According to World Bank data, between 2003 and 2011 Brazils GDP rose at an average of 3.9% a year

According to World Bank data, between 2003 and 2011 Brazil's GDP rose at an average of 3.9% a year

The nationwide protests that sprung across Brazil this summer brought domestic concern over the country's economy to global attention.

The spark for the demonstrations may have been a hike in bus fares in the city of Sao Paulo but the protestors were angry at what they saw as poor public services, at alleged corruption and at spending on the 2014 football World Cup.

However, the underlying context was concern at stubbornly high inflation (food prices in particular have been a cause of anger) and fears of unemployment - which has been low - was starting to creep up.

After years of solid growth - notwithstanding 2009 when the impact of the global downturn led to recession in Brazil, as it did in a number of countries - the country's economy has slowed sharply.

According to World Bank data, between 2003 and 2011 Brazil's GDP rose at an average of 3.9% a year. Consumer goods companies doing business in Brazil rode a wave of a country with a growing emerging middle class.

However, in 2012, growth inched up 0.9% as the slowdown in China and consequent fall in its demand for commodities hit Brazil. Household debt also hit consumption. Growth in Brazil this year has so far been better than the anaemic performance in 2012 but forecasts for 2013 have still been lowered as the year has progressed.

Brazil, one of the BRIC emerging markets seen as offering Western multinationals an avenue for growth in the face of maturing domestic economies, is, after a largely buoyant decade, going through a challenging period. For major domestic FMCG companies in Brazil and for multinationals operating in the country, questions on their outlook for the country's economy was a common theme among investment analysts when they discussed second-quarter results in recent weeks.

"Brazil ... is growing with less speed than it used to grow in the last, let's say, eight years at least," Leopoldo Saboya, the CFO of one of the country's largest food manufacturers, BRF, said last month.

"Brazil, Russia, India and China have all seen downgrades to growth forecasts, and the markets in which we operate certainly have slowed," Unilever CEO Paul Polman noted.

"The slowdown in Brazil came in stronger than we thought. In Brazil, our volume performance was constrained by slowing economic activity, higher food inflation, and a period of civil unrest, as you all know," Jean-Francois van Boxmeer, CEO of brewing giant Heineken, said.

Retail sales have been lacklustre this year. Supermarket sales fell in June for the fourth time in five months as food inflation hit consumer confidence. "The national statistics office is estimating at the end of year around 7% inflation. This is mainly driven by an increase in packaged foods, fresh foods and beverages. Consumers are looking for ways to save a little bit of money," Euromonitor International analyst Meika Nakamura tells just-food.

The cost of tomatoes in Brazil made international headlines this spring after restaurant owners, faced with a doubling in prices in a year, stopped using the product. According to data from Brazil's central bank, food and beverage prices were up 13.5% in May year-on-year.

There have been some signs food and drink prices are cooling; official figures for July - the most recent data available at the time of writing - showed food and drink prices fell compared to June. Those numbers prompted under-fire President Dilma Rousseff to claim food inflation was "under control".

Nevertheless, inflation remains a concern, with the recent fall in the Brazilian real, notably against the US dollar, stoking the anxiety. The real has suffered as the US economy strengthens and as the slowdown in emerging markets like Brazil causes investors to offload local assets. The fall in the real prompted Brazil's government to last week intervene in currency markets to bolster its value. At the start of the month, Brazil announced it would reduce import taxes on 100 products, including some food items. However, the value of the real is still a concern. Currency devaluation means more expensive imports, potentially pushing companies' raw material expenses - the higher cost of US dollars, for example, would have an impact on a company's wheat bill - and potentially keeping the country's inflation stubbornly high.

Could domestic companies gain from the fall in the value of the real? Perhaps, although they too, may face pressure on costs from currency devaluation.

"If the dollar remains high, then it is expected that demand for imported products should decrease and that consumers will veer towards local offerings over the coming months, but how much would depend on how inflation and commodities prices affect production by local companies, who already complain of high production costs brought on by labour costs and Brazilian taxes," Fiona Araujo, Ernst & Young's advisory markets leader for consumer products in Brazil, says.

In any case, with inflation high and fears over unemployment rising meaning Brazilian consumers are more cautious, consumer goods companies have to adapt. "There are some manufacturers focusing on value-for-money products because consumers are more cautious in terms of purchasing some packaged foods. Some are reducing the amount they spend every week, every month. I have seen a movement towards more value-for-money products and I expect this will be the main focus of investment by manufacturers," Euromonitor's Nakamura says.

Nakamura explains such products do not necessarily have to be priced cheaply; manufacturers have tried to offer products with "added value" while holding prices.

At the end of 2012, Nestlé introduced biscuits under the Nesfit brand, which is a high-fibre product with a similar price position to standard biscuits," she says.

"Focusing on added-value or quality products but maintaining prices is crucial in an economic slowdown to distinguish from low-priced products. In Brazil, it is very common to associate low-priced products with low quality because in the past low-priced products were of poor quality."

At Ernst & Young, Araujo suggests Brazil's more informed consumers are forcing companies to act. "Rather than the cautious consumer, the pressure is coming from the more informed consumer, who is not necessarily more cautious than before, but increasingly able to buy in a more informed manner, supported by social media and other digital sources of product information. They now have more options and channels and the informed consumer puts more pressure on company's to deliver and differentiate," she says.

Innovation is likely to be a key weapon for packaged food manufacturers facing pressure on commodity prices thanks to the devaluation of the real - but also seeing consumers more cautious about their expenditure.

Unilever, which sells brands including Magnum ice cream and Knorr stock cubes in Brazil, revealed in its second-quarter results it had been enjoying "double-digit growth" in the country despite the slowdown.

However, discussing the numbers with analysts, Unilever faced questions about whether more cautious consumers in slowing emerging markets like Brazil could make it think twice about pushing through cost increases generated by currency devaluation.

Polman said the company would look to "step up our innovation pace" and "work our costs". He also insisted Unilever has "the strongest brands" in emerging markets.

"You just have to be realistic, there is no doubt that the weakening of these currencies over the last few months has been bigger and deeper than anybody has anticipated," he said. "So we have to deal with it. The good thing is that having the strongest brands in these markets, that allows you to deal with that better than our competitors and find the right balance."

After a period of robust economic growth in markets like Brazil, packaged food companies, even if their sales have remained solid in recent quarters, are perhaps having to be more circumspect in areas like pricing.

For a country that has enjoyed robust growth over the last decade, the outlook for the Brazilian economy, in the short term at least, is uncertain. The IMF last month downgraded its GDP forecasts for Brazil for 2013 and 2014 to 2.5% and 3.2% - better than 2012 but lower than previous estimates and lower than the average between 2003 and 2011.

CBD, Brazil's largest retailer, also known by its trading name of Grupo Pao de Acucar, is a company well-placed to judge any changes in consumer behaviour in Brazil's slowing economy. It reported a 7% increase in same-store sales in the second quarter but still reflected on the tough trading conditions in the country.

"The first quarter was more challenging and now in the second quarter, the challenge is even greater," CBD CEO Enéas Neto said. "I think that in the second half of the year, we will have to face more challenges."

Nevertheless, some companies are buoyant. "In the ones we are competing, we're not seeing dramatic slowdown, we're seeing mid single-digit growth rates and we're able them to grow frankly double-digit on top of that," Chris O'Leary, COO of General Mills' international business, said of the US food group's Brazilian operations last month.

And, for all the challenges in recent years, listening to most FMCG companies operating in Brazil, there remains optimism about the country's longer-term prospects.

Next year's football World Cup and the Olympics in Rio in 2016 are expected to help Brazil's economy and some FMCG sectors - snacks, beer - could see a significant boost.

Looking further ahead, there is a widespread belief in Brazil's potential despite the economic problems surrounding the country now.

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