by Alcides Ferreira Week of March 17
- 23, 2000
Two top Internet executives paid visits to
Brazil in the past week. While Yahoo!s Jerry Yang, whose fortune in Yahoo! stocks is
in the US$3 billion ballpark, attracted a youthful crowd to his speaking engagements,
Oracle vice-president and e-commerce specialist Mark Jarvis whispered his secrets mostly
to top executives.
But whats really new regarding the e-business scene in Brazil a strong aspect
for the companies both visitors represent? Not their speeches, but a report released by a
major Brazilian bank to big investors and selected media outlets, which tries to answer
key questions about the issue. The research work was conducted by one of Brazils top
equity analysts, and made available to us on condition that the source not be identified.
The document says there are between 3.4 and 3.8 million cybernauts in Brazil,
meaning about 2.4 percent of the population is online. That figure alone makes Brazil the
biggest Internet market in Latin America in terms of total number of users and penetration
rate. That user total is expected to jump to 9 million by 2003.
Last year, only 900 thousand websurfers in Brazil used the Internet to make a purchase of
any kind. The research showed that 57 percent of web consumers are concentrated in the
states of São Paulo, Rio de Janeiro and Minas Gerais Brazils more developed
southeastern region. Also, 63 percent of all who bought something were males, and their
buying preferences hovered around simpler products to order: CDs (20 percent), books (18
percent) and software (16 percent).
Worthy of note is the fact that a sizable chunk of cybernauts is still afraid of buying
over the Internet: 27 percent simply would not send their credit card numbers anywhere
through cyberspace, a scenario not much different from what happens in the U.S. and
Europe. According to the bank report, this is the main reason why e-business is still at a
very early stage in Brazil. More numbers support this: of Brazils top 500 companies,
302 have websites, but only 29 of those (about 10 percent) use the Internet as a
distribution channel, and only 17 (6 percent) maintain complete e-commerce sites.
Another key point: its still quite difficult for the average Brazilian to own a
computer. In the São Paulo metropolitan area, one of the wealthiest regions in the
country, average annual income in 1999 was R$11,400 (around US$6,700), so the average
consumer would spend 13 percent of his or her annual income to buy a personal computer
equipped for Internet access.
An inadequate infrastructure, which results in astonishingly high freight and delivery
costs, is another obstacle that needs to be overcome. The Pão de Açúcar Group (NYSE:
CBD) charges R$10 (almost US$6) to deliver goods bought through its website in the São
Paulo city area. However, the average purchase totals only R$17 (about US$10), so the
average consumer is spending an additional 60 percent of the amount purchased just to have
the items delivered. This is happening in Brazils biggest city, so its not
hard to imagine what can happen to shipping costs elsewhere in a continent-sized country.
The lack of an efficient freight and delivery infrastructure can also be a barrier to
newcomers to e-business in Brazil, since only major retailers with their own logistics and
support systems would be able to compete.
A final point to consider: Brazils web consumer profile is completely different from
that of the countrys average retail consumer. The average supermarket consumer for
example is an older female, not a young male as is the case on the Web.
All of these factors have not kept Brazilian companies away from the Web. The already
mentioned Pão de Açúcar Group is a good example: it has a well-structured Internet
operation, although its Web sales last year totaled only R$11 million (about US$6
million), only a small fraction of the companys net retail sales figure for 1999:
R$5.5 billion (about US$3.2 billion). Recently, Pão de Açúcar announced that all its
e-commerce operations will be concentrated on a new site called Amelia. The
name Amelia is a reference to a well-known, old Brazilian Carnaval song the lyrics
say that Amelia was the real woman because she has no vanity at
all. Amelia, then, would be the prototype of the woman dedicated to the home, and
the sites opening page says it calls itself Amelia so you wont have to
Other companies have been attempting to pick up on whats been done by successful US
Internet companies. The Saraiva Group, a traditional Brazilian publisher and bookstore
chain, created an e-commerce website dedicated to selling books and CDs. Its Web sales for
1999 totaled around R$2 million (about US$1.1 million), or less than 2 percent of
Saraivas total sales for last year.
A completely virtual example, Submarino.com.br sold only about R$1 million (about
US$588,000) last year the site sells CDs, books, software and toys, and is owned by
GP Investimentos, a private equity fund created by well-known entrepreneur Jorge Paulo
Lemann. He is the majority shareholder at large Brazilian companies such as top brewery
Brahma (NYSE: BRH) and retailer Lojas Americanas.
This is pretty strong evidence that irrational exuberance, as described by the
Feds Alan Greenspan, has definitely touched down in Brazil as well. Difficulties and
obstacles to e-commerce notwithstanding, GP Investimentos paid US$5 million last year to
buy BookNet, a book-selling site, from Rio de Janeiro entrepreneur Jack London a
Brazilian in spite of his English name. BookNet was then overhauled and converted to
Submarino. In other words, GP paid about 10 times BookNets annual sales volume in
order to buy the company. Amazon.com (NASDAQ: AMZN) is traded at about 8 and a half times
its estimated sales for 2000, and E-toys (NASDAP: ETYS) trades at just over 5 times its
In spite of all that, ask anyone in Brazil if the savvy Mr. Lemann is now thought of as a
man who burns money. The answer is absolutely not.
Pão de Açúcar's new e-commerce site, Amelia (Portuguese only):
Submarino (Portuguese only):
Saraiva online bookstore (Portuguese only):
Lojas Americanas (Portuguese only):
Brahma (for the English site, click on "indice"
and select "english version")