strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
 / Spring 2007 / Issue 46(originally published by Booz & Company)


The Flatbread Factor

In Latin America, Germany’s Aldi Group is currently experimenting with a scaled-down supermarket model. It is influenced in part by a 2006 Coca-Cola Retailing Research Council study that found that low-income consumers dislike the hypermarket format and prefer smaller local stores; they don’t have the time or money to travel far to a hypermarket, and they don’t enjoy watching others buy what they can’t afford.

The third step is to leverage your most successful business models in other markets that are reaching similar stages in the life cycle. For example, Pepsi has learned that wine bars in Spain and other countries in western Europe are excellent outlets for its snack foods because bars are frequented by lunch crowds more than in the United States. Pepsi has taken this distribution lesson to its Eastern Europe operations.

Some companies have developed a fast-response-team approach, moving experienced teams to new markets quickly when they spot an evolving industry pattern. Bristol-Myers Squibb Company in Asia sends in marketing and sales executives divided by the channels they are pursuing: The market team for hypermarkets is different from the team serving mom-and-pop stores, because these two channels require different platforms.

Gruma, similarly, deployed a senior “beachhead” team to enter China, with skills honed through many years of experience in Latin America. This team was thus already primed to pick up early signals of market maturity: a decrease in home cooking among dual-career professionals, increasing penetration of fast food chains, an increase in cold storage in supermarkets, and rapid improvements in the logistics and distribution channels.

By studying a market’s natural pattern, regardless of the country, and then viewing that chronology through the prism of that country’s specific context, business managers will have a powerful new way of thinking about emerging and transitional markets. Although it is true that differences from country to country are numerous, these differences should not blind executives to the most significant similarities among markets. It’s by identifying and exploiting the similarities that businesses can gain leverage and success.

The ability to translate these insights into a coherent business strategy is a competitive advantage — and may soon become a competitive imperative as the global business environment opens up to new players. Leading companies from emerging markets are already facing off with multinationals. It’s often said that China will accomplish in 15 years what took Brazil 35 years. Executives will have much less time to react and adapt to the market life cycle as the pace of globalization increases and the ride picks up speed.

What Would Mom and Pop Do?
by Leticia Costa, Fernando Fernandes, and Guillermo D’Andrea

If you’re looking for innovation in the retail sector in Latin America, don’t go into the high-end stores: Look at what C.K. Prahalad calls the “bottom of the pyramid.” Elektra is the leading electronics and appliances chain in Mexico, with 741 stores and annual revenues of US$1.8 billion. However, because many low-income customers at Elektra make purchases on credit, defaults are a major concern. When a payment is late, therefore, Elektra lets the customer’s neighbors know. It’s a smart form of peer pressure that pays off as the customer pays up.

This is an extreme example of the lengths to which some major companies go as they challenge the traditional dominance of small, local stores in low-income areas. A retailer like Elektra has essentially created hundreds of mom-and-pop stores, with one notable difference: They all share the same corporate parent. This model bears watching for companies that have designs on other emerging markets.

These retailers understand that the best way to attract consumers in emerging economies is not necessarily with rock-bottom prices. By balancing the need for affordability with the latent aspirations of emerging consumers, these companies have set the bar for other retailers in emerging markets. The consumers they target, who represent 50 percent or more of the population in Latin America, respond enthusiastically to innovations like these:

• Better Access to Higher-Level Products or Services. Some successful retailers make it their mission to allow emerging consumers to purchase something that has been previously unaffordable to them (for example, a television or a washing machine). Often this involves creative financing for consumers who have little or no credit history. Some retailers inspire loyalty by offering consumers a level of sales assistance and services, such as extended warranty and home delivery, that they have never gotten from large chains. Others have introduced creative credit-scoring schemes that bring some customers access to credit for the first time. Casas Bahia, the largest household-goods retailer in Brazil, has had revenue growth of approximately 16 percent per year since 1999. It hires sales staff from local communities and trains them to work with customers on buying sensibly, thus encouraging consumers to stay within their budgets — which both reduces the chance of defaults and cuts down on customer frustration.

The company has also developed an online central credit system that delegates a significant amount of responsibility to salespeople: Staff members are authorized to give up to 600 reals (approximately $275) in credit to customers who provide a home address and are not blacklisted by the nationwide online credit protection service. Once customers are approved, they can make payments in as many as 18 installments, and will receive further offers of credit after paying off their purchase. Customers must make their payments in person unless they choose to pay an additional fee, which gives Casas Bahia 18 opportunities to strengthen the relationship before the next big purchase.

• Affordable Design and Quality. Retailers must often battle the perception held by emerging consumers that if an item is stylish and sold in a trendy store, it’s not for them. Casa & Ideas, a Chilean home decor retailer, performs a careful balancing act between affordable and exclusive. Thanks to a dedicated, in-house design staff of 35 people and a network of suppliers in low-cost countries, the company can put out two collections per year of basic items and between two and four additional collections of limited-edition items. Emerging consumers, happy that a store is specifically aiming to provide them with trendy items, have developed a strong loyalty toward Casa & Ideas; 70 percent of its sales now come from frequent shoppers.

• Assortment and Location. Many emerging consumers struggle with the choice between the limited selections at conveniently located small stores and the large selections at chain stores that are difficult to reach because they are only in big cities. Magazine Luiza, a Brazilian retailer of basic home goods, has developed an unusual solution in 52 of its small local “virtual” stores. It makes sure customers can get as many goods as possible not by stocking a broad inventory, but by making its entire catalog accessible at its stores via the Internet. Customers visit the physical storefronts to shop online. Unlike other companies that have failed in that endeavor by employing a self-service model, Magazine Luiza uses sales clerks to educate consumers on the concept. The stores retain a friendly, local flavor by offering an hour of free Internet access to every customer, with an additional hour for those bringing in a new customer. The company also partners with local charities to provide information sessions on such topics as literacy, healthy living, and child care.

By making a broad range of products accessible in small towns at the low prices usually available only at large-scale, big-city retailers, companies like these have opened up access to the large market segments of the bottom of the pyramid.

Leticia Costa ([email protected]) is a vice president with Booz Allen Hamilton and president of the firm’s office in Brazil. She is an expert on the consumer packaged goods, retail, food and beverage, tobacco, and automotive industries, and currently oversees work with industrials in the Southern Cone.

Fernando Fernandes ([email protected]) is a principal with Booz Allen based in Sao Paulo, where he focuses on business development and channel strategies for the consumer goods and retail industries.

Guillermo D’Andrea ([email protected]) is chair of the marketing department at the Instituto de Altos Estudios Empresariales, part of the Universidad Austral in Buenos Aires, and research director for the Coca-Cola Retailing Research Council–Latin America.

Also contributing to this article were Booz Allen Hamilton Senior Executive Advisor Alejandro Stengel, Booz Allen Vice President Carlos Navarro, and Fabio Fossen. 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store



  1. “Carmaking in India: A Different Route,” Economist, December 13, 2006: Tata Motors plots a $3,000 car. Click here
  2. Stewart Brand, “City Planet,” s+b, Spring 2006: Describes the demographic shifts driving many of these market life cycles, and former Unilever executive R. Gopalakrishnan recounts the RIN story. Click here
  3. Guillermo D’Andrea, Leticia Costa, and Fernando Fernandes, “Successful Retail Innovation in Emerging Markets: Latin American Companies Translate Smart Ideas into Profitable Businesses,” Booz Allen Hamilton white paper, January 2007: A study for the Coca-Cola Retailing Research Council shows how breakthrough retailing makes a difference in Latin America’s maturing consumer market. PDF download
  4. Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Basic Books, 2000): Explains how to undo the bureaucratic factors that constrain market life cycles.
  5. Jean Kinsey and Min Xue, “Supermarket Development in China,” paper presented at the China Workshop of the Worcester Polytechnic Institute, June 16–17, 2005: Fascinating preliminary study from two researchers at the Food Industry Center, University of Minnesota, of grocery evolution in China over the last two decades. PDF download
  6. “Looking Forward, Acting Now,” 2005 Annual Report, Gruma SA de CV: An unusually comprehensive annual report lays out the company’s global approach to markets and customers. Click here
  7. Alonso Martinez, Ivan De Souza, and Francis Liu, “Multinationals vs. Multilatinas: Latin America’s Great Race,” s+b, Fall 2003: Explicates the nature of corporate competition in emerging markets. Click here
  8. Norihiko Shirouzu and Stephen Power, Unthrilling but Inexpensive, the Logan Boosts Renault in Emerging Markets,” Wall Street Journal, October 4, 2006: Chronicle of a $10,000 car for developing markets.
  9. Michael Sisk and Andrew Sambrook, editors, The Whole Deal: Fulfilling the Promise of Acquisitions and Mergers (strategy+business Books, 2006): Shows how a more effective acquisition process makes all the difference in implementing a successful two-platform strategy, particularly when a company is entering emerging markets.
Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.