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Argentina Overview

Where 2017 left us: the search for sustainable growth for Argentina

After several difficult years for Argentines, 2017 finally showed several signs of recuperation. The direction of governmental decisions was seen as healthy for part of the year, and Argentines generally, according to KTNS-Gallup Argentina, still trust that the future will be better. In the second quarter, economic activity and consumption volumes improved, as did the social climate, with growing support for decisions that should lead to a more sustainable future for Argentina. In that sense, patience won over immediacy. Perhaps December was the exception that confirms the rule. It was a month of controversial advertising and protests in the streets.

That dampened the  projected recovery for all of 2017 somewhat, and cooled down some people’s optimism a little. It seems as though Argentines insist on never letting down their guard and they always stay creative on how to face the future. That can be good or bad, depending on how you view it.

 

What was good in 2017  

At a macro level, the numbers tell us there’s momentum in the Argentine economy that’s been lacking for several years. GDP rose by 2.5 percent over the year (source: FMI), mortgage loans increased by 67 percent, car registrations had their second-best year in history. Even though the scourge of inflation has not been corrected, Ecolatina reports that the Consumer Price Index rose by 24.8 percent, which is “moderate” compared to the 40 percent inflation rate seen in 2016. That, along with a price deceleration policy (at least until the month of December) and good negotiations by union members, for the first time in several years caused salaries to win the price race and purchasing power to grow by 2 percent (source: Ecolatina).

Against this backdrop, Kantar Worldpanel Argentina data shows the “Basic Basket” finally stopped shrinking, by either sustaining or increasing its volume in certain categories, most notably alcoholic beverages, household products, dry foods and infusions. That added a positive note to the political and economic outlook.

December 2017: A stumble does not have to be a fall

December 2017 was an atypical December for Argentines. Christmas was especially warm when they faced shop shelves and saw the highest inflation levels of the entire year. A new interest rate was also announced, with the resulting rise in goods and services regulated as part of the gradual correction plan for rates announced by Macri´s government. The government also modified the Argentine pension system, which led to widespread protests and a heated social climate. This led to the positivity seen throughout the year take a dip for the first time all year. The Índice General de Expectativas Económicas [General Index of Economic Expectations] in December 2017 was four points lower than the same month of the previous year, showing a decline in optimism. Result: on balance for the year, economic recovery failed to meet forecasts made at the start of the year.

That stems from a number of basic conditions in Argentina that have not yet been corrected. These include double-digit inflation, powerful parity negotiations, a correction of tariffs for regulated services and goods, and industrial activity that has still not reached 2015 values. Therefore, it is no coincidence that the brands and categories that retained or grew their volume in 2017 did so by focusing less on the capital and more on the interior of the country, or by maintaining a lower price strategy than other brands. Nor is it by chance that there is sustained growth of own brands and wholesalers, as new channels and options open up for the Argentine consumer.

But these same basic conditions in Argentina have made us a versatile, creative country when faced with adversity; a country accustomed to riding out the waves of inconvenience and the shortages. Those who are responsible for brands know this, and never let down their guard.

Expectations of 2018

December was a month of conflict and it dampened the previously buoyant optimism in some sectors. Even though the medium and long-term direction of the economy did not change, some of the rules of the game were changed. For example, 2018 inflation goals had to be redefined, the dollar kept gaining ground (almost 20 percent in a three-month period), the gradual correction of rates for regulated goods and services was changed to become less gradual, and fears regarding the labor market for the coming months continued to have a negative impact on consumers’ trust in the market.

But the word “caution” in a country going through such extremes as Argentina should not necessarily be interpreted as a bad sign. In its IGEE (General Index of Economic Expectations), Kantar TNS Argentina reports that January opened the year with a degree of uncertainty, but that some of the optimism lost in December was recovered (-0.4 percent January 2018 vs. January 2017, but an improvement over December 2017 values). General confidence indices and consumer expectations are still positive. We Argentines continue to put our vote of confidence in decisions we believe will give us a more sustainable future, but those who are responsible for brands cannot let down their guard or fail to take into account these basic conditions in their brand strategies. Guillermo Oliveto – a specialist at the W consulting firm – has defined 2018 as a year of “slight growth that will not give room for partying”. Actually, all the macro-economic specialists agree on one thing about 2018; GDP will be between 1 percent and 3 percent (depending on the source), showing slight, yet constant and sustainable growth in Argentina. The 2016 contractive cycle finally seems to be on the way out, but business leaders know it will be an austere year, an austerity that has become the new Argentine normality.

Faced with this scenario of moderation, the challenge facing those responsible for brands is to find and execute drivers for more appropriate growth of brands and categories. The search for new markets as well as the consumer’s rational and emotional desire for price, accessibility, convenience, channels and innovation must be a fundamental part of the plan of any brand that seeks to have a good 2018.