Despite significant inflation pressures and a decline of 1.5% QOQ in Q4 2023, private consumption avoided a severe decrease in 2023 (1.1% YOY). Expansive fiscal measures such as non-remunerative bonuses, tax exemptions, and preferential credit lines are highly unlikely in 2024. Thus, the current corrections of macroeconomic imbalances through a higher official FX rate and a fiscal deficit reduction will imply a considerable negative outlook for the B2C sector in 2024. Clients should consider implementing discounting strategies and leveraging data solutions for inventory management to address potential inventory gluts effectively, especially in H1 2024. Also, multinationals should employ scenario-based planning to identify potential threats to local operations such as severe social unrest.
Overview
- In the first two months of 2024, the decline in retail sales was more severe than expected. According to the Argentina’s Confederation of Medium Enterprises, retail sales decreased by 28.5% YOY in January and by 25.5% YOY in February. The B2C sectors that registered the most significant decreases were pharmacies (with a cumulative decline of 42.4% YOY since January), perfumery (36.7% YOY), food and beverages (35.2% YOY), and home appliances (21.6% YOY).
- Moreover, wages are not keeping pace with inflation, significantly diminishing consumers’ purchasing power. In December, total real wages fell by 58.7% YOY. The wages of informal workers, who constitute about 48% of the total labor force, shrank by approximately 96.1% YOY.
- Regarding inflation, Argentina’s CPI increased by 13.2% MOM in February, reaching an annual inflation rate of 276.2%. Prices for food and non-alcoholic beverages rose by 11.9% MOM, while monthly inflation rates for alcoholic beverages, the hospitality sector, and clothing and footwear were 17.7%, 11.2%, and 7.2%, respectively. However, monthly inflation for these key B2C products has decelerated since January.
- Business expectations, including those of supermarket owners, CEOs, and other relevant stakeholders, are sending mixed signals. While most respondents still expect a decrease or null growth in order volume over the next three months, 5.5% of them anticipate easing prices in the short term. This percentage is the highest since such data became available and is notably higher than the figure from December (1.8% of respondents). If these expectations persist, they could contribute to the inflationary convergence process.
Our View
In our updated base case scenario for 2024, we assume a 5.5% YOY decline in consumer spending. Our scenarios continue to be tilted to the downside given still high uncertainties surrounding the government’s monetary and fiscal programs. The downside scenario, holding a considerable probability of occurrence, forecasts an 8.8% drop in private consumption.
Regarding B2C categories, durable goods such as electronics, home appliances, and furniture are expected to experience a significant decline. As purchasing power decreases, consumers will pivot toward low-cost fast-moving consumer goods, maintaining a relatively steady demand for food and beverages. Although wholesale self-service sales may not exhibit the same level of dynamism in 2024 as observed in 2023, the anticipated decline is expected to be less pronounced compared to other more expensive channels.
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