micro-distributors dedicated to door-to-door sales in Rio’s favelas.

The boat, which makes its way along the Amazon by night and opens its doors to shoppers by day, is Nestlé’s answer to a conundrum created by the burgeoning of middle classes across the globe. People are becoming more able to af­ford chocolate, beer and shampoo — but how to reach them when many still live far from the vast hypermarkets of the cities or stores of smaller towns?  World Bank figures suggest more than 30m Brazilians, 15 per cent of the country’s population, live in rural areas.  In an effort to tackle this anomaly, manufacturers from brewers to lipstick makers are moving themselves closer to consumers: either by helping to establish outlets run by third parties or by using sales teams.

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While AmBev, Diageo and Nestlé are treading new terrain — or water — more established practices also have a role.  Direct sales is common in Brazil, accounting for nearly a third of cosmetics, fragrance and toiletries sales. Overall, R$50bn ($24bn), equivalent to 1 per cent of Brazil’s economic output, goes through this channel, according to the Getulio Vargas Foundation, an academic and research institution.  The country is the world’s third-biggest direct sales market, behind the U.S. and Japan, with 4.2m representatives.  Avon, the U.S.-based cosmetics and skincare company, leads the pack with 1.5m representatives — indeed, its Brazilian operation sells one in every two of the lipsticks sold in the country and dwarfs the U.S. business.

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As well as its boat, Nestlé uses door-to-door sales: it sells to a network of 260 third-party “micro distributors”, who in turn have 15,000 resellers offering foodstuffs, including in the densely packed favelas.  Distributors there make an average R$800 a month, comfortably above the minimum wage, according to José Neto, executive manager for sales at Nestlé in São Paulo.

Danone, Nestlé’s France-based rival, has also taken to urban streets.  The seller of yoghurts and bottled water reckons 2 per cent to 4 per cent of sales are derived through such channels and is now piloting door-to-door distribution in the poor but fast-growing northeast of the country.  “We are rediscovering these channels and putting more focus on them,” says Mariano Lozano, the company’s president in the country.  Both companies use credit; in Danone’s case “to start to move the wheel”.  It helps finance the first order.