Beating scale barriers in fragmented trade: An exploration of the traditional trade opportunity for consumer goods companies in Latin America

EY-Parthenon Managing Director Omar Troncoso provides an overview of the report, highlighting trade in Latin America.

In the early 2000s, consumer products companies envisioned a new marketplace taking shape across Latin America, one that relied on modern convenience and self-service stores instead of a fragmented network of mom-and-pop shops. They developed their distribution strategies accordingly and plotted for a future with new store formats, organized channels and a more affluent and financially empowered consumer base.

Fifteen years later, this future has not fully materialized. Traditional trade has endured, and consumer products companies that wagered on modern trade are now missing out on a large segment of the market. Other companies, with either no presence in Latin America or low-performing distribution capabilities, are struggling to compete in a landscape with potentially hundreds of thousands of points of sale.

Consumer products companies that want to succeed in Latin America cannot afford to neglect the traditional trade opportunity. They also cannot afford the exorbitant cost and 5–10 year timeline required to build distribution networks capable of serving consumers throughout the region. While this conundrum persists, it does not prevail: consumer products companies can and should pursue routes to market in Latin America, and they are now able to do so with modest exposure and capital expenditure.

Theory vs. reality

Multinational consumer products companies with aspirations of growth in Latin America envisioned a future marketplace driven by loyalty to modern trade. This vision, inspired by North America and Europe, was based on an assumption that consumers would discover modern stores and be delighted by their lower price points, curated assortments, on-shelf execution and “one-stop-shopping,” therefore causing a fundamental shift in consumer preference toward a more contemporary shopping experience. In this intended marketplace, an increasingly affluent and growing middle class would have access to the financial services needed to afford the higher cart values that result from less frequent shopping trips. In addition, there was an assumption that modern trade would scale quickly due to their own access to capital, therefore expanding store footprints to acquire consumers in remote areas historically dominated by traditional trade. Consumer product companies with no presence in traditional trade thought this scenario would present an attractive “shortcut” in which they could capture market share in a critical emerging market, leverage distribution networks owned by modern trade and circumvent the cost of building their own distribution networks.

In reality, consumer products companies that wagered on high growth in modern trade have struggled with ill-fitting routes to market in a challenging economic environment. In the fallout of the global financial crisis, mom-and-pop stores proliferated because they were better suited to address the needs of economically stressed local populations. In addition, many consumers, still paid in daily cash wages, were unable to access the financial services needed to enable consolidated shopping trips with higher cart values in modern stores. Lastly, many modern stores were too small to be profitable, therefore requiring more stores to attain economies of scale. The fragmented logistics networks required to serve this unanticipated volume of modern stores demanded the exact type of distribution and logistics investment consumer product companies had hoped to avoid.

Figure 1: Modern trade had been demonstrating a healthy growth rate historically reaching penetration over ~50% by 2010 and was expected to continue at a robust rate

EY - Modern trade had been demonstrating a healthy growth rate historically reaching penetration over ~50% by 2010 and was expected to continue at a robust rate

An opportunity that has persevered

Despite modern trade’s formidable presence in Latin America, traditional trade has continued to endure as a reliable cornerstone of the consumer products market, with ample opportunity across categories and countries.

Category and market dynamics

Food and beverage

The food and beverage categories have proven especially resilient in traditional stores. Over the past decade, traditional trade has maintained a majority share in these categories across the region despite assumptions that modern trade would quickly capture share. While the share of modern trade in recent years has shown a 1% to 2% increase, traditional trade is expected to remain an important determinant of total food and beverage retail in Latin America.

Figure 2A: Food — Split of traditional vs. modern trade in the food category in Latin America

EY - Food — Split of traditional vs. modern trade in the food category in Latin America

Figure 2B: Beverage — Split of traditional vs. modern trade in the beverage category in Latin America

EY - Beverage — Split of traditional vs. modern trade in the beverage category in Latin America

Home care

Traditional trade has maintained a healthy 30% share in home care since 2003. As macroeconomic factors such as urbanization and increasing female workforce participation come into play, modern trade is expected to maintain its majority share moving forward.

Figure 3: Split of traditional vs. modern trade in the home care category in Latin America

EY - Split of traditional vs. modern trade in the home care category in Latin America

Beauty and personal care

Personal care and beauty continues to be dominated by modern trade, with supermarkets and hypermarkets being the primary point of sale. Promotional offers, convenience and a differential experience are key sales drivers for these categories in the modern channel. While this is not expected to change, traditional trade has maintained 11% market share for nearly a decade, suggesting it will continue to be a core channel for consumers lacking access to modern trade.

Figure 4: Split of traditional vs. modern trade in the beauty and personal care category in Latin America

EY - Split of traditional vs. modern trade in the beauty and personal care category in Latin America

Channel dynamics

There is a high degree of variance in channel dynamics across Latin American markets, so consumer products companies can expect varying degrees of opportunity across the region. Traditional trade exceeds 30% share in markets such as Mexico, Argentina, Colombia and Peru while in Chile it’s 14%. Also, individual markets reflect varying growth dynamics, with Colombia and Peru expecting modern trade to grow at a compound annual growth rate of 6.1% and 3.5%, respectively, through 2022.


Proximity and convenience give traditional trade a critical advantage. Latinos work longer hours than Americans and Europeans: an average of 42 hours per week vs. 38 and 37 hours, respectively, resulting in less time to shop. Among Latin American consumers, 44% consider location to be the most influential reason behind choosing one store over another, and for consumers who lack access to transportation, “one-stop shopping” — a hallmark of modern stores — is logistically prohibitive. It’s also interesting to note that 60% of Latino consumers interact with their local shopkeeper, presumably allowing him or her to influence their path to purchase with helpful, time-saving recommendations.

New strategies for competing

Until very recently, the only way to penetrate the traditional channel was to build or buy a distribution network, which carried a high upfront cost, not to mention several years of unprofitable operations and the challenge of managing hundreds of thousands of new points of sale.

Now, several independent distributors offer a reliable network of regional third-party providers that give consumer products companies the access they need without the costly investment in assets and infrastructure. This type of arrangement empowers companies to shift their focus to more value-adding activities such as account development, sales and merchandising. In addition, consumer products companies with large-owned distribution networks are increasingly open to distribution partnerships with other companies that effectively subsidize the fixed cost base that these networks demand. In many cases, these “invited guests” must invest only in the particular infrastructure required to handle their specific products (e.g., refrigerated trucks for frozen food).

Additionally, consumer products companies such as Proctor & Gamble (P&G) are starting to use targeted direct marketing campaigns to drive traffic to traditional stores in which consumers can discover localized product innovations and assortments. Latin America is the world’s fourth-largest mobile market, with social media adoption surpassing that of the US, and P&G has been shifting its media strategy and spend away from television in order to focus more on digital and radio. P&G has seen its sales in the region grew 8% in the last fiscal year with about 50% of its volume sold through traditional stores, and it will be interesting to see how their media and advertising strategy continues to impact the traditional channel moving forward.

Executing a distribution partnership

While a reliable distribution partnership can reduce time to market and capex requirements, the complexities of the arrangement structure and integration should not be neglected. For example, a company may need to contract multiple distributors or wholesalers in various regions, sales channels or client categories, and they must closely manage in-store execution, including inventory, pricing, assortment strategy and merchandising — no easy task across such a fragmented landscape. The amount of oversight needed to properly serve traditional stores, in combination with logistical complexities, can be daunting. Meanwhile, talent is not widely available in the region, so companies must be creative to attract, incentivize and retain qualified and experienced professionals.

Perhaps the most important hurdle is how a company handles distribution, whether through agreements with third parties, an acquisition or a separate path. In many cases, these network arrangements are set up through complex and customized service-level agreements. They may include exit and breakout mechanisms and be structured more like a joint venture than a commercial agreement. Some networks become co-owned, requiring clear governance models and periodic capital expenditures to upgrade infrastructure.

Consumer products companies that choose to explore innovative and adaptive distribution partnerships can monetize the traditional trade opportunity and achieve their full potential in Latin America.

How EY-Parthenon can help

EY-Parthenon Consumer products and retail teams can help you navigate your options and answer your key questions about a new route to market, such as:

  • Which companies are open to forming a distribution partnership that will expand my access to traditional trade?
  • Which partners have the capabilities and reach that align with my portfolio and business objectives?
  • How can I limit redundancies and optimize operations while expanding access to new markets?

Figure 5: EY-Parthenon RTM circle

EY-Parthenon RTM circle

EY-Parthenon has developed a broad approach for strategic route to market (RTM) transactions, centered on four stages:

  1. Evaluate the commercial and operational capabilities and compare them to the opportunities, gaps and priorities in your business
  2. Assess the strategic options against a clear set of commercial, financial and risk parameters
  3. Help design your future operating model by determining key processes, systems and third-party relationships
  4. Support the implementation of focused governance and plans for cutover, stabilization and synergy attainment

Download a PDF of the report in English.

Download a PDF of the report in Spanish.

View the related EY-Parthenon Perspective, Route to market: Leveraging your commercial capabilities to maximize transaction success.


Omar Troncoso
Managing Director
Mancera, S.C.

Jeff Wray
Managing Director
Ernst & Young LLP