The state of grocery retail in Latin America

After the upheaval of the grocery industry over the past several years, Latin American grocery retailers deserve some good news. Forecasts suggest that the region’s grocery industry will grow at a robust clip of 5 percent in 2023, placing it among the top-performing regions in the world.1 Of course, executives have learned to be cautious, and inflation offers a good reason to be so. The spiraling costs of goods and operations will put pressure on retailers to maintain their margins while seeking to capture the benefits of market growth.

Another wrinkle for grocery is the pronounced shift in consumer preferences and behavior. In a recent McKinsey survey of Latin American consumers, 74 percent of respondents indicated their intent to find ways to save money while shopping, with 61 percent actively seeking the best promotions (see sidebar, “About the research”). The loosening of pandemic restrictions has also led consumers to embrace their previous preference for physical stores where they can buy everything in one stop.

In the near term, our analysis suggests that four trends will influence the contours of grocery retail in Latin America: an emphasis on savings, a shifting channel mix, a focus on healthy foods, and the desire for personalization. Grocery executives will need to rapidly pivot to respond to these consumer needs. Investments in new capabilities—in particular, advanced analytics—could give Latin American grocery retailers the tools and insights they need to stay one step ahead of the competition.

Four major trends could shape grocery retail in Latin America

The past several years have taught grocery retailers to be nimble in responding to shifting market conditions and spiking consumer demand. These muscles will serve them well in 2023 and beyond. Our analysis identified four trends with the potential to reshape the contours of Latin America’s grocery landscape.

A quest for savings will dominate consumer decision making

Persistent inflation has affected all sectors, but its impact on staples such as food has forced consumers to diligently look for ways to stretch their money. Consequently, saving money has been elevated as a priority in purchasing decisions.

This search for savings cuts across consumer segments, but strategies differ depending on spending intent (Exhibit 1). Consumers looking to reduce their spending are more likely to switch to less-expensive products (referred to as “downtrading”). Meanwhile, shoppers who plan to increase their spending will look to take advantage of promotions and private-label goods to trim grocery costs.

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Savings strategies present differences with respect to consumption intent.

Channel switching will be more fluid and guided by shopping missions

Physical stores make up nearly 90 percent of the grocery spending across Latin America, while online channels account for 11 percent. As with consumers in other regions, the pandemic dramatically altered the preferences of Latin American grocery shoppers. The alternation between these two channels over the past three years has been striking.

During the pandemic, consumers flocked to online channels, and grocery retailers had to adjust their operations rapidly to accommodate this influx. With the threats of the pandemic receding, consumers seem set to adjust their shopping behavior once again (Exhibit 2). Latin American consumers reported a decline of 17 percentage points in net intent to use online channels in the next 12 months after an increase of 38 percentage points during the COVID-19 pandemic.

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Switching among channels will be more fluid and guided by shopping missions.

Meanwhile, the physical channel represents an aggregate growth in future intent of two percentage points, with 87 percent of respondents planning to maintain or increase their spending in physical stores during the coming year. Modern channels (including supermarkets) are the main source of growth in grocery, representing more than half the increase in net intent.

Notably, consumers engage in important behavioral differences across the physical channels. Those looking to increase their spending have a higher net intent to frequent supermarkets compared with the rest of the population. Consumers who will spend less in 2023 don’t have a preference among physical formats.

Key challenges of online channels are related to both penetration and frequency of use. Consumers are less likely to use online channels for groceries on a weekly basis compared with physical stores. Additional barriers include the lack of personal contact when shopping online—a major contributor to the preference for physical stores—and high shipping costs for online purchases. However, promotions and lower delivery costs could be key to luring Latin American shoppers back to online channels.

New lifestyles will change demand for certain grocery categories

The pervasiveness of health and well-being as a topic in the public conversation during the pandemic appears set to endure in Latin America. However, this sentiment doesn’t always translate to purchasing decisions. Three out of five consumers plan to focus more on healthy food and nutrition, yet they have a generally low willingness to pay more for attributes such as healthy, sustainable, or environmentally friendly. Consumers who plan to eat healthier are driving up net intent in some categories, such as organic, natural, plant-based, and bulk foods. In addition, categories such as fresh fruits and vegetables are powered by decisions to make health a priority.

An examination of shopping behavior by age uncovers interesting patterns regarding healthy eating (Exhibit 3). Consumers aged 18 to 44 demonstrate the highest net intent to purchase healthy foods, though they are willing to spend more for just two categories of products: those high in protein and those with all-natural ingredients. The net intent of consumers aged 45 and older to purchase healthier products decreases slightly, but they did show a broad willingness to pay more for goods with healthy ingredients.

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The willingness of consumers who care more about healthy eating to pay for specific attributes increases with age.

Personalization is becoming an essential factor in loyalty

Latin American consumers increasingly expect grocery retailers to tailor communications and offers to their needs and preferences. Our analysis found that more than 70 percent are willing to share personal data in exchange for personalized offers or discounts and expect companies to understand their needs.2 Grocery retailers have adjusted their strategies in an effort to keep pace. Nearly all will maintain or increase their personalization budget, and more than three-quarters believe personalization should be a higher priority.3

The challenge is to synthesize the multiple attributes valued by consumers into a coherent strategy. Grocery retailers will need to perform this exercise a number of times: loyalty attributes vary not only across countries but also according to demographics and channels. For example, while the focus on product quality spans generations, young people are more likely to emphasize convenience, health, and quality, while older shoppers favor cost, experience, and quality (Exhibit 4).

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Retailer attributes that lead to customer loyalty vary by generation.

Preferences also differ by channel (Exhibit 5). Online shoppers prioritize value, quality, and convenience. Meanwhile, consumers of modern retail emphasize quality, shopper experience, and convenience. And consumers in the traditional channel focus more on product quality and variety. The most effective loyalty programs seek to align offers by demographic and channel, a constantly shifting task.

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The attributes with the greatest impact on loyalty differ by channel.

Imperatives for Latin American grocery retailers

Winning grocery retailers will adjust their strategies to respond to consumer trends by focusing on four imperatives. Investments in advanced analytics are a cross-cutting enabler for the imperatives, given that these capabilities can increase visibility into operations and consumer segments. Best-practice examples from across the retail spectrum, including other regions, can guide grocery executives in charting a path forward.

Preserve margins through effective pricing strategies

Since many consumers are struggling with reduced purchasing power and have become much more price sensitive, retailers could preserve their margins by reining in operating costs while exploring ways to maintain or expand revenues.

A renewed focus on optimizing product portfolios and pricing can uncover previously overlooked opportunities. For example, grocery retailers can maximize sales by gaining a granular understanding of store-level customer preferences and behaviors, and they can use advanced analytics and AI to create an optimal product portfolio by location. Similarly, a data-driven approach to pricing can enable companies to set prices for each product category in an intelligent, automated manner that removes unwanted variations.

A leading brick-and-mortar beauty retailer operating across 15 countries faced eroding margins due to pricing challenges. It was still setting prices manually for its more than 40,000 SKUs, leading to a lack of price consistency across channels (variations could reach as high as 40 percent). The widespread perception among consumers that the retailer was too expensive contributed to 18 months of declining margins and sales.

To reverse this trajectory, the retailer invested in the development of a data-driven dynamic-pricing model that uses key value items (KVIs) and a complex consistency engine. The retailer also implemented a pricing process and requirements for the pricing model. A dedicated pricing team conducted extensive A/B testing of the pricing approach live on the company’s website and in physical stores.

These measures helped to kick-start e-commerce sales and stabilize margins after just three months. Stores experienced a similar turnaround, achieving a rise in sales (two percentage points) and profit (four percentage points) after just eight weeks. And with a single source of data, pricing could be adjusted on a daily basis for top-selling products on e-commerce channels and on a bi-weekly cadence in stores.

Strengthen omnichannel to cater to different shopping missions

Because consumers have demonstrated a preference to use different channels for different shopping missions, grocery retailers will need to achieve greater flexibility across channels and reduce barriers to online purchases. A comprehensive understanding of shopping missions could also be critical. For instance, a consumer might look to buy fresh fruits from a physical market, but purchases of bulk products (such as 30 pounds of rice) are a better fit for online ordering and delivery. Retailers with the capabilities to serve both missions can strengthen loyalty with consumers and become the favored choice across channels.

When the onset of the COVID-19 pandemic elevated the importance of online channels, one retailer sought to create a seamless experience for consumers. It analyzed the pain points across each customer journey, launched a mobile app from scratch in only three months, redesigned the mobile web experience, and implemented a road map of more than 50 initiatives. The results were dramatic: e-commerce revenues doubled, and the customer conversion rate rose more than 55 percent.

To address the continued consumer preference for convenience and home delivery, retailers have also adapted their distribution and fulfillment strategy. During the pandemic, one grocery retailer used dedicated areas in its large stores as multiple urban fulfillment centers to enable quicker deliveries and faster picking for online purchases. This greater flexibility enabled the retailer to increase online sales more than 60 percent from Christmas 2019 to January 2022. As grocery retailers seek to respond to shifting consumer preferences, such lessons from the pandemic can help inform omnichannel strategy.

Adapt assortment and elevate private brands to address consumer demand for healthier products

Consumers are seeking savings along with healthier foods, so retailers have an opportunity to adapt their private brands and forge partnerships with strategic suppliers to serve this demand. However, developing differentiated, private-label products that serve specific consumer segments without cannibalizing existing sales requires a sophisticated approach.

One leading global retailer operating in Latin America identified an opportunity for its private-label products, but it first had to shore up its capabilities. For example, uneven product quality due to sourcing issues was undermining its value proposition. The retailer sought to elevate its private brands to strengthen consumer loyalty and stay ahead of local competitors.

The retailer developed a three-year action plan to transform its private-label business. The process included using proprietary tools and analytics to assess its current state versus peers, as well as identifying best practices for priority categories across brand strategy, assortment and pricing, sourcing, and the organization and operating model. This comprehensive approach captured significant benefits, such as a 20 percent rise in top-line revenues and an increase in private-label penetration of five percentage points. Equally important, it identified a $250 million opportunity from sourcing improvements and continued growth in private-label penetration.

Evolve digital and advanced analytics capabilities to support personalization

To unlock growth, grocery retailers should focus on improving their operations to provide consumers with a personalized shopping experience. Indeed, organizations that can build the capabilities to tailor offers and engagement to specific consumer segments stand to boost sales and strengthen loyalty.

One grocery retailer had done little marketing outreach to consumers beyond the occasional text message with general recommendations, and it lacked a customer relationship management system and the ability to track responses at the customer level. Although it had access to consumer data, it hadn’t conducted analysis to segment consumers by their needs and preferences.

The retailer made targeted investments in advanced analytics to close this gap. For example, it developed a machine-learning model to group consumers based on buying behavior and response to promos; it also developed an algorithm to determine the most effective methods of communication for each consumer (for example, the combination of channels and frequency of contact). To increase retention and enable cross-selling and upselling opportunities, it added custom algorithms that could recommend the most effective promotions for individual customers. Alternative customer communications channels were augmented by a nationwide campaign to gather e-mails, which tripled its total number of e-mails.

This focus on personalization yielded a 1.5 percent increase in revenues and a 2.0 percent rise in the basket value for premium customers. In addition, the grocer’s use of technology and data decreased creative and campaign management costs by 50 percent.


Inflation has created an added degree of difficulty for grocery retailers as they seek to maintain profits, optimize their product offerings, and surprise and delight consumers. A set of proven strategies, ably supported by investments in advanced analytics, can give executives the tools to tailor their offerings to specific consumer segments and locations—and potentially unlock growth and profits in the process.

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