Momentum

Revolution in out-of-home food market

* Marcos Gouvêa de Souza (mgsouza@gsmd.com.br), CEO, GS&MD –

Gouvêa de Souza

Few have noticed yet there is a revolutionary changing process going on in the
out-of-home food market. And consumers are driving this process. In the last 20
years, in Brazil the share of food spending on the total family purchases has
jumped from 19.7% to 31.1%, according to the official statistics agency IBGE. In
the Southeast region, this share reached 37.2% and is still strongly
concentrated in the higher-income consumers (67% of the out-of-home market).

On the demand side, there has been a significant change in the social
composition of the population, with strong growth in the spending potential of
the lower-income consumers and the consequent migration to more
sophisticated spending levels, specially in the last decade.

But there’s more.

On the offer side there have also been having significant changes, with
expansion of store chains; market consolidation; new brands, formats and
concepts; and more professional management all over the segment, including
bakeries, fast food, c-stores, supermarkets, catering, casual dining and less
structured operations.

All the changes made private equity and venture capital companies awake for
the potential of the segment, contributing even more to the expansion,
professionalism and consolidation process, as has been the case of Advent,
who bought Viena and RA groups.

The transformation led by consumers have been bringing significant market

changes, with the organic expansion of chains and diversification of formats and
brands, as has been the case of McDonald’s, Habib’s, BFFC and Outback. But
the process is much broader, as 62% of the total number of companies in this
segment count on less than four employees. The segment includes new stores
being opened; a significant expansion of franchises; new brands and concepts;
updating of this segment in c-stores; inclusion and expansion in supermarkets;
integrated development of bakery chains; new logistics demands; and growing
interest of wholesalers and cash & carry players in the segment.

It all converges to a much different scenario, more competitive, structured,

professional, formalized and strategic, specially for food, beverage and service
providers, who in the next years will also benefit from the World Cup and
Olympic Games happening in Brazil.

The out-of-home food segment in Brazil still can grow a lot. In the US, the
segment is 20 times bigger; in the UK, five times; in France, three times. In the
global scenario, specially in these mature markets, however, in the last years
the financial crisis has reverted the prior trend of growth of the out-of-home
spending.

In the US, for instance, the share of out-of-home meals over total food sales
reached 51% in 2006 and has since then fallen to 48%. But analysts say once
the most acute consequences of the global crisis are gone, this share will start
rising all over again, due to more structural changes in consumer behavior.

Changes that rely on more time dedicated to out-of-home activities; the ongoing
quest for more convenience for consumers who have more of everything,
except for time; the increasing presence of women in the marketplace; and the
offer of new food solutions, more practical and at more competitive prices.

When we add to all of this the economic and social transformation Brazil has
been going through in the last years, it’s not surprising the growing interest the
segment has attracting, not only in the players already in the country, but also in
international groups who have been following this development and have been
interested in riding on the strong wave of growth of this market. A movement
that will help speeding even more the process of structural changes and the
importance of the segment in the Brazilian economy.