A GUIDE FOR MARKETERSTHE BRAZIL OPPORTUNITY

November 2013

EXECUTIVE SUMMARY

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THE BRAZIL OPPORTUNITY: A GUIDE FOR MARKETERS

In the decade-plus since the BRIC moniker was coined, the expectation that Brazil would emerge as a robust new market for brands has been borne out. The middle class today is mushrooming, fueling a consumption boom. Yet many international brands are absent or only starting to eye the terrain.

Based on on-the-ground research, “The Brazil Opportunity” presents a primer for brands seeking to benefit from the emergence of a mass market in the world’s fifth most populous country. It offers a wide-ranging introduction to a complex culture and consumer mindset: a look at the forces that have shaped Brazilian society and how it’s evolving in tandem with massive political, economic and social shifts. The report also spotlights Brazil’s media landscape and strategies for overcoming domestic hurdles.

Recommendations for brands are included throughout, as well as examples of how domestic and international marketers are engaging and motivating Brazilian consumers.

The opportunities in Brazil are only expanding as the upcoming World Cup and Olympics drive consumer momentum. This report provides a foundation for brands looking to succeed in this burgeoning market.

The following is a preview of JWT’s 82-page report. To purchase “The Brazil Opportunity,” please visit JWTIntelligence.com. JWT clients can contact Hallie Steiner (hallie.steiner@jwt.com) for a copy at no cost.i

ABOUT THE REPORT

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“The Brazil Opportunity: A Guide for Marketers” is the result of quantitative, qualitative and desk research conducted by JWTIntelligence throughout the year. Specifically for this report, we conducted on-the-ground research in Brazil. Colleagues at JWT São Paulo, JWT Porto Alegre and JWT Rio de Janeiro, as well as Ampla Comunicação in Recife, provided invaluable assistance and insights. In addition, we interviewed four experts.

This report also includes data from quantitative surveys conducted using SONAR™, JWT’s proprietary online tool, and featured in previous reports. Data from JWT’s “Meet the BRIC Millennials” is derived from a July 2013 survey of 2,417 adults aged 18-plus (604 Brazilians, 606 Russians, 605 Indians and 602 Chinese). Data from JWT’s “AnxietyIndex 2013 Global Report” is derived from an October 2012 survey of 6,075 adults in 27 markets.

METHODOLOGY

EXPERTSFABIANO DESTRI LOBO, managing director, LatAm, Mobile Marketing Association

EZRA GELD, CEO, JWT Brazil

MARCOS TROYJO, co-director, BRICLab, Columbia University

BENJAMIN WHITE, founder, 21212 Digital Accelerator

THE BRAZIL OPPORTUNITY: A GUIDE FOR MARKETERS

4*Source: Boston Consulting Group

Close to 200 million people across 3.3 million square miles—a landmass bigger than India or the contiguous United States—generating almost $2.4 trillion in GDP. Welcome to Brazil, “the country of the future.”

Forecast to become the world’s sixth largest economy by 2030, according to a January report by PwC, Brazil has seen an influx of foreign brands since the economy stabilized in the mid-’90s and then boomed over the last decade. While growth has slowed—and several intractable issues like poor infrastructure still handicap the country—brands will find a relatively uncluttered market and a nation of young spenders who are hungry to try new things and optimistic about their financial future.

Meanwhile, rich natural resources—including oil, iron and fertile land—and long-term government initiatives look likely to sustain momentum for years to come. Average real wages are expected to grow through 2016, supporting income gains, according to The Economist Intelligence Unit. Recent programs like 2011’s Brasil Maior (Bigger Brazil) aim to increase competitiveness, productivity and innovation. Plus, the FIFA World Cup in 2014

and the Summer Olympic Games in 2016 promise to put a global spotlight on Brazil and drive spending.

For North American and European firms, Brazil also presents lower barriers to entry than its BRIC peers, given the degree of cultural overlap, including a Latin-based language, a Judeo-Christian faith, a European history and a robust democracy (based on the American system). Shared roots and cultural values, according to The Economist Intelligence Unit, also mean Brazilians are more amenable to working with Western multinationals.

Six in 10 international business leaders polled by Ernst & Young in 2012 were considering setting up operations in Brazil this year, and more than 8 in 10 believed Brazil will only get more attractive over the next three years (by comparison, fewer than 4 in 10 believed this about Europe).

MARKET OVERVIEW

Personal electronics

Special vacation

Home electronics

Jewelry

Home appliances

House

Car

39

24

33

11

26

10

24

67

48

67

19

52

28

54

GlobalBrazil

Exuberant consumersPercentage who intend to purchase in each category in the next year or two

Source: GfK Roper, March 2013

$1.6 TRILLION Forecast annual

spending power of Brazilian households

by 2020*

THE BRAZIL OPPORTUNITY: A GUIDE FOR MARKETERS

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While some businesses eyeing Brazil might be deterred by recent economic indicators, the market is extremely robust. Here’s the reality:

• Brazil is currently the world’s seventh biggest economy.

• While growth has slowed, it hasn’t stopped. The economy expanded by 1.5% in the second quarter. In July, retail sales grew 6% year-over-year, almost double the median forecast. Sales of luxury goods are expected to grow at least 12% this year, per the Financial Times.

• Per capita income of families jumped by 32% between 2001 and 2011, and the ranks of the middle and upper classes are forecast to keep expanding over the next decade (see chart).

• Unemployment has fallen significantly, dropping from more than 12% in 2003 to less than 6% in July 2013.

• The population is highly urban and becoming more so, with 87% in urban areas.

• Consumers are young: The average age in Brazil is 30.3 years, notably younger than consumers in developed markets like the U.S. (37.2) and the U.K. (40.3).

• Education is improving: More than 70% of middle-class children have had more education than their parents. University enrollment is higher than in China and India.

• Inflation over the next few years is expected to remain relatively low, and below levels projected for Russia and India.

MARKET OVERVIEW (cont’d.)

You have a convergence of factors creating what you can call the perfect sunny day. There is the agro-

energy sector that has fared very well … [and] income growth has continued year after year: That has attracted a lot of brands.”

—MARCOS TROYJO, co-director, BRICLab, Columbia University

THE BRAZIL OPPORTUNITY: A GUIDE FOR MARKETERS

Source: Data Popular, 2013

2003

176 million total population

2013

201 million total population

2023

216 million total population

Upper class Middle class Lower class

13% 22% 33%

38%

54%58%

49%24%

9%

Economic evolutionBrazil’s burgeoning upper and middle class

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A mass market is emerging for the first time in Brazil: Customers across classes are growing increasingly likely to shop at the same stores, for the same products, just as CEOs and Average Joes might buy their khakis at Gap. (Indeed, Gap is planning on entering the market.) “Brazil’s economy and Brazil’s consumer base were not built with a mass midmarket in mind, and we are only recently moving into that mindset,” says Ezra Geld, CEO of JWT Brazil.

Traditionally, consumer segments have been clearly delineated according to class, with domestic brands targeting distinct cohorts. Supermarket chain Epa Supermercados and the soft drink Dolly, for instance, have created loyal consumer bases among the lower classes thanks to their cheap prices and communication styles, while grocery retailer Pão de Açúcar has been the territory of the upper class. The brands’ identities remain strongly linked to these demographics.

Today, that’s changing: The upwardly mobile, increasingly affluent members of the middle class no longer want to buy products and patronize retailers that reinforce a class identity they’re looking to shed. Domestic brands are struggling to stay relevant, which opens up rich opportunities for international brands.

Upper-class consumers are also starting to look beyond the brands that normally cater to them. In fashion, for instance, mixing luxury labels with cheap chic has become more prevalent. Magazines like Elle and Vogue encourage readers to blur the lines between high and low.

THE MASS- MARKET OPPORTUNITY

Until 10 years ago, Brazil was a two-class market. You had money, or you didn’t have money. There

was no in between. … Then the population moved up into the middle class, and brands are having to play catch-up and to reposition themselves very quickly.”

—EZRA GELD, CEO, JWT Brazil

THE BRAZIL OPPORTUNITY: A GUIDE FOR MARKETERS

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THE BRAZILIAN CONSUMER

Image credit: Adam Jones

Consumers are classed into five segments. Most of the middle cohort, Class C, is gaining spending power for the first time and embracing the opportunities that provides. Across classes, consumers are driven by a desire to demonstrate status. Ebullient and emotional, Brazilians are spenders, not savers, and inclined to buy on impulse. They’re not only flexing their muscles as consumers but also as citizens, demanding more from both government and business.

What we cover in this section:

1. The Expanding Shopping Basket

2. Class Structure

3. The Citizen Consumer

4. Status, Hierarchy and Ambition

5. Spenders, Not Savers

6. Right-Brain Nation

8Image credit: Will Palley

Forged from a rich mixture of influences, Brazilian culture is characterized by both a robust national pride and a longstanding inferiority complex, a vibrant optimism and a strain of bittersweet nostalgia. Family and community are of prime importance in this collectivist culture, with football—almost a national religion—not far behind. Stratification is ingrained, but that’s changing as culture starts to trickle both down and up. Marketers will also need to understand regional differences—and bairrismo, or local pride—in a country that’s bigger than the continental U.S.

THE BRAZILIAN CULTURE

What we cover in this section:

7. Syncretism

8. Brazilian Pride

9. Enduring Optimism

10. Collectivism

11. Trickle-Up Culture

12. A Passion for Football

13. Regional Differences

9Image credit: daoleduc

MEDIA AND TECHNOLOGY

Television dominates the media landscape, but consumers are also increasingly digital, embracing mobile (Brazil is ranked fourth in mobile connections globally) and social networking. Brazil is home to one of the world’s biggest media networks, a fragmented radio and newspaper market, and a fast-changing pay TV market.

What we cover in this section:

14. Media Landscape

15. Mobile Momentum

16. Social Media

10Image credit: Pēteris2009

OVERCOMING HURDLES

International brands can tap into several inherent advantages they carry over entrenched domestic brands—but will also need to counter an enduring affection for local goods and navigate some serious business challenges, including protectionist policies and poor infrastructure.

What we cover in this section:

17. Taking on Domestic Brands

18. Navigating the “Brazil Cost”

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The initial burst of optimism and enthusiasm around the BRIC markets has cooled recently as their economies inevitably sputter and many longstanding issues remain unresolved. Brazil hasn’t been immune. A recent Economist report hazards a slowing of Brazil’s growth, pointing to various inauspicious economic indicators, infrastructure problems, hints of future turbulence and other signs of some disruption in the country’s steady upward trajectory.

Yet “there is scope for the social and economic advances of the past two decades to continue,” the magazine reported. As it stands, these advances have resulted in an emerging mass market whose consumers are not only product-hungry but eager to try new things and enamored of foreign brands, buying up imports despite high tariffs.

As a counterbalance to Brazil’s slowing growth, the unemployment rate has remained low, so consumers are still spending. And in some cases, Brazilians’ exuberant consumption belies their still relatively low disposable income vs. developed markets. For instance, Brazilian women spend as much on beauty products as British women, and by 2016, Brazil is expected to overtake Japan as the No. 2 market for cosmetics and fragrances, behind the U.S.

The population is also young and growing, and hugely digital. Mobile penetration is forecast to reach about 177% by 2017, according to the GSMA, and by next year around 40 million Brazilians are expected to be connected to broadband Internet. E-commerce and m-commerce, an attractive solution to the challenge of marketing across a vast landmass, are growing.

The upcoming FIFA World Cup in 2014 and the Summer Olympic Games in Rio de Janeiro in 2016 offer a perfect springboard for establishing a long-term presence in Brazil. While the country’s spending on World Cup preparations has set off widespread political and cultural turbulence, these milestone events are expected to generate significant energy and enthusiasm once under way. Brazilians are deeply proud of their country and have long yearned to assume a higher profile on the global stage. Emotions are likely to swell as the spotlight shines on Brazil, presenting unique opportunities to marketers over an extended period.

Politically, the future will see some much-needed reforms. Next year’s federal election will be the first in which the 2010 “ficha limpa” (clean record) law—barring candidates guilty of certain offenses from running for eight years—is in effect. Meanwhile, a steadily improving infrastructure will facilitate imports and internal transportation of goods.

LOOKING FORWARD

I have been hearing about slowing growth and the middle class being stretched to its limits for the last four years now. But that is just not what we are seeing on the ground.”

—RENATO RIQUE, chairman and chief executive of leading mall operator Aliansce Shopping Centers, “Aliansce Shopping Centers

says Brazil goes right on growing,” Financial Times, Oct. 14, 2013

THE BRAZIL OPPORTUNITY: A GUIDE FOR MARKETERS

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International brands that can fuse their expertise with a careful understanding of Brazil’s culture and consumers will find massive opportunities in this dynamic environment—especially those that can join the samba circle, find their jogo de cintura and persevere through Brazil’s inevitable challenges.

Join the samba circle: Brazilians are, for the most part, optimistic, emotive people who value community, social cohesion and joy. The samba circle offers a useful representation of the Brazilian spirit: people dancing together, following the rhythm and harmoniously coexisting. Those who remain outside the circle are perceived as unfriendly, boring and even hostile, and will eventually be rejected by the group.

To join the circle, brands need only be fun, positive and vibrant. Embrace Brazil’s characteristic optimism, energy and national pride.

Find your jogo de cintura: Brazilians are flexible, creative and entrepreneurial by nature. They solve problems inventively, bargain constantly and reconfigure slogans, products, services and even laws to suit their needs. (For instance, Rio de Janeiro was forced to make stopping at a red light optional after 10 p.m. thanks to residents’ stubborn disregard for traffic lights at night, mostly due to security concerns.)

This kind of flexibility is an example of jogo de cintura, a uniquely Brazilian concept that has no direct translation but effectively means being malleable enough to adapt to diverse situations—especially problematic ones—and come out ahead by deploying ingenuity and tenacity. Brands will need to find their own jogo de cintura to win over Brazil’s often unpredictable consumers.

Persevere through hurdles: There’s no doubt that breaking into Brazil can be tough. Infrastructure is underserved, legislation is complex and confusing, and protectionist policies handicap international brands. But perseverance will be rewarded for marketers that can cater to the unique needs and whims of these exuberant consumers.

THREE KEY RULES

THE BRAZIL OPPORTUNITY: A GUIDE FOR MARKETERS

Image credit: Hanumann

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The following is a preview of JWT’s 82-page report. To purchase “The Brazil Opportunity,” please visit JWTIntelligence.com. JWT clients can contact Hallie Steiner (hallie.steiner@jwt.com) for a copy at no cost.

JWT: JWT is the world’s best-known marketing communications brand that has been inventing pioneering ideas for the past 150 years. Headquartered in New York, JWT is a true global network with more than 200 offices in over 90 countries, employing nearly 10,000 marketing professionals. JWT consistently ranks among the top agency networks in the world and continues a dominant presence in the industry by staying on the leading edge—from producing the first-ever TV commercial in 1939 to developing award-winning branded content today. For more information, please visit www.jwt.com and follow us @JWT_Worldwide.

JWTIntelligence: JWTIntelligence is a center for provocative thinking that focuses on identifying shifts in the global zeitgeist. Its aim is to bring the outside in—to help inspire ideas beyond brand, category and consumer conventions—and to identify emerging opportunities so they can be leveraged for business gain. As a part of JWT, the world’s best-known marketing communications brand, JWTIntelligence has conducted trends research and analysis across categories and geographies for nearly a decade. For more information, please visit www.jwtintelligence.com and follow us @JWTIntelligence.

THE BRAZIL OPPORTUNITY: A GUIDE FOR MARKETERS

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Written by Will Palley

Edited by Marian Berelowitz

Director of trendspotting Ann M. Mack

Trends strategist Nicholas Ayala

Proofreader and Hallie Steiner fact checker

Fact checker Sarah Siegel

SONAR™ Mark Truss Karen Montecuollo Elizabeth Burns

Design Peter Mullaney

Ann M. Mack 212-210-7378 ann.mack@jwt.com @annmmack

Will Palley 212-210-7225 william.palley@jwt.com @wpalley

© 2013 J. Walter Thompson Company. All Rights Reserved.

THE BRAZIL OPPORTUNITY: A GUIDE FOR MARKETERS

This report would not have been possible without the support of JWT Brazil and Ampla Comunicação in Recife. Special thanks to:

CONTACT:

Fernand AlphenJessica BouchetJoão CaputiSilvia CuriatiJoão DabburRenato DuoFelipe GiaconPedro GropoGiulia JoauFernando LimaPedro LimaPaula LinsJosé Lucas de Paula

Juliana MaazLuiza MadeiraIsabella MulhollandStella PiraniFernando PradoMariana PradoElisa Santilli Barbara SchneiderDaniel SimonAurora Teixeira Lucia Zachia Caio Zuccolotto