Chile Retail Report Q4 2012

The Chile Retail Report examines the long-term potential of the local consumer market, but flags shorttermconcerns about the impact on Chile's economic outlook of high labour costs, a moderation inexternal demand and a fiscally conservative government.

The report examines how best to maximise returns in the Chilean retail market while minimisinginvestment risk, and also explores the impact of a possible rapid slowdown in Chinese growth and aeurozone break-up on the Chilean consumer and on the ability of producers and exporters to realisereturns in the short term.

The report also analyses the growth and risk management strategies being employed by the leadingplayers in the Chilean retail sector, as they seek to maximise the growth opportunities offered by the localmarket.

Chilean per-capita consumer spending is forecast to increase by a healthy 28% to 2016, compared with aregional growth average of 17%. The country comes sixth (out of seven) in BMI's Latin American RetailRisk/Reward Ratings, although it outperforms significantly for Risk.

Among all retail categories, food & drink will be the outperformer through to 2016 in growth terms, withsales forecast to increase from US$25.80bn in 2012 to US$38.79bn by the end of the forecast period, upmore than 50%.

In the competitive arena, BMI sees upside potential in the opportunity for mass grocery retail (MGR)retailers to expand beyond Santiago, which should lead to Chile's MGR market becoming an increasinglyattractive proposition for multinational companies. Sales at MGR outlets are expected to grow by almost46% over the period, from US$20.82bn in 2012 to US$30.31bn by 2016.

Over the last quarter, BMI has revised the following forecasts/views:

BMI remains above consensus on growth in 2012 at 4.8%, noting that Chile saw real GDP pickup in Q112 to 5.6% year-on-year (y-o-y), from 4.5% the previous quarter, thanks to a positivecontribution from net exports. However, the precarious external environment means thatdownside risks are significant and growing.

BMI is sticking with its forecast for household expenditure to grow by 4.5% in real terms in 2012(down from 8.8% in 2011), before picking up slightly to 6.0% in 2013. Unemployment remainednear its lowest level in a decade at 6.5% in April; and, while consumer credit growth slowed, to15.8% y-o-y in April from 16.2% the previous month, the rate of expansion is still strong, withnominal levels of consumer loans continuing to hit record highs.

BMI's forecast for relatively strong private consumption has been reinforced by an upward retailsales trend. Latest data from the National Statistics Institute show that Chilean retail sales rose 8.9%y-o-y in June, up from 5.6% in May. Although the solid labour market is driving healthy gains inconsumer demand, the sharp increase in retail sales growth was also influenced by the extra two daysin June.