Special Reprint of Three recent exame covers stories on the brazilian economy

At 47 years of age, Marco Aurélio Olmos, owner of a small insurance brokerage firm in Piracicaba, in the interior of Sao Paulo, is not a millionaire. With his wife, Rosângela, partner in a service company, they maintain a family income of about 20,000 reais monthly. However, in the eyes of many, the Olmos cultivate habits of the rich. They live in a high standard apartment, travel abroad each year, have a BMW and a Toyota Hilux pickup in the garage. On weekends, the couple and the two daughters usually frequent the country house they have at Jurumirim dam, a center of water spots in the interior of Sao Paulo. There, they ride in a Colunna 235C speedboat, a 23-foot model that transports up to seven people. It is the third boat purchased by the Olmos. Received in February, the speedboat cost 100,000 reais and was financed in part - the monthly installments of 1,000 reais were in the home budget for the next three years. "My first speedboat was worth the same as a Gol. The new one is equivalent to a used BMW 320", says Olmos, who is already thinking of changing it for a bigger boat. To make old consumer dreams come true has never been something so palpable to many Brazilians at the same time - from all social classes. With the advance of income and the possibility of financing, a growing number of families - like the Olmos, are experiencing a dynamics of unprecedented prosperity and realize desires cultivated during one's life. For many who were already part of the middle class, the time has come to access goods that were until recently restricted to the top of the social pyramid. For millions of others from the rising classes, it is the time for the first house, the first plane trip, the first computer, the first university course. In the next few years, many of those arriving now in the market will change the goods they have just acquired and add new ambitions, and many others will also start the same trajectory, therefore, the leap of consumption if just in the beginning. Between 2003 and 2008, 34 million people make up classes A, B and C in Brazil. From 2009 to 2014, 30 million others should join this group. "Summing it all up, we are adding almost the population of France to the consumer market in ten years", says Marcelo Neri, coordinator of the Social Research Center of Fundaçao Getulio Vargas. According to forecasts by LCA consulting firm, in 2020, Brazilian homes will spend 5 trillion reais - 130% more than at present. Well before this, already in 2014, Brazil will become the fifth biggest consumer market in the world, behind the United States, Japan, China and Germany only. If this becomes a reality, it means that, in four years, 72% of the population - a total of 144 million people, will at least be from the middle class.

The formation of a real mass market in Brazil is a phenomenon that is not yet fully understood. Of course, the mere act of buying a new stove or boarding a plane will not solve any of the problems the country must face, ranging from basic education to sanitation, quality of public health to the bottlenecks in our infrastructure. However, one thing is certain: after adding so many people, the Brazilian market will never be the same. For thousands of companies that sell in Brazil, it is time to relearn what they thought of their customers. In recent weeks, the article from EXAME magazine heard over 40 people, ranging from analysts, economists to entrepreneurs, in the attempt to decipher how consumption in the country has been developing - and what should be the next steps of this evolution. Individually, each person has his or her own purchasing aspirations, which are met according to one's possibilities. A family will opt for a new clothes washing machine, while the neighbors will change the TV set. Some will buy laptops, while others will prefer the smartphone. It is what is commonly called consumer cycle - the evolution of the goods and service basket. When we look at the market as a whole, we also notice an aggregate consumer cycle, which is the sum of the individual desires of millions. The question is that, with the arrival of so many new people in the market, the aspirations of the Brazilian are at boiling point. At this time, what changes in the market's evolution? In the scale of the majority, what comes first, a TV or a clothes washing machine? A cell phone or a computer? Study or travel? Regardless of social class, it is possible to detect some behavioral trends common to all - and that help make up the broader table of consumption in the country (see tables on pages 22 and 24). When they climb the consumer pyramid, majority seek to satisfy three desires: to have more, to know more and to experience more. These are the three main trends that guide purchase of goods and services by Brazilians. The first - to have more, includes the act of purchasing, whether for the first time, whether to renew something one already has. The second - to know more, includes access to education and information, trend that is linked to the hope of obtaining a better job that allows new leaps of consumption. While the third desire - to experience more, involves the wish to experience something new, almost always linked to the world of leisure. "The Brazilian economy has remained for a long time without growing that it was difficult for most people to have more of anything. Access to education, the "to know more", was highly restrictive. The act of experiencing more, then, was something unthinkable", says Renato Meirelles, director of Data Popular consulting firm. In an evolutive scale, the "to have more" can be regarded as the initial step, as it includes even the simplest consumer. From a certain point, usually in the passing from class D to C, there is the desire to know more. Further ahead, between classes C and B, the desire to experience more also enters the dispute for the consumer's money. An interesting exercise is to observe what has happened with beneficiaries of the Light for All program, a group that left a type of zero stage of consumption. The federal government program to take electric power to rural areas benefited 2.3 million families in the last seven years. According to the Ministry of Mining & Power, on having power at home, these families bought 1.9 million TV sets and 1.7 million refrigerators, in addition to hundreds of thousands of other home appliances and a countless number of items like new foods. "There is a natural scale of consumption. Those who buy a refrigerator begins to buy products that must be refrigerated, like yogurts, fruits and fresh vegetables", says Marcos Etchegoyen, director of Cetelem, financial institution of the French group BNP Paribas. For this poorer group, the only possible aspiration is to increase the goods basket - whether with foods, home appliances or furniture for the home. According to the research institute Kantar WorldPanel, in 2002, classes D and E had 21 product categories in the supermarket cart - now there are 37. Goods like yogurt, condensed milk and clothes softener are now part of the purchase basket. A study by the Boston Consulting Group shows that, whenever a person rises in economic class, his consumer behavior changes significantly. A family from class C - whose family income varies between 1,115 and 4,808 reais, tends to double their expenses with food, beverages and cigarettes on rising to class B. The same occurs when a B family becomes A: their expenses rise by 60% in the same items. The logic is also valid for a series of other products, ranging from electronics to drugs. In the economic theory, what explains the confidence to spend more is the concept of permanent income, which exceeds the monthly pay slip. "The current income is not the only determinant of consumption. If I expect a higher income in future, I am willing to spend more and buy in installment", says economist Fábio Gomes, lecturer of the Insper business school.

It precisely is this favorable expectation of the future that consolidates the market's expansion. Turn to the year 2014, date of the World Cup in Brazil. A crossing of the forecasts of the rising of classes with consumer potential of Brazilians shows how some markets will expand. Looking at class C alone, in 2008, its 93 million members spent 280 billion reais with clothes, electronics, foods and drugs. In 2014, a more robust class C will spend about 451 billion reais with the same items. The importance of increases of this type has been stressed by economists who try to decipher what is behind the expansion movements. "The economic cycles usually start through consumption", says Marcos Lisboa, vice-president of Itaú Unibanco. Lisboa believes that growth is usually preceded by institutional reforms, like control of inflation and the creation of new credit modalities. Such reforms first encourage consumption and then the creation of jobs, industrial production and investments.
The more money available, the sooner the time arrives to take out one's dreams from the drawer. This is precisely the time that Marta dos Santos Moraes, aged 34 years, is experiencing: she wants to know more. Three months ago, she left her job as a housemaid in the Sao Paulo capital and started a traineeship to conclude the pedagogy university course. Marta was a housemaid for five years and she now wants to be a teacher. As a housemaid, she received a salary of 600 reais. The course's monthly fee was 370 reais and was paid by the University Scholarship program, of the Sao Paulo state government. Her  income, combined with the minimum wage of her retired father, covered the family's expenses. Once she has received her teaching certificate, Marta believes she will find vacancies of about 1,700 reais. She is already planning to take a post-graduate course and travel to get to know Bahia. "When we grow professionally, our dreams also grow", she says. The former housemaid is about to cross an imaginary line that will take her from class D, stratum of those with income of 768 to 1,115 reais, and place her in class C.

It is a fact that part of new consumer habits includes immaterial desires, that circumscribe the field of experiences. Maria Aparecida Ferreira da Silva, aged 24 years, from Pernambuco and living in Sao Paulo for almost 20 years traveled in June for the first time by plane to visit the family in Garanhuns, interior of Pernambuco. She, her husband Edson and their two daughters paid 1,285 reais for the return tickets to Recife. Had they gone by bus, they would have spent 50% more and would have endured a 45-hour trip. The tickets were paid in cash with the savings of the cook Maria Aparecida and the waiter Edson, who together have a monthly income of 1,500 reais. Yes, the trip was faster and cheaper, but what Maria Aparecida was most impressed about was the behavior of the airport and airliner staff. "They walked in uniforms and said good day and thank you all the time", she says, who had not returned to Pernambuco for ten years. "In 2011, we will try to go to Bahia to visit my husband's parents. By plane, of course", she says, who bought the tickets at Gol airliner's store in Largo 13, popular commercial area in the south zone of the Sao Paulo capital. The region, where 1 million people circulate daily, was chosen by the airliner for the pilot project of street stores. The experiment worked: from January to March, the store attained the goal of the whole year. When Gol was founded in 2001, 6 million Brazilians traveled by plane each year, but the potential market was estimated at over 20 million passengers. Today, there are already 15 million users and 30 million others have the financial conditions to fly. Gol's executives believe that the new customers will undergo an evolutive cycle to the extent in which they feel more comfortable with the plane. "The first trip is always to visit the family. After, these consumers should buy a national tourist package. A third time, they should even make a trip through South America", says Eduardo Bernardes, commercial director of Gol.
This ascending spiral places Brazil closer and closer to the social structure of mature societies, in which the core of the pyramid moves the domestic economy. "The Brazilian consumer market is the great star of the world", says Ari Kertész, partner of McKinsey consulting firm. This is no exaggeration, even in a comparison with China and India, economies whose growth of the GDP has been greater than that of Brazil. Although the Brazilian population represents only 15% of the total Chinese, the size of the consumer market here is more than half that of China. Some see in today's Brazil a parallel with the expansion of the American middle class as of the 50s. In the United States, millions of people rose socially due to the influence of post-war development. At that time, one out of every four Americans began to travel by plane - an index similar to that in Brazil today. In the television market, the rate of penetration of devices in Brazil, of about 96%, is similar to that of the Americans in the 70s. In this wise, it is reasonable to imagine that consumption in Brazil can take turns similar to those of the United States - if it is thus, we will have some decades of guaranteed prosperity ahead. A example of the potential there is ahead is in the real estate market. Americans change furniture 11 times during their lifetime. Among Brazilians, the average is still 1.8 time. "Until recently, it was extremely difficult to buy furniture in Brazil. Those who were able remained with it throughout their lives", states Luiz Rogelio Tolosa, director of investor relations of Brookfield Incorporaçoes. The construction company's strategy, which plans to launch 12,000 apartments in 2010, goes beyond sales of the first property to the middle class. "We imagine that seven years from now, those buying a property today will be able to change it for a bigger one", says Tolosa.
With so many people buying everything at the same time, the current physical structure of the industry and of retail tends to grow to meet to the demand. Máquina de Vendas, company created with the merger of the network from Bahia, Insinuante, with the one from Minas Gerais, Ricardo Eletro, plans to have 1,000 stores by 2014 throughout Brazil. This means that 440 units will be opened in the next few years. Magazine Luiza has a similar goal. "The consumer knows the power he has and, when he discovers it, we must be ready", says Luiza Trajano, president of Magazine Luiza. She estimates that the network will have 1,000 stores by 2015.

The fact of consumers refining their habits also obliges companies that have always made money with the poorer to rethink their strategies. Latina, manufacturer of semiautomatic washing machines, the so-called tanquinhos, located in Sao Carlos, in the Sao Paulo interior, was born in 1994 - year that the Brazilian currency 'Real' was created. At the time, Brazil was testing a monetary stabilization plan and the recently initiated inflation control allowed thousands of low-income consumers to buy the home appliance, which costs a third of the cheapest automatic washing machines. "Today, my product is still a transition option. However, soon no one will want to buy a tanquinho", says Waldemir Dantas, president of Latina. Therefore, he plans to develop an automatic washing machine to offer to customers to the extent in which they increase their incomes. Positivo, from Paraná, also plans to follow the same path. After selling over 6 million computers during its history, the company now plans to release TV sets, smartphones and electronic readers to accompany customers who debuted in the computer world. This without putting aside the millions of PCs it still intends to sell in the country. "Fifteen years from now, 80% of Brazilian homes will have computer, an index equal to that of the United States today", says César Aymoré, director of Positivo. It is a new Brazil that unfolds - and those who are able to understand it should be able to enjoy the countless opportunities being created.