A few days ago, after checking the mails in my smartphone while waiting for a friend in a local café in Buenos Aires, Argentina, I raised my eyes and started to look what people around me were doing, a habit which I picked up during my time in the Consumer Insights team at Bestfood-Unilever. I realized that everybody around me was using some sort of electronic device!
Most people in groups have a smartphone, while half of the people that were alone have a tablet. I remember that a couple of years ago in the same situation, you were lucky to find one person with a tablet in a café. More users in Latam are moving to smartphones and tablets. Many are just adding one more device to their existing electronic devices portfolio. However, many users are leapfrogging directly into a tablet device, specially teenagers and kids.
The tablet market has reached around 17M units in 2013, with a growth rate of approximately 120% (Couterpoint Research estimation). Growth for 2014, might not reach three digits, but still should be higher than 50%. Growth rates differ substantially among countries, so are their drivers and constraints.
Low average discretionary spending but increasing GDP. According to Nielsen, discretionary spending in technology has grown 3% in Latin America in 4Q 2013. In 2014, discretionary spending will most likely to continue to increase, as of the same period, overall Latam GDP is set to grow 3.9% (World Bank estimation). Following the same trend, the middle class should keep growing, 58M people came out of poverty, during the last decade.
Tablet pricing in Latam. Tablet prices vary widely among Latam countries. Argentina holds comparatively the most expensive price, while Mexico has one of the least expensive prices for similar product and screen size. Prices are high in Argentina because imports are intensely regulated by the government. Also, there is little capacity to assemble tablet devices locally, as they do not get any tax cut (unlike the smartphones) from the government. Therefore, supply of products is low and price is high. Similarly Brazil applies an import duty of 60% on electronic goods. This means that imported products would be the most expensive in Latam. However locally assembled products have around half the level of duty. So, between 2013-2014 around 11 companies set up local assembly facilities. This dragged prices down by around 28% in 2013. The tablet market in Brazil responded – growing by more than 120% (Counterpoint estimation). Mexico, Colombia and Chile all have fairly low imports duty, therefore tablet devices are quite affordable.
A comparison of the lowest priced tablets, all 7″ screen size, in major Latam countries:
Educational use. Starting in August 2014, the Mexico government is implementing a program to give away 700K tablets for educational use. 93.6% should go to elementary school students, and 6.4% to their teachers. It plans to continue this program in the future. Likewise the Colombian Ministry of Education channelled USD$44.5M to purchase 300K tablet device units for the 2013-2014 school year. It has recently issued an RFQ to purchase 335K units for the 2014-2015 school year. One of the added value of this plan is that the governments will also install WiFi in all the schools where the devices are issued to students. This will increase WiFi penetration, especially in Colombia, which has one of the lowest broadband penetration levels in Latam.
Last May it was ‘kids’ days in Brazil. Tablet devices along with smartphones were among the most popular gifts given to children. Many parents buy them as an educational tool, and they’re far more affordable than laptop computers.
WiFi penetration. In 2013 less than 18% of the Latam population had broadband access (BID). Thus, WiFi access is even lower than that. On the other hand, paying an extra mobile plan, to navigate on the tablet, is not an affordable option for most Latam consumers. More than 80% of the mobile subscribers in Latam are still on prepaid plan (GSMA). However, both Colombian and Chilean governments are actively pushing to offer free WiFi in public places. More and more schools is providing free internet access. Increasing WiFi availability will certainly improve the purchase of WiFi connected products.
All the above indicators will have a positive development during 2014. Therefore, tablet market volume should increase at least 50% during 2014 – although with declining ASPs the revenue growth will be much lower. Growth in 1H 2014 will have been impacted by focused spending on larger screen TVs in anticipation of the World Cup. We expect 2H14 tablet sales to accelerate once more – especially during the regionally important Christmas holiday season.