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Demand’s Up for Consumer Foods in Chile
By Richard Blabey
In a diverse land stretching for 2,500
miles–that includes not only breathtaking beauty, but also
harsh desert and mountains–the people of Chile have carved
out a robust economy. From 1993 through 1997, Chile’s gross
domestic product (GDP) increased 7 percent a year.
Accompanying the prosperity: escalating demand for consumer-ready food products, which means opportunity for U.S. exporters who already sell $44 million worth a year to Chile’s 14.6 million consumers.
Most of these consumer-oriented food sales are in the more affluent Santiago metropolitan area. Salaries for Santiagans average $8,000 yearly and account for almost 40 percent of the country’s GDP.
But Chile’s export-dependent economy hasn’t escaped unscathed from the recent worldwide downturn that started in Asia. The pace for 1998 was expected to slow, but retain a still-comfortable 4.5 percent growth rate. GDP was expected to weigh in at $76 billion.
Market Access Limited
Chilean consumers appreciate the quality of U.S. consumer-ready products, but there are some significant hurdles that exporters must overcome to gain access to the market.
In 1997, Chile imported $579 million in consumer-ready food products. The U.S. share of the pot was only 7.5 percent, though the value of U.S. exports was up 10 percent from the year before.
The increase reflects growth for certain U.S. products--dairy, fresh fruits and vegetables, pet foods, snack foods and beer.
MERCOSUR Chills Competitors
Chile’s associate membership with MERCOSUR countries Argentina, Brazil, Paraguay and Uruguay has set the stage for lowered import duties on most food products from those countries. Total phase-out on any remaining member duties is scheduled soon after the turn of the century. Chile’s free trade agreements with Canada and Mexico provide duty-free access to Chile for most of their processed foods and beverages. This has probably cost the United States market share for items such as frozen potatoes.
Argentina’s proximity and its ability to supply inexpensive beef that meets Chile’s unique grading and labeling standards ensures its market dominance for imported beef.
The Good News: Joint Ventures Work
Chile’s open economy and political stability promote investment in the food industry. Not only do multinationals such as Nestlé, Unilever and Evercrisp (Pepsico) have processing plants in Chile, but domestic companies such as Lucchetti and Watt’s produce competitive consumer-ready food products as well.
New Zealand’s investment in Chile has paid off handsomely. It supplies most imported dairy products due to its control of Soprole, Chile’s leading dairy processor. Soprole’s market share: 50 percent of long-life milk, 50 percent of yogurt, 36 percent of butter and 18 percent of cheese.
Consumer-ready sectors expanding during the last decade
include processed fruit, pasta, varietal wines, snack foods and
processed poultry, pork and dairy products.
Abundant agricultural resources support agricultural exports that are double the level of imports. Chile’s 300 processed food products sold internationally, including seafood, racked up sales of $2.5 billion in 1997, while only 10-15 percent of products sold in supermarkets are imported. Chile’s food processing sector has not traditionally imported many raw materials and ingredients. The major exceptions include wheat, milk powder, sugar and tropical products.
Demand for these products, and other ingredients, is expected to grow, as the economic reforms of the past 15 years continue to encourage investment in new plant and equipment in the processing sector.
The Growing Convenience Factor
The consumption of prepared foods doubled in Chile in 1996, marking a pronounced cultural phenomenon. More women are working outside the home--for every 100 new jobs, 41 are occupied by women who now make up a third of the workforce. At the same time, international travel, especially to the United States, is introducing consumers to a wider variety of foods.
Local food manufacturers, quick to respond to the new demand, prepare convenience foods such as prepared pizzas, Italian dishes, Chilean-style frozen casseroles and sandwiches.
By 1997, convenience food sales of each of the five leading food companies averaged $500,000 monthly. Business is so good they’re expecting a fourfold increase of sales to $2 million monthly in 1999.
New, more stringent food sanitation regulations, however, have made it difficult for many cottage industries to compete effectively. Small domestic producers need to improve the preparation, quality and packaging of their products to meet the new standards.
Eating Out Is In
The competition’s aggressive in three large markets: institutions, supermarkets and convenience stores with gas pumps.
A recent survey showed that over 70 percent of Santiago residents eat one to two meals outside the home every day. Chilean companies foster this penchant for institutional meals–most provide meal services for workers either with a company cafeteria or meal coupons honored by nearby restaurants. Two firms--Central de Restaurantes and Sodexho Chile dominate this institutional food sector.
Santiago claims three-quarters of Chile’s fast-food restaurants. Hamburger, pizza, sandwich and chicken outlets offer good expansion opportunities, while Mexican restaurants and pancake houses, still struggling for a market share, haven’t caught on. Most chains have plans to expand outlets outside Santiago.
Private Labels Play Catch-Up
Chile’s consumers are noted for their loyalty to brand names, which explains why supermarket private labels--since their introduction in 1992–still represent only 3 percent of total sales.
But the large supermarket chains--like the D&S group, Santa Isabel and Unimarc–have plans for their private labels. Their new strategy: Corner the highest profit margins by labeling less expensive products that lack strong brand connections. Tea, sugar, spices, frozen vegetables and canned foods are leading candidates.
Supermarkets Are Retail Leaders
Accustomed to low prices for
domestic fresh fruits and vegetables and staples, Chilean
consumers continue to enjoy low grocery prices due to intense
competition among supermarket chains.
Chile’s four largest supermarket chains, which serve almost half of the market, have put intense competitive pressure on independent and smaller chain retailers. Small markets, which traditionally offered groceries, fruits and vegetables, now increasingly depend on snacks and alcoholic beverage sales to stay in the black.
In 1997, supermarket sales in Chile increased over 7 percent to $4.3 billion, representing 25 percent of total retail sales. A goodly portion of this new growth has been due to the expansion of supermarkets into lower- and middle-class neighborhoods.
The 70 new supermarkets that opened in 1997 brought the total
to 700. Due to higher interest rates, however, sales growth is
expected to slow to 5 percent in 1998. 
The hypermarket retail format first surfaced in the more affluent eastern residential districts of Santiago, but is also spreading into lower- and middle-class sections. These stores devote half their floor space to foods and beverages, with the remainder displaying paper products, garden and pool supplies, clothing, housewares, electrical appliances and toiletries.
Distributors Plan Expansion
Two wholesalers dominate the distribution system--Adelco and Rabie. The companies service all sectors--supermarket chains, large independent stores, hotels and restaurants, traditional small-scale retailers, wholesalers and distributors and institutions.
While both wholesalers plan further expansion, large domestic manufacturers who sell directly to the stores provide major competition. And large supermarket chains are beginning to play a major role in the distribution of consumer-ready foods products by importing and wholesaling products from their own distribution centers.
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The author is agricultural counselor at the FAS Office of
Agricultural Affairs in Santiago, Chile. Tel.: (562) 330-3704;
Fax: (562) 330-3203 ; E-mail: Agsantiago@fas.usda.gov
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