LatAm 2015: ARGENTINA | THOUGHT LEADERSHIP
ARGENTINA KEEPS BUILDING ITS OWN LABYRINTH
We are sure about one thing: after twelve years managing the country from the Pink House, the Kirchner family is leaving the government in December, after the general elections that will be held in October. But... are they going to give up power?
Either Buenos Aires Province Governor Daniel Scioli, a follower of Kirchner policies, or Buenos Aires City Mayor Mauricio Macri – the main representative of the opposition to the government – will assume the Presidency of the Republic in a few months. And even though the main question should be whether they will change the current policies or not, the real issue is whether they will have the capacity to get rid of the inherited way of doing politics in Argentina.
The main macroeconomic indicators (GDP, employment, exports/imports) are not showing a clear reaction. The industrial activity has been declining for several periods in
a row, and the private sector is not creating many new jobs. The monetary expansion is not followed by an increase in the level of reserves at Central Bank, so the currency price is slowly trickling day by day. On top of that, tax pressure and the growth in raw material and conversion costs are shrinking the margins. In spite of the stagnation of consumption, inflation rates remain amongst the highest in the world, forcing consumers to boost creativity in order to protect their purchasing power.
Consumers have been struggling with high inflation rates since 2008, continuously adapting their consumption patterns and habits. Nonetheless, the defensive techniques have evolved and behaviors have become even more unpredictable.
CONSUMERS ARE SAVING, NOT SPENDING
Under this political and economic uncertainty, consumers are much more selective in their spending, and they look for special prices and promotions before deciding on a purchase. In 2012 and 2013 there was an impressive demand for cars, electronic devices and big-ticket items in general as a defensive strategy for fighting inflation, the devaluation of the local currency and the reduced financing options. But in 2014 and during the first half of 2015, consumers have been choosing to save more. In other words, they have turned from spendthrift to thrifty.
Actually, we are observing two apparently contradictory trends: more shoppers buying only what they need for the next few days (careful consumers) and at the same time, more shoppers buying a large amount of items in wholesalers, since they recognize that they can save up to 30% by buying in bulk compared to supermarkets and hypermarkets.
As a consequence of these changes, we are starting to naturalize peculiar behaviors: a consumer, even from a high socioeconomic level, might buy a pack of frozen hamburgers in a hard discount shop, a bottle of Malbec wine in a Chinese- around-the-corner store, and a six-pack of Coke in a wholesaler or another supermarket just to save a few pesos.
QUALITY STILL COUNTS
However, looking for the best deal does not necessarily mean that quality is less relevant. Argentinian consumers want
no substitutes for self-indulgence and reward; they want to enjoy the money now, but in a clever and convenient way. And tourism is a great example of this: many people are spending money on expensive trips to exotic or glamorous destinations, but they wait for the right moment to buy the tickets, in general, after an exhaustive search for promotions (and of course, paying in twelve installments in local currency, expecting a devaluation of the peso after the elections.)
In conclusion, despite the negative context you can never
be pessimistic about the long term development of this market. Regardless of the current difficulties, there are signs of a great hidden potential: Argentina holds the highest broadband and smartphone penetration levels in Latin America, and it ranks third globally in the use of social media networks, according to ComScore. There are forces merely sleeping out there, and islands of underdeveloped talent that only need an initial spark and predictable game rules to get connected and expand.