The first part of this article presents an analysis of the economic scenario, which conditions the behavior of agents that are part of the consumer goods supply chains. Next, the implications of changes in the competitive environment will be discussed in terms of the needs of supermarket operators, as well as the performance and quality of the distribution service practiced by the industry.
The analyzes that follow are based on the results of the Benchmark Survey – Distribution Service, conducted periodically since 1994 (see box), and this article is based on the results of the survey carried out in 2012.
General information
The Benchmark Survey – Distribution Service, carried out periodically since 1994 by the Center for Studies in Logistics and later by the ILOS, aims to measure the evolution of the importance and quality of the distribution service in the consumer goods industry in the perception of supermarket operators. The work has been sponsored by leading industrial companies in their respective sectors.
The research scope considers about 600 interviews, carried out in five Brazilian capitals (São Paulo, Rio de Janeiro, Curitiba, Belo Horizonte and Recife), considering three categories of products: perishable food, non-perishable food and hygiene and cleaning.
The methodology evaluates eight dimensions (operationalized through their respective distribution service attributes): Product Availability, Order Cycle Time, Delivery Time Consistency, Delivery Frequency, Delivery System Flexibility, Failure Remediation System , Support Information System and Physical Delivery Support
the economic environment
We reached the end of 2013, involved in a context of uncertainties in the world economy, still due to the consequences of the 2009 financial crisis. In this scenario, we observe most European Union countries in stagnation or recession, many with high unemployment rates. The United States, in a less critical situation, is still growing timidly, with a declining level of unemployment and a threat arising from its fiscal deficit. And China, the engine of the world economy, is at a lower level of growth than that experienced over the last 30 years, which should last for the foreseeable future.
It is in this world context that the Brazilian economy is in a situation of exhaustion of the growth model of the last 11 years. For much of President Lula's term (2003 to 2010), the country developed leveraged by programs to increase income for the less favored, by the insertion of labor in the labor market, which reduced the unemployment rate from 12,4 % in 2003 to 6,7% in 2010 (see Table 1) and, based on the evolution of a long period of world prosperity, which ended at the end of 2008, which brought a bonanza of foreign investments and high commodity prices. However, in the first three years of President Dilma's government, we are faced with a poor performance in terms of economic development.
Table 1 - Evolution of rates[1] Brazilian GDP growth rate, exchange rate, INPC, IPCA, unemployment rate, minimum wage, average real income of employed persons, wage bill, credit operations, household consumption and real supermarket sales *forecast
Source: Economic Conjuncture, IBGE, RAIS/MTE and ABRAS
There is almost unanimity among economists that the potential effect of stimulating domestic consumption to boost GDP growth has reached its exhaustion. For example, the current unemployment rate is the lowest in history (5,4%), with no more space to serve as an important factor for economic growth. It should be noted that the service sector is the one that has absorbed the most workers and represents about 68,5% of the country's economy. As can be seen in Graph 1, services, which grew at a rate of 5,7% in the third quarter of 2011, were only 1,5% in the third quarter of 2012, after eight consecutive periods of decline, reaching a slight recovery of 1,9% in the second quarter of 2013.
Graph 1 - GDP of services accumulated in 12 months
Source: IBGE
In this sense, despite the continued adoption of measures to stimulate economic activity through consumption, such as the exemption of sectors and the reduction of interest rates, the country has been experiencing weak GDP growth during the Dilma government – from 2,7% in 2011 to 1,5 .2012% in 2,5, probably reaching 6,5% at the end of this year – with significant inflationary pressure – from 2011% in 5,8 to 2012% in 2013 and 2013 (with this figure for 1,01 being worse when we observe that managed prices rose only 12% in the last 7,34 months, while free prices rose XNUMX%!!!).
It is worth mentioning that household consumption, which currently represents around 63% of GDP, has shown successive drops in the growth rate in the last three years – 6,9% in 2010; 4,1% in 2011; 3,1% in 2012 and a forecast of 2,7% in 2013 –, as shown in Table 1. This scenario seems like a threat to a dark past of stagflation that we want to forget, especially in the years prior to the 1994 economic stabilization plan, which is characterized by low growth with sharp price increases.
The expectation remains that the potential for GDP growth will only react from the adoption of a macroeconomic model based on increased investments and productivity. Without the leverage of domestic consumption, a higher level of investment would be important, notably in infrastructure, to direct the increase in economic activity and create the conditions for improving productivity, in a virtuous circle.
In this scenario, there would be a propensity to improve the quality of jobs, which in turn would raise the level of prosperity of the middle class in a much more sustainable way than simple income transfers, such as programs such as “Bolsa Família” and the real minimum wage increase.
There are those economists who argue that the government should exempt imports as an inducer of internal competitiveness, aiming at improvements in the equipment of the various sectors, which, consequently, would also produce more noble jobs, thus providing an increase in the productivity of the economy, consistently and sustainably.
It should be noted that our country is one of the most closed in the world! The International Trade ratio as a percentage of GDP was only 24,5% in 2011, while Argentina had 41,4%, China 58,7% and Germany 95,3%! Brazil is the seventh largest economy on the planet, but is around the 20th position both in imports and exports of goods and services. In a ranking of 150 nations listed by the World Bank, Brazil is the one with the lowest openness index, considering the proportion between International Trade and GDP. Therefore, the country has a lot to evolve in its commercial exchanges, developing existing markets and creating new opportunities in new markets, as a lever of economic prosperity.
However, on the investment side, we have observed a strong inability to manage the government, which keeps announcing ambitious plans that are not fully implemented for the most varied reasons, such as those referring to regulation, environmental licenses and content requirements. national. Not to mention the discretionary government interventions (eg BNDES and Petrobras) and the legal instability generated by “breaking the rules of the game”, which scare away foreign investors.
In 2012, the investment-to-GDP ratio was only 18,1% (with a slight recovery expected for 2013), maintaining the sequence of declines in 2010 and 2011, from 19,5% to 19%, respectively, according to the Institute Brazilian Institute of Geography and Statistics (IBGE). The most alarming thing is that, when we consider the volume of resources dedicated to fixed capital formation, the investment made in Brazil in 2012 was 4% lower than in the previous year! This performance is well below countries like Mexico, which in 2012 had a GDP growth of 3,9%, inflation of 3,2% and investment rate of 22%; and Chile, with 5,5% growth, 1,8% inflation and an investment rate of 27%.
In short, it is interesting to highlight that, while the average annual growth rates of the economy (GDP) and inflation (IPCA) in the Lula government were 4% and 5,8%, respectively, in the three years of Dilma these indicators worsened to 2,2% and 6,1%, respectively. Indicative nothing encouraging for the near future!
However, it is worth mentioning that some more optimistic economists argue that growth conditions are about to come out of the “oven”, since many of the recent government actions, such as the reduction of interest rates and energy, lack time to have the desired effects. In addition, we have a super harvest this year, with international prices partly promising, due to low inventory levels in some crops.
It is in this scenario that we enter 2014, with a unanimous expectation among the economists on duty that GDP growth will be 0,5 pp (percentage points) lower than expected in 2013 (around 2,5%). In fact, many fear that this will be a “lost” year, due to the elections, which inhibit fundamental structural changes for a sustainable economy, not to mention the harmful effects of a carnival in March and the expected paralysis during the FIFA World Cup .
However, the good news for the consumer goods supply chain is that the average annual growth rate of supermarket sales during the Dilma period has accelerated to 4,6%/year, compared to 2,7%/year in the Dilma era. Lula, despite the recent policies and programs to stimulate the economy not being reflected in consistent growth in the country as a whole. This was expected, as these recent incentives have had a significant direct impact on the purchasing power of the low-income population, which tends to convert these extra gains to meet more than its basic needs, in a process of upward social mobility, improving the standard of living. consumption and thus pulling the supply chain.
It is noteworthy that this behavior is in accordance with the established theory of “Maslow's Hierarchy of Needs”, which proposes that each individual has to “climb” a hierarchy of needs to achieve self-realization. That is, lower-level needs must be satisfied before higher-level needs, as in climbing a pyramid.
In this sense, the high growth rate of supermarket sales was driven by the strong increase in household consumption, of 10,2% in the accumulated between 2011 and 2013. This positive result for the sector was reinforced by greater insertion in the labor market, which led to a drop in the annual average unemployment rate from 9,5% to 5,6% between the periods of the two governments, and by the increase in the average income of workers, which accumulated a gain of 8,3% in the last three years, as well as above the 4,9% achieved over the eight years of Lula's government. This leverage in consumption was further boosted by the 7,5 pp increase in credit operations during the Dilma period. The wage bill showed an average annual growth of 4,3% in the last three years, compared to 3,3% per year during the period of the previous government (see Table 1).
In short, this is a sector that remains at a strong level of activity, despite the poor performance of the economy as a whole, largely due to the inertia of the social mobility process observed in recent years, which has leveraged a significant increase in the middle class in the country. This is a phenomenon that should continue, at least in the near future, due to the expansion of income transfer programs and the generalized exemption of products from the basic basket that has been announced, as well as the continuity of the policy of real increase in the minimum wage , and despite little room for reducing the level of unemployment.
Therefore, for 2014, regardless of the hazy environment that is envisioned for the economy as a whole, the industrial sector of consumer goods should continue to grow, driven by the increase in supermarket sales by around 4%.
It is up to the industries to assess the impacts of the macroeconomic scenario on the consumption profile, in order to position themselves appropriately in the market. For example, will the government implement measures to curb consumption in order to reduce inflation?
The commercial purchasing decision process
This section will address the impacts of changes in the economic environment on trade relations between participants in the consumer goods supply chain, as illustrated in Figure 1.
Figure 1 – The consumer goods supply chain
Source: ILOS
Figure 1 presents the logic of the physical flow of goods between the industry and the consumer, which can be done directly; through wholesalers; or through retail chains. This last case is the focus of the research carried out.
Figure 2 shows how the relative importance of purchasing decision variables[2] (based on the “marketing mix” – Product, Price, Distribution Service, and Promotion and Advertising) of retailers with the industry has changed over the period considered by the survey.
Figure 2 - Evolution of the purchasing decision process from commerce to industry
Source: Benchmark Research – Distribution Service 2013
It is observed that, in the last five years, there has been maintenance of the level of importance of the Distribution Service in the decision-making process of purchases by retailers. On the other hand, Product has experienced a consistent increase in relevance over the last six years, to the detriment of Price and Promotion and Advertising variables. It should be noted that Product became the most important decision variable in the period.
It is important to verify, in Figure 2, that the retailers' purchasing decision remains strongly centered on the Price and Product variables, at around 64%, compared to the others, Distribution Service and Promotion and Advertising.
The increase in the level of importance of the Distribution Service, as of 2008, can be understood by the period of expressive growth in supermarket sales, as the increase in the purchasing power of the population was translated into greater consumption, causing pressure on the service provided by the industry. Between 2006 and 2012, retail trade sales increased by 38,3%, driven by growth in household consumption, which was 34,3%.
It is interesting to observe that, during the last ten years (period of the Lula and Dilma governments), while the importance of Price fell by 6,3 pp, the other purchasing decision variables gained relevance – Product, 3,3 pp; Distribution Service, 1,1 pp; and Promotion and Propaganda, 2 pp. That is, over this period, it is possible to infer that retailers have been less sensitive to Price, willing to accept an increase in the same in exchange for better Products and Distribution Service, and more Promotion and Advertising. The increased relevance of the Product seems consistent with the process of social mobility seen in recent years, which is demanding more variety and quality in the products sold.
The strong increase in the volume of supermarket retail sales observed in the period certainly caused pressures on the capacity of the industries' distribution operations, which, consequently, must have compromised the quality of the services offered.
The results for the sector in 2013 should maintain the evolution observed, with Product and Customer Service tending to gain strength to the detriment of Price and, possibly, Promotion and Advertising.
The next section will seek to assess the level of satisfaction of the retail trade with the Distribution Service provided by the consumer goods industry, raising its level of demand and whether the companies that hold the best practices have their performance differentiated by the retail trade.
Conclusions
Despite the unfavorable prospects of the economic environment, a positive performance is expected for the industrial sector of consumer goods in 2013, notably due to the inertial effects of recent measures to encourage consumption, such as exemption of sectors and transfer programs income. As previously mentioned, household consumption is currently equivalent to 63% of GDP, thus constituting an engine for growth in the consumer goods sector. In this sense, it is worrying to observe that the growth rate of household consumption has decreased in the last four years, from 6,9% in 2010 to 4,1% in 2011 and 3,1% in 2012, reaching 2,7 % in 2013.
There is almost unanimity among economists that the current growth model, which has been adopted by the Lula and Dilma governments to counteract the global crisis, has reached exhaustion. In the medium term, it is expected that the government will change to a macroeconomic model based on investments and productivity, moving away from the current one, leveraged by stimulus to consumption.
It remains to be seen whether there will be management competence to adopt another model, based on investments – with an emphasis on infrastructure – and productivity. Recent experience does not generate optimism, as the government has not demonstrated management competence by executing only around 40% of the announced investments.
In 2013, the continued growth of supermarket trade should put pressure on the capacity of the industry's distribution service, aiming at high levels of product availability, associated with reliability and adequate delivery times. It is expected, therefore, that both the Product and Distribution Service variables have gained in relevance in commercial relations between agents in the consumer goods supply chains, which in turn should imply an increase in demand in the level of service provided by the industry.
These results are consistent with the process of social ascension observed in recent years, with the consequent desire to improve the population's consumption pattern, which in turn has pushed the supply chain of consumer goods to offer a greater variety and quality of products. products.
It should be noted that the consumer goods industries must be aware of the impacts of uncertainties in the business environment, as opportunities may arise if a change in the economic growth model is adopted, based on investments and productivity, which will probably affect the dynamics in commercial relationships between the various agents in the supply chain
REFERENCES
FLEURY, PF, LAVALLE, CR Evaluation of the physical distribution service: the relationship between the consumer goods industry and the wholesale and retail trade. Management and Production, vol. 4, nº 2, August 1997.
CHRISTOPHER, M. Logistics and Supply Chain Management: strategies for reducing costs and improving service🇧🇷 Prentice Hall, 1998.
BOWERSOX, DJ, CLOSS, DJ Business Logistics: the supply chain integration process. Atlas publishing house, 2001.
Cesar Lavalle
Director of International Relations
Institute of Logistics and Supply Chain - ILOS
lavalle@ilos.com.br
Tel .: (21) 3445-3000
[1] Economic Conjuncture, IBGE, RAIS/MTE and ABRAS
[2] Respondents were asked to distribute 100 points among the four purchasing decision variables considered (Product, Price, Place/Channel – represented by the performance of the Physical Distribution Service, and Promotion and Advertising). A higher score indicates greater relevance. The result shows the relative weight of these variables in the decision-making process for trade purchases with the industry. In order to maintain data compatibility, the analysis only considers São Paulo and Rio de Janeiro, as these are the only markets that were research objects during all stages, between 1994 and 2012. Other markets were added from the second research phase.
