Chile Country Profile

Market Overview:

Euromonitor reports that Chile’s economy will continue to grow at a modest pace in 2016. The pace of growth will moderate owing mainly to the fall in commodity prices. Real Gross Domestic Product (GDP) increased by 1.6% in 2016 after gains of 2.3% in 2015. Support comes from modest gains in consumer spending. Copper prices remain weak and even fell further in the past few months of 2016. Sluggish investment in mining and a continued fall in exports curbs growth. Government spending is also being cut back while private investment is slow to recover. Domestic demand is sustained by increases in public spending and fixed investment. Growth should reach 3.2% per year by 2020.

Private final consumption (in real terms) rose by 3.2% in 2015 and growth of 2.8% was expected in 2016. Domestic demand is sustained by increases in public spending and fixed investment. A rise in unemployment limits growth of private final consumption. Unemployment was 6.2% in 2015 and rose to 6.6% in 2016. The employment rate is low – much less than the OECD average – but rising.  Growth in real GDP should recover slowly in the next couple of years as copper prices improve and private investment (mainly in non-copper industries) increases. Energy deficits and dependence on copper exports will continue to be a source of vulnerability.

The rate of population growth in Chile is slowing. In 2016, population reached 18.1 million, up from 15.2 million in 2000. Meanwhile, population is ageing. The median age had risen to 34.7 years in 2016, 5.3 years more than the figure for 2000. Birth rates in Chile are lower than the regional average. They have been falling since 1985 and the downward trend will continue for the foreseeable future. The fertility rate in 2016 had fallen to 1.7 births per female – well below the regional average. However, fertility should stabilize in the future. Chilean society is experiencing a rapid ageing process. In 2030, 17.6% of the population will be over 65 years, up from 11.3% in 2016. Such a demographic change could soon reduce the country’s rate of potential growth.

USDA’s Office of Agricultural Affairs, OAA, in Santiago, hereinafter referred to as “Post” reports that  Chile is held as a successful country in Latin America, ranking 42nd in the Human Development Index (UNDP, 2015) and with a GDP per capita of US$23,507 in 2015 as reported by the International Monetary Fund (IMF). Chile’s poverty level in 2005 was 13.7% of the population and decreased significantly to just 7.8% today. As a result, Chile currently has the second lowest poverty in Latin America and the Caribbean region. Inequality remains one of the main social problems but has also shown a reduction.

Chile has 26 free trade agreements (FTA). The U.S.-Chile FTA came into force in 2004, and as of January 2015 all trade tariffs were eliminated between the United States and Chile. In 2015, total U.S exports of all products to Chile reached US$10.9 billion dollars, while Chilean exports to the U.S. totaled US$8.5 billion. Chile’s economy grew rapidly over the past 16 years, boasting a 5% average growth rate from 2000-2010. During this rapid growth period, consumer purchasing patterns were sparked, as incomes rose and consumers began to demand higher products. U.S. exports of high value food and beverage products (HVFBP) soared from US$37,700 in 2000 to nearly US$500 million in 2016. The U.S. is the main source of imported products to Chile, followed closely by China and the European Union (EU).

In summary, today’s scenario and near future represents a country going through a short-term slowdown period in which the consumption pattern will adjust to deal with current conditions, but is expected to keep advancing in the same manner and direction as it has been doing so far. This means that retailers will continue to introduce new products to meet consumer preferences and to attract middle to upper income customers in large supermarkets and hypermarkets especially, while discounts store, mom-and-pop shop, and wet markets compete by offering lower prices and convenient locations.

Chile is the 4th largest market for U.S. agricultural products in South America. U.S. exports of agricultural products increased 5% in 2016 to US$848.3 million. Of that amount nearly 58% or US$488.3 million were of the consumer oriented variety with an increase of 2% from the prior year. Chile is now the 2nd largest market in South America for processed food product exports, totaling US$350.6 million, down 14% from 2015.  Top processed food exports to Chile in 2016 included beer and wine, processed/prepared dairy products, food preparations, condiments and sauces, non-alcoholic beverages, prepared/preserved meats, chocolate and confectionery and snack foods.

U.S. exporters have the advantage that their products are perceived to be of high quality, safe, unique and with special characteristics such as reliability, service and delivery. However, some challenges include higher freight costs, competing suppliers or the challenge of localizing the product or packaging to Chile’s standards and culture.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Chile had been estimated to reach nearly US$14.7 billion in 2016.  That represents a growth rate of 32.1% or US$3.5 billion since 2012. The forecast for growth in this market is also promising. By the year 2021, the retail sales in the packaged food market in Chile is expected to reach US$19.9 billion, a growth rate of nearly 26.7%, or US$4.2 billion. High growth categories in the forecast include baby food, processed fruit and vegetables, ready meals, breakfast cereals, confectionery, savory snacks and sweet biscuits, snack bars and fruit snacks.

Post reports that the Chilean market for retail food is composed of a mix of large supermarkets, mid-sized grocery stores, convenience stores, gas station markets and an array of smaller independent neighborhoods “mom-and-pop” shops. To give the reader a sense of the size of the retail food market, the sub-sectors composed of supermarket, grocery stores, convenience stores and gas-marts had sales of US$14.3 billion in 2015 and US$9.8 billion from January to August 2016. This number includes other items sold in larger supermarkets and hypermarkets such as clothing and kitchen appliances. When looking only at food products, sales where around US$9.5 billion in 2015.

Where the customers are spending their money to buy food has been changing over the years. In 2006, supermarkets accounted for 62.4% of all food sold to consumers. By 2014, this number declined to 48.2%, due to diversification of the places where people buy their food products. Nevertheless, supermarkets still have the largest market share. Mom and Pop stores also have gained market share up to 21.2% of total sales in 2014. Mid-sized supermarkets have almost doubled their market share going from 5.6% in 2006 up to 12.1% in 2014. Specialty stores like butchers, fruit, and vegetable stores have a lower market share compared to the supermarkets, although they all have increased their market share since 2005.

There are eight major supermarket chains operating in Chile with varying presence in different cities and targeting different customer profiles. Although they all compete among each other, they follow different strategies based on locations and depth and scope of the product mix. Unimarc, a medium-sized grocery store, has the largest number of stores across the country operating in 294 locations. Wal-Mart operates two brands: LIDER/LIDER EXPRESS and EKONO. LIDER, with 82 locations, represents the very large hypermarkets and supermarkets, while EKONO, with 127 locations, may be on a category of its own as a small discount grocery store. 

CENCOSUD also operates two distinct lines of supermarkets. SANTA ISABEL, a medium to large grocery store with 128 locations and JUMBO, the flagship hypermarket with 50 stores nationwide. Falabella, another large retailer, also operates a supermarket chain, TOTTUS, with 58 locations. MONSERRAT and ERBI are the last two important chains with 34 and 33 locations each.

There are three big convenience store chains: OK MARKET (Chile), BIG JOHN (Mexico), CASTAÑO (Chile). These types of convenience stores are driven by location. They cater to the upper-middle class by offering good service, convenient locations and a variety of foods and snacks. There are 257 convenience stores but only OK MARKET operates outside Santiago in some selected cities. In other Chilean cities, independent stores service the markets.

Gas Marts or “mini-markets” are operated by three fuel companies: PETROBRAS, from Brazil, operates 89 marts called ESPACIO1.  COPEC, from Chile, operates 79 PRONTO locations. SHELL, Anglo-Dutch, operates two lines of stores: SELECT, with 46 locations and UPA! with 49 locations. Wholesale markets have been on the rise totaling 146 locations:  MAYORISTA 10 operates in eight regions with 64 locations. ALVI operates in nine regions with 29 locations. LA OFERTA has 12 locations, and Wal-Mart operates two different store brands. CENTRAL MAYORISTA has 4 locations. ACUENTA has 37 locations.

Post advises there are three main players in the importation side: Wholesalers and producers import large quantities to distribute to smaller independent stores. i.e. Dairy product manufacturers import dry milk to package and distribute. Large supermarket chains import directly from foreign producers and also own most of the wholesale supermarkets which then redistribute to smaller stores as well. They operate large distribution centers that supply the entire country. Distributors that supply gas stations for their countrywide operations on the gas marts. Most of the independent stores get their products at a discount price from wholesalers. They act as an intermediary, as the smaller stores are not able to import entire containers or do not have the logistic capacity to do so.

Post advises the following steps highlight the main points that need to be taken into consideration when attempting an entry into the Chilean retail food market.

Market Analysis: There is a wide variety of food products in Chile’s retail sector, due to the market openness. Thus, the U.S. exporter must be clear as to what role the product will have in the market and how will it be positioned in relation to other competitors.  Supermarkets have limited shelve space and usually different brands are available. Supermarkets will assess if their new product margin is attractive in comparison to other brands, which is mainly a cost-benefit decision.

Market Access: Enter through the big supermarket chains or find a partner/distributor.  Supermarkets chains will allow for a new product to have a countrywide presence, and these chains carry a more diverse variety of products. Trying to enter the Chilean retail market through smaller stores can be a bit more challenging, as it is more limited it the variety of products it holds for its customers. In addition, this sector is more focused on price than variety. Another possibility is to enter through a partner or distributor that will sell the product in different types of stores. The advantage is that the distributor has a variety of clients and could sell a bigger volume of the product.

Marketing campaign: It is important to differentiate your product against other like products. U.S. produced products have a very positive image and are viewed as high-quality and safe. The appropriate marketing campaign would inform the consumer the origin of the brand. I.e. American meat cuts are a good example of this strategy as they have an American flag on the packaging that differentiates them from other available meats. Slogans and marketing materials should be understood in Spanish. Be mindful of using slang. The word American coupled with a flag can be favorably used in this market.

Best Product Prospects:

Post reports that in addition to the opportunities found in the most-commonly imported food products, the best product prospects for U.S. producers are a mix of categories which fulfill the needs of Chilean consumers for healthier products and high value added specialized products. The biggest increases in this food and beverage sector (from June 2014 to June 2016) are for products low in sodium (38%), diet juices (33%), bottled water (22%) and lactose-free milk and yogurt products (57%).

There are market opportunities in the energy drinks category where the U.S. exports to Chile grew at a 43% annual rate in value during the period 2010 to 2015. Red Bull, Monster, and like products represent 71% of energy drinks), the U.S. may take advantage of high-quality brand perception that the Chilean consumer has of U.S. products to increase market share in this category. Specialty ice cream is also a fast-growing category of products that are well received by the Chilean consumer. From 2010 to 2015 exports of ice cream to Chile have increased at a 65% rate per year, reaching almost US$ 4.4 million in 2015.

In addition, the supermarket industry is constantly looking for new products to satisfy upscale consumer demand. Post advises products present in the market with good sales potential include baby formula, baking food and mixes, breads and cookies, candy (gummies, chewing gums, marshmallows, etc.), cereal, dairy products (yoghurt, cheese, milk varieties), and products from the functional and/or health and wellness food sector. They add that fruit juice and soft drinks, hot dogs, ice cream, lactose free dairy products, olive oil and cooking oil, pastas, pet food, pork, poultry, distilled spirts, beer, snacks, sweeteners, tomato sauce and tuna also have good sales potential.

Food Service Sector:

Euromonitor reports that several international and national factors have been resulting in a steady decrease in overall economic growth in Chile. The increasing exchange rate of the dollar against the Chilean peso, strongly falling international copper prices, and the economic deceleration of China, which is the main destination for Chilean exports, along with economic, taxation, social and labor reforms enacted by the government, have resulted in a drop in investor and consumer confidence in the local market, although it is slowly recovering.

For the consumer food service market, this situation resulted in current value sales growth in 2015 being two percentage points lower than in 2014. As such, the market has managed to continue growing, but at a much slower pace than in previous years, with consumers reducing expenditure per transaction or simply starting to eat at home.

However, to some degree, Chilean consumers have grown accustomed to eating out at least once a month as a treat to themselves in order to indulge and reward themselves for a hard month, for celebrations or social gatherings. Lately, consumers have been resorting to reducing spend per transaction in order to continue going to restaurants, skipping some dishes and focusing on entrees, drinks or only one dish. This is reflected in overall spend per transaction in the industry.

Even though restaurant owners have been complaining about low sales during the year, it is also true that some operators recorded relatively healthy sales during 2015. These operators are mainly located in what have become known as “polos gastronómicos” or gastronomic clusters, which are neighborhoods with a high concentration of independent restaurants, usually located in more affluent areas of Santiago or main cities in the country, attracting more affluent consumers, young professionals and also tourists visiting the country. In these clusters, there are a wide variety of independent restaurants offering a very wide variety of cuisine, upscale service experiences and menu items, in order to continue attracting the aforementioned target population, which has not been as negatively impacted by economic uncertainty than less affluent sectors of the population.

In response to the sluggish economy, consumers have resorted to reducing expenditure on restaurants, not only by skipping eating out altogether, but also by reducing the amount of money that they spend on each visit. This strategy has allowed restaurants to maintain consumption and a somewhat healthy growth rate in an industry that is usually heavily impacted by the overall economic situation in the country. For example, categories like specialist coffee shops, cafes and several fast food subcategories led growth in 2015, with several areas recording growth of over 10% and, in the case of chained specialist coffee shops, over 15%. This is due to the fact these categories have a naturally low spend per transaction and usually sell lower priced products that are consumed individually, instead of having complete meals on their menus for higher prices and usually serving larger groups.

Euromonitor reports that shopping in malls has become one of the main weekend activities for Chilean families and consumers in general. In addition, shopping centers have also developed from being just plain malls to full-fledged multi-sectoral business hubs that offer entertainment, commerce, services, and retail options to consumers. The food service industry has embraced the opportunity and established itself in the middle of hectic everyday activities at almost every shopping center in the country, with “gastronomic zones” developing inside shopping centers that have upscale and more luxurious restaurants.

Currently, consumer food service operators have a stronger presence within shopping centers than fast food court players. This has resulted in the evolution of gastronomic boulevards, which are usually open air areas that comprise full-service restaurants with an upscale and more luxurious orientation in order to attract consumers. Several international chained operators have opted to install outlets in these boulevards in malls to seize all potential customers and passers-by that go to the shopping center. The main examples of chained full-service restaurants that have installed themselves in shopping centers are Madame Tussaud’s, P.F. Changs, Johnny Rockets, Tip & Tap, Applebee’s and Hard Rock Cafe, which offer formats that are fairly new to the average Chilean consumer and, as such, are regarded as sophisticated and upscale.

Franchising is becoming increasingly prevalent in the consumer food service market in Chile. However, it is still a very minor part of the food service industry in the country as the market is dominated by independent players. According to a study developed by the University of Chile in 2012, it is estimated that there are around 130 franchised brands, including food service players, pharmacies, financial companies, consultancy services, IT firms and laundry services and that franchising has grown by 12% since 2007. In addition, it is estimated that around 3,666 outlets are operating under this format, with 65% of franchises being of foreign origin, mainly from the US (33%) and Argentina (11%).

Of the top 10 franchises currently operating in Chile in terms of number of outlets, four are food service players, all of which are domestic brands: Doggis, SchopDog, Juan Maestro (all fast food) and Tavelli (Cafes). Additionally, there are several new franchises interested in starting operations or which are already functioning in the Chilean market.  According to trade press data, there are 20 new brands looking for franchisees in the country, 11 of which are food service business like Marble Slab Creamery, Pretzelmaker, Popeye’s Louisiana Kitchen and Fuddruckers among others.

Franchising is most apparent within fast food, with several of the aforementioned local players operating via franchise models so as to allow for outlet expansion. It is interesting to note that the leading international brands in Chile do not operate as franchises but as part of a big company that has the rights to brand ownership in the region or country, like McDonald’s (Arcos Dorados) and Burger King (ALSEA SA).

As Chileans develop a taste for eating out and the national economy recovers, it is expected that consumer food service through retail will continue to develop further over the forecast period. Indeed, consumer food service through retail has a projected forecast period constant 2015 price value compound annual growth rate (CAGR) of 1% - a fairly healthy growth rate, particularly for an industry that has been heavily impacted by the economic deceleration in the country. 

Best Product Prospects:

Post advises that the best high-value products prospects in this sector are healthier/diet/light soft drinks, sweet & savory snacks, spirits and premium fast-food.

Food-Processing Sector:

Post had reported that Chile keeps recording increasing demand for premium processed food and beverages providing convenience and health benefits. Health and wellness concerns are a growing trend for the consumer, as well as easy-to-prepare foods and snack foods. The organic food market, while still small, has also been steadily growing over the past several years. The market continues to consolidate through mergers, leaving a wide gap in size and capacity between the leading food processers and the smaller ones.  

The U.S. – Chile FTA has allowed exported products to be more competitive by allowing duty free entry. U.S. suppliers are considered to be less aggressive and more consistent compared to European and Asian suppliers, increasing the willingness of companies to import from U.S. suppliers in contrast to other foreign countries. Chile is also imposing a new nutritional labelling law that took effect in July 2016.

Currently, the food industry in Chile represents 25% of its economy. Based on Chile’s agricultural resources, it is expected to constitute more than 35% of the total’s economy by 2030, showing an increase in this sector. The country’s food and beverage industry is forecasted to grow by 5.9% in 2015 and is expected to expand annually by 6.6% until 2019, caused by lower oil prices which give customers a higher purchasing power. 

Chile’s location allows the country to have certain advantages over other countries of the world due to its southern hemisphere location. As crops are harvested during counter-seasons and as the major consumers are from the northern hemisphere, it gives them the opportunity to export to other countries in different seasonal times. Also, its location is free of many pests and diseases that might affect crops. In 2014 the Chilean food processing industry imported US$78 million of food ingredients/products, of which US$13 million is imported from the United States.

Chile industry groups feel they are poised to become one of the main food suppliers to the world. Chile is already amongst the top ten exporting countries in the world with US$17.5 billion in agricultural exports in 2014. Their main exports commodities are fish, seafood, wine, fresh fruit, dairy and meat products. Chile’s processed food industry is made up of different sectors that constitute it such as chilled processed food, frozen processed food, dried processed food and the beverage industry. 

Post advises that success for U.S. exporters in Chile’s food processing industry is linked mainly to a product’s uniqueness or special characteristics (i.e. above-average quality with respect to human health, service and delivery capabilities). Challenges for U.S. exporters usually come from the high impact of freight costs on commodity products, the high quality of products offered at much more attractive prices by other regional competitors, or the inability to adapt product and packaging to local standards.

Best Product Prospects:

Best prospects for U.S. exporters in this sector include powdered milk, whey, specialty cheeses, durum wheat, corn starch, wheat gluten, animal fat, fish and olive oils, vegetable fats and oils, glucose, other sugars, cocoa powder, essences, protein concentrates and emulsifier agents, pork, turkey and chicken.

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