Peru Retail Report Q1 2013

The Peru Retail Report examines the long-term potential of the local consumer market, but flags shorttermconcerns about the impact on Peru's economic outlook of sluggish growth in net exports.

The report examines how best to maximise returns in the Peruvian retail market while minimisinginvestment risk, and also explores the impact of a more aggressive slowdown in economic activity in theUS or China than we are currently expecting on the Peruvian consumer and on the ability of producersand exporters to realise returns in the short term.

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

Peruvian per capita consumer spending is forecast to increase by 20% to 2016, compared with a regionalgrowth average of 17%. The country comes second (out of seven) in BMI's Latin American RetailRisk/Reward Ratings, outperforming slightly for Reward.

Among all retail categories, mass grocery retail (MGR) will be the outperformer between 2013 and 2016in growth terms, with sales forecast to increase from US$2.56bn in 2013 to US$3.31bn by the end of theperiod. Growth in MGR sales is expected to outstrip that of overall food sales (29% compared with 28%),with MGR's share of the overall food market predicted to grow from 11.2% in 2013 to 11.3% by 2016.

Over the next five years, expansion by the leading operators and market entry by new players is expectedto result in dynamic growth in the MGR sector. As such, BMI is forecasting that between 2013 and 2016sales at Peruvian hypermarkets will increase by 17.6% to reach US$1.28bn, while sales at supermarketswill increase by 37.1% to reach US$1.41bn.

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

Given a strong economic performance in the year-to-date on the back of strong privateconsumption growth and investment data, and our view that any slowdown in economic activitywill be relatively moderate, BMI has revised up its 2012 real GDP growth forecast for Peru to5.6% from 4.8% previously. Moreover, given the government's demonstrated willingness toenact growth-supportive policies, we have revised up our 2013 growth forecast to 5.2% from4.8% previously.

BMI forecasts private consumption to contribute 4.1 percentage points (pp) to GDP growth in2012 (up from 4.0pp previously), implying real growth of 6.3%. Moreover, although we expect acontinued slowdown in private consumption in 2013, we modestly revised up our 2013 forecastfor private consumption's contribution to real GDP growth to 3.5pp (from 3.3pp previously),implying real growth of 5.2%.

BMI's forecast for strong private consumption has been reinforced by the fact that the retailsector expanded by 7.2% in the first half of 2012, and by 14.57% in September, the latest monthfor which data are available.