After years of economic woes, Argentina emerging as a market of opportunity

Inflation was running at an eye watering 47% in 2016, but aggressive policies by the President Mauricio Macri are taming the wild rate of inflation, with estimates for 2017 pegged at over half the 2016 level. Inflation for 2018 is forecasted to drop further, to about 16%.

“We have turned a corner,”​ Macri told Bloomberg Television​​ recently.​ “Without a fixed exchange rate, without any type of price controls, we have been reducing inflation. I am more confident than ever that in 2019 we will have single-digit inflation.”​

Argentina’s economy contracted by 2.2% in 2016, but the economic turnaround has produced a year-on-year growth in GDP of 2.75 for the first half of 2017, according to the World Bank.​ The country’s budget bill is forecasting economic growth of 3.5% for 2018.

Such has been the turnaround that some food companies are no longer looking at the country as a challenge but as an opportunity. Laurent Freixe, CEO of Zone Americas for Nestlé, recently highlighted Argentina as such (along with Colombia and Cuba). “The country is back in the global economy,”​ he told attendees at the recent 2017 Nestlé Investor Seminar​. “We see good opportunities there. We have a good footprint there and good teams [in place].”​

Changing consumer behavior​

The outlook is positive, and that will come as good news to food and beverage manufacturers and retailers in Argentina.

Retail volume sales declined slightly in 2016, according to a report by Euromonitor International, and big chain supermarkets and hypermarkets, such as Jumbo, Coto and Carrefour, responded by offering significant discounts.

“These retailers offered deals like 2-for-1, or an 80% discount on a second product, as well as major savings when paying with a bank card. These promotions even reached dairy and other essential categories,” ​noted the market researcher in its November 2016 Packaged Food in Argentina ​report.

Buying habits also changed during the difficult economic times, with Argentinian consumers bulk-buying as many non-perishable items as possible to stockpile in order to beat the 3% monthly inflation rate. “Their aim was to ensure the highest possible supply of processed fruit and vegetables, rice, pasta and sweet biscuits and avoid having to paying marked-up prices each month,”​ stated the Euromonitor report.

Snacking stays stable​

Mondelez International is present in Argentina predominantly with biscuits, chocolate, powdered beverages, gum and candy. A company spokesperson told us that, while there has been a general drop in overall consumption levels across the country, snacks have been generally stable, with Argentina maintaining its consumption rates in the categories of biscuits and powdered drinks. 

“Biscuits, for instance, can still be found in 99% of homes in Argentina. And in the case of chocolate, where we have a leading position with brands like Milka and Cadbury Dairy Milk, we have actually registered levels of growth above the market,” ​noted the spokesperson.   

“What we see right now in terms of food consumption is that consumers first tend to cut their larger expenses – such as eating out – before snacks.  At this time, it’s difficult to tell whether this trend will continue or change in one direction or the other.” ​

The spokesperson added that, despite the challenging operating environment, Mondelez continues to invest in Argentina by adding new local product offerings that cater to Argentine tastes like the new Milka cookies (cookies with Milka chocolate chips) and Mini Cerealitas (with differentiated nutritional profiles and portion-control options ideal for anytime, anywhere snacking).

The rise in health and wellness​

One category that bucked the difficult economic times was health and wellness packaged foods, which recorded  stronger retail volume sales growth than packaged food, overall, in 2016, according to Euromonitor. “[I]n 2016, packaged food registered a 1% decline in retail volume sales, health and wellness packaged food saw positive growth,”​ stated the Euromonitor report.

“In order to understand this process, it is important to highlight the performance of some categories in 2016. For example, frozen meat substitutes, basically composed of soy-based food, registered a 21% increase in retail volume sales, its highest growth rate of the review period, despite the economic crisis,”​ added the Euromonitor report.

One high profile meat-alternative product launch was Granja del Sol’s Milanesas de Arroz (Rice Milanesas), introduced in late 2015.

Health and wellness also impacted the beverage space, with low calorie carbonates losing their luster to products like flavored water, which is positioned as natural beverages, combined with antioxidants or added vitamins.

“Consumers are progressively seeking healthier beverages such as bottled water, flavoured water, powder concentrates and 100% juice to reduce calorie and sugar intake. Public health campaigns driven by the Ministerio de Salud (Health Ministry) have alerted consumers to the high levels of sugar in many beverages,” ​according to Euromonitor.

In the dairy aisle, Danone Argentina introduced a couple of notable new products, with its 2015 launch of Ser Joyful, a high-protein, 0% fat spoonable yoghurt with less than 99 calories, and its 2016 launch of Ser Balance, a flavored yoghurt with bifidus​.

M&A activity in the market​

The dairy category has also seen a lot of financial action in Argentina over the past couple of years, with, for example, Vicentin acquiring SanCor Cooperativas Unidas’ yoghurt and chilled dairy desserts business. In addition, Argentinian confectionery and bakery group Arcor took a 25% stake in dairy company Mastellone Hermanos.

Other significant deals included Molinos Río de la Plata’s selling its chilled and frozen processed meat brands Good Mark and Vienissima and its Delicia and Manty margarine brands to Brazilian multinational Brf Brasil Foods.