17 Aug 2011
Landing the Peruvian market
Despite an attractive picture, actually placing products on the Peruvian market is not an easy task. Customs processes, distribution channels and consumers’ purchasing power, preferences and spending patterns are all important topics for which new-to-the-market Hong Kong companies have to do their homework.
Gaining access to the Peruvian market
Depending on the nature and FOB value of the goods, there are basically two major ways to import into the Peruvian market – Importation for Consumption and Simplified Import Declaration.
For merchandise whose FOB value exceeds US$2,000, the trader is required to involve a customs agency or broker as representative to carry out import formalities by presenting the Single Customs Declaration (DUA) and other relevant documents such as transport documents and invoices.
On the other hand, for merchandise whose FOB value is less than or equal to US$2,000, it is possible to choose to clear directly at the Customs Clearance window by presenting a Simplified Import Declaration (DSI) or through a customs agency or broker.
Logistically, the Port of Callao, located some 15 kilometres from the capital city Lima, is by far the busiest seaport in Peru and the deepest inland port on the Pacific. Leading in both the general and container segments, the Port handled more than 17.4 million tons of cargo and in excess of 910,000 TEUs in 2010.
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As regards imports, the Port of Callao was responsible for more than 81% of cargo and over 99% of containers imported into the country in 2010, making it the most relevant seaport for Hong Kong traders interested in selling to Peru.
Given the high demand for cargo movements, the Port of Callao has undergone considerable development in recent years, including the expansion of the entrance from 130 to 350 metres to allow the world's largest vessels to call.
Import traffic of major ports in Peru
|
Rank |
Port |
2010 imports |
|
|
TEUs |
Tons |
||
|
1. |
Callao |
393,233 |
10,398,985 |
|
2. |
Salaverry |
- |
1,328,473 |
|
3. |
San Martín |
55 |
731,520 |
|
4. |
Ilo |
1,624 |
89,416 |
|
5. |
Iquitos |
35 |
57,835 |
|
6. |
Chimbote |
- |
51,919 |
|
7 |
Supe |
- |
15,343 |
|
8. |
MASP Arica |
1,838 |
15,046 |
|
9. |
Puerto Maldonado |
- |
2,941 |
|
10. |
Yurimaguas |
- |
- |
|
Total |
396,785 |
12,691,478 |
|
Source: National Ports Authority (ENAPU)
Think Peru, think Lima
According to the 2010 estimates, Peru has 10 cities of more than one million inhabitants. Among them, Lima, with more than nine million inhabitants or more than 30% of the country’s total population, is by far the most populous and important city in Peru, representing the largest consumer pool for Hong Kong companies.
Major cities in Peru
|
Name |
Population |
% share of the total |
|
Lima |
9,113,684 |
30.9 |
|
Piura |
1,769,555 |
6.0 |
|
La Libertad |
1,746,913 |
5.9 |
|
Cajamarca |
1,500,584 |
5.1 |
|
Puno |
1,352,523 |
4.6 |
|
Junín |
1,301,844 |
4.4 |
|
Cusco |
1,274,742 |
4.3 |
|
Arequipa |
1,218,168 |
4.1 |
|
Lambayeque |
1,207,589 |
4.1 |
|
Áncash |
1,116,265 |
3.8 |
Source: National Institute of Statistics and Informatics (INEI), 2010 estimates
Not only does it have the largest consumer pool in Peru, Lima is home to the largest cluster of well-off consumers in the country. It is estimated that more than half of the population living in Lima belongs to the middle class or above, i.e. classes A1, A2, B1, B2, C1 and C2, earning an average monthly income up to US$5,700. In terms of consumer expenditure, the Lima metropolitan region (the capital region) alone accounted for more than 40% of the nation’s spend, reaching US$39 billion in 2010.
Social classes and income intervals in Peru
|
Class |
Average monthly income |
Peru |
Lima |
|
A1 A2 B1 B2 |
US$5,700 US$3,200 US$1,200 US$960 |
10% |
23% |
|
C1 C2 |
US$570 US$460 |
23% |
33% |
|
D |
US$360 |
31% |
30% |
|
E |
US$250 |
36% |
14% |
Source: Ipsos Apoyo Opinión y Mercado, July 2010
Spending power aside, consumers living in the city of Lima are considered more sophisticated in their buying habits than Peruvians who may be limited by the mode of retail and distribution available in other cities. Besides, due to the geographical differences, indigenous people living in the mountains of Peru may not be fully aware of the latest product developments and trends.
Situated in the country’s centre, Lima is also the most developed city in Peru. Generating about half of Peru’s total output, Lima is itself a business magnet, attracting many major domestic and foreign companies with whom Hong Kong companies can get into contact for business.
In terms of logistics, Lima, given its proximity to the country’s busiest airport and seaport – the Jorge Chávez International Airport and the Port of Callao – has an unrivalled advantage for new-to-the-market companies and traders to open up trade across the 30-million-strong Peruvian market.
Regarding the distribution network, Lima is also far more developed than other cities in Peru. As a case in point, as of 2010, 121 out of the 156 supermarket stores operated by the country’s three major supermarket chains were located in Lima, indicative of the city’s leading position in Peru’s retail development.
The Chilean element in Peru’s retail sector
Given the proximity and common cultural affinities, Peru and Chile share many similarities in taste and preference. Riding on its modern retail industry, Chilean retailers have therefore an extensive presence in the Peruvian market. Business success aside, these Chilean retailers are the backbone of Peru’s retail modernisation and therefore good business partners of Hong Kong companies in a market where the informal market is still commonplace.
As put by Juan Xavier Roca, CEO of Saga Falabella[1], the largest department store chain in Peru, “at least 95% of the products selling in Saga Falabella stores are identical to those selling in Falabella stores in Chile, so is the task of sourcing for the two markets”.
Against this backdrop, the strong and successful Chilean presence in Peru’s retail market becomes relevant, for it can offer a convenient and effective channel for new-to-the-market Hong Kong companies to make their debut in the Peruvian market. In fact, some of these Chilean companies have already set up their own buying offices in the Chinese mainland, while some have long been buying via Hong Kong sourcing monoliths such as Li & Fung.
Of particular importance, department stores and supermarkets are two modern retail formats that are expanding fast in the Peruvian market where traditional retail such as independent, small stores, traditionally known as bodegas is still sizeable. Supplying to and/or introducing own-brand products through these modern retailers can therefore be excellent options for Hong Kong exporters to jump start their entry into the Peruvian market.
Independent small grocers (bodegas), together with other grocery retailers, represented by market stalls, constitute the largest channels in terms of sales and number of outlets in Peru. These outlets benefit from their proximity to households, their wide offering of small packaging formats, their affordable prices and their knowledge of Peruvian consumers’ preferences.
Moreover, in order to successfully face the expansion of modern grocery retailers and their gradual adaptation to meet consumers’ tastes, these traditional grocers have improved their strategies. Bodegas are increasingly providing added value services such as recharging of pre-paid mobile phones and the facility to pay public service bills through special bank units installed in their outlets.
Furthermore, other grocery retailers have focused on providing a more secure environment by hiring security personnel and improving the layout of their outlets to provide a more comfortable shopping experience for consumers.
Department stores
Despite its long history dating back to 1888, Peru’s department store industry has been rejuvenated by the entry of Chilean players in the 1990s. Of the three major department store chains nowadays operating in Peru, namely Saga Falabella (17 stores), Ripley (15) and Oeschle (5), two are Chilean-based, while the only Peruvian-based chain, Oeschle, accounted for no more than 5% of the country’s total department store sales last year.
Over the last five years, Peru’s department store market grew more than 13% in sales. In 2010 alone, sales of the three chains totalled US$1.3 billion, up about 30% year-on-year. This together with the nation’s scorching economy and subsequent income rises has made this modern retail format more popular among Peruvians, attracting new competitors such as Almacenes París (Cencosud) from Chile to enter the market and other local retailers such as Topitop (a leading fashion chain) to transform their stores into department store-like layouts by expanding product selection.
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| Saga Falabella – the largest department store chain in Peru. | Topitop – a leading, popular fashion chain in Peru, with a department store-like layout. |
The Chilean Group, Falabella, is not only prominent in Peru’s retail sector, but also consumer financing and real estate businesses. For instance, its bank, Banco Falabella Perú, was financing more than half of the purchases made at Saga Falabella with the 1.1 million-plus credit cards it issued as of December 2010.
Supermarkets
Aside from department stores which are more targeted to middle- and upper-class
consumers, Chilean retailers are also strongly represented in Peru’s supermarket sector, with Cencosud and Tottus being the sector’s main players.
As the market leader, Chile’s Cencosud is by far the most popular supermarket chain in Peru, holding a market share of 45%. Together with Tottus – the supermarket brand of Chile’s Falabella Group – they accounted for nearly two-thirds of Peru’s total supermarket sales (≈US$2.5 billion in 2010) and more than half of the country’s supermarket store count (156 in 2010).
At the end of 2010, Cencosud had 65 supermarket stores under four different formats in Peru, namely Wong/Metro hypermarkets and Wong/Metro supermarkets. For Hong Kong companies, Wong hypermarkets and supermarkets can be good partners as they are oriented to customers looking for service and quality, while Metro hypermarkets and supermarkets cater more for price-conscious consumers.
For one thing, before Interbank Group’s acquisition in 2003, Supermercados Peruanos S.A. (SPSA), the country’s second-largest supermarket chain, also originated from Chile and started operations by Cencosud in 1993 as Supermercados Santa Isabel S.A.. As of December 2010, SPSA operated 67 stores under four different brands in the hypermarket (Plaza Vea Hiper), supermarket (Plaza Vea Super and Vivanda) and discount store (Mass) formats. Among these four brands, Vivanda is more oriented to quality-conscious consumers, while Mass is competing with informal markets on price. In March 2011, SPSA introduced a new brand, Economax, featuring a limited goods selection and competing with grocery and neighbourhood stores.
Understanding Peruvian consumers
Bearing less sense of exuberance and preferring practicality to fancy design, and simple attire to elaborate costume are just a few of the many similarities that Peruvians and Chileans share. In most cases, even local businesspeople and traders cannot really tell the differences between the two markets, except that few will disagree that Peru is less developed in retail and Peruvian consumers’ pockets are not yet as deep as Chileans (Peru’s per-capita GDP is estimated at US$5,200 for 2010, compared to Chile’s US$12,000).
On the other hand, Peru’s milder climate calls for more summer clothing than in Chile, where the weather can be quite cool in the southern part of the country in winter. Coupled with Peru’s sizeable domestic textile and clothing industry, Peruvian consumers are also considered more sophisticated in fashion and therefore more demanding when buying apparel.
Regarding spending patterns, Peruvians have changed quite substantially in the past two decades. It is reported that food and beverages together with rent, fuel and electricity accounted for nearly 60% of consumer expenditure in 1994, while the figures dropped to 47% in 2009. Meanwhile, the share of education, leisure and recreation and transport and communications increased to nearly one-third of consumer spending from slightly more than 20% in 1994.
All these developments point to a clear message that Peruvians, with greater expectations about rising incomes and better living standards, have become more willing to spend beyond necessities. Trendy consumer electronics, cozy home entertainment equipment, fashionable garments, educational toys and novel gifts and premiums are gaining popularity in the Peruvian market.
Spending pattern of Peruvian consumers
Source: INEI
[1] Saga Falabella was born in 1995 when Chile’s Falabella Group acquired Saga, a high-end local department store in Peru.
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