Adventures of a Gringa

Favela Consumers: The Invisible Market?

With the expansion of Brazil's middle class, something has become increasingly clear: favelas are home to a vast and growing number of consumers. Though this was apparent to companies like Coca Cola and Nestlé over a decade ago, the purchasing power of favela residents has risen due to a jump in salaries, a decrease in unemployment, and greater access to education.

Brazil's so-called "C class" grew by 50 percent in urban favelas over the last decade, according to a new Data Popular study. Now, around 65 percent of favela residents are considered middle class, versus 37 percent in 2002. Brazilian favela residents--around 12 million people--earn around $28.4 billion a year, the equivalent of Bolivia's GDP. "This used to be an invisible market, because it was right under our noses," says Data Popular Director Renato Meireilles, "but people only saw favelas through the perspective of violence and drug trafficking."

Over the last ten years, access to goods for favela residents has exploded. The number of those with washing machines doubled to over 50 percent. Nearly 90 percent have cell phones, and 40 percent have computers. Around 45 percent are regular internet users. While most daily purchases are made within favelas, larger purchases, like electronics, are made in stores outside the community. About 70 percent of favela residents go to the mall every week, and 50 percent eat out on a weekly basis. Around half said they plan to buy furniture within the next year, and 36 percent plan to buy home appliances.

Some companies have taken note. Casas Bahia, one of the country's largest retailers, opened a store in Rio's Rocinha in November. On opening day, the store sold 10 times as much as the average store, and the chain plans to open a third favela location in 2013. Vai Voando, an airfare vendor, has 70 stores in favelas alone, largely in Rio and São Paulo. The company counts around 3,000 passengers a month, with 43,000 customers since the company started two years ago. The company's owner, Tomas Rabe, plans to open 50 more stores this year.

Now, plans are underway to build Rio's first favela mall, in the "pacified" Complexo do Alemão. The $10 million investment aims to open 500 stores, at least 60 percent of which will be run by local favela residents. All maintenance, security, and janitorial work will also be done by locals in order to create jobs, especially for youth. A branch of Caixa Econômica bank will offer microcredits for small businesses within the mall itself. The mall also plans to house local street vendors. The project is due for completion later this year. Elias Tergilene, a former street vendor who runs a series of malls, is behind the initiative. He hopes to invest $253 million over two years in favela malls, aiming to open similar shopping centers in São Paulo and Belo Horizonte.

However, not everyone is happy about the new favela consumers, who along with buying computers and washing machines are also frequenting some of the same public spaces once reserved for the wealthy. "The C class put an end to the exclusivity of the A class in that the new middle class began to consume products and services that it didn't buy before," Meireilles told me in November. His company found that around 50 percent of upper class consumers only want to be around people from their social class, and over half believe that products should come in different versions for the rich and the poor.

A salient example of this recently emerged in Rio. A new beach club in Copacabana opened, offering a private strip of sand on one of the city's public beaches. For an entrance fee of between $45 and $126, beachgoers can get into the exclusive club--where safety and a clear separation from so-called favelados (favela residents) are considered selling points. "I stopped going to Ipanema and started coming here every day because it's a much more select crowd," sociologist Camilia Diniz told VEJA. "I can drink champagne out of a glass and brush my hair afer swimming." The manager of the beach club noted: "Everyone can come here without being afraid of wearing a Rolex or bringing a Louis Vuitton bag."

Image: Rocinha favela in Rio, Memorias do PAC.

Interview with Kleber Mendonça Filho

Kleber Mendonça Filho is the kind of writer who believes you should write what you know. His latest film "Neighboring Sounds," which he wrote and directed, takes place in his hometown of Recife, and most was shot on his block and even in his own home. But he's also a fan of horror movies and science fiction. He's made short films of both genres, from "A menina do algodão" (2002), based on a local legend, to "Recife Frio" (2009), a fantastic mockumentary about a cold spell that takes over the northern Brazilian city. He's one of the most exciting directors in Brazil at the moment, one who's changing the course of Brazilian cinema.

I interviewed Mendonça in Recife by phone after meeting him briefly in New York, where he came to promote his new movie and accept the award for best film of the year from Cinema Tropical. "Neighboring Sounds" has won accolades the world over, including being named one of the best movies of 2012 by The New York Times. A movie programmer in Recife and a former movie critic, Mendonça told me he wanted to make a film that he would like to watch. From the perspective of a viewer, Mendonça wanted to focus on what he calls "small-scale incidents," the day-to-day occurrences that make up daily life. "I've never been involved in shootouts, and I don't carry guns," he said. "My life is interesting enough." The movie focuses largely on the daily lives of middle- and upper-class families living in Recife, and their relationships with their working-class employees.

The Middle Class as a Protagonist

Mendonça noted that Brazil's middle class is not normally part of Brazilian cinema. At a January screening of the director's short films at New York's Museum of the Moving Image, he explained there's now a "huge discussion going on" since the new movie showed an intimacy with this group. The film also zeroes in on class tensions, which Mendonça said are part of Brazilian society and "make Brazilians tic." "For me, it's obvious because it's part of our lives," he said. In several of his films, Mendonça spotlights the maid's room, which can be found in many Brazilian homes and evolved from slave quarters.

For Mendonça, it was natural to focus on the middle class, since that's where he comes from. "That's what I understand," he told me. "I'm familiar with the way people think and behave." He said many people told him how much they identified with situations in the film. "That's what the arts are all about, really; they tell you something about what you understand or something that you feel," he noted. But he was taken aback that people thought the film was original for focusing on this group. "There's nothing revolutionary about this," he said. "It baffles me." He cited a film called "O Invasor" (The Trespasser) that influenced his work, and touches on similar themes. When he saw it a decade ago, he wondered: "Why don't we make films like that?"

Brazil's Frenzy of Consumerism

"Neighboring Sounds," as well as the 2005 short "Eletrodoméstica," were inspired in part by the boom in consumerism after the Real Plan in 1994. Mendonça was first struck by the phenomenon during a family trip to the United States in the early 1990s when he saw Brazilians bringing piles of VCRs, microwaves, and fax machines back to Brazil. He was also struck by an incident involving the winning Brazilian team during the 1994 World Cup in Los Angeles: the players and entourage brought home 17 tons of baggage filled with purchases after their win.

Before inflation was conquered and imports opened up, Brazil had a "strange kind of capitalism that was very similar to life in communism," Mendonça said. "I remember a time when you would go to the supermarket in the morning and in the afternoon, the prices would have gone up." There were very few choices when it came to buying electronics or cars, but after 1994, he began noticing people "going crazy with consumerism." Even though things have changed since then, Mendonça noted, Brazil still has a developing consumer culture, with new money coming in and a growing C class.

Breaking the Mold of a Domestic Film

With a limited budget, "Neighboring Sounds" has had success because people are discovering the film, which Mendonça admits doesn't usually happen. "It's slowly stepping out of the place where the market says it’s supposed to be and supposed to stay," he said. The film was well-received in Brazil, which isn't always the case. The term filme nacional, or domestic film, could sometimes be spoken as a derogatory term. A recent Carta Capital article declared Brazil a "cultural wasteland," with the exception of "Neighboring Sounds." Mendonça disagreed with this assessment, but noted that this perception of Brazilian films does exist. On Twitter, he's seen people comment on the movie, saying, "Well, it's nacional, but it's actually quite good," or "It's so good that it feels like an Argentine film." The solution, Mendonça believes, is to create more good movies and to expose viewers to different kinds of films. "Cinema is many different voices in the whole world, not only American or Hollywood voices," he said.

Connecting History to the Present

One important element of "Neighboring Sounds" is a clear connection between the past to the present, from showing black and white photos at the beginning to showing crumbling buildings in rural Pernambuco. There's also a mirroring of class relationships from colonial times to the present. At the end of the film, one can't help but wonder how much things have changed. Mendonça, the son of a historian, says he intuitively tries to understand where things come from. "I try not to be nostalgic," he said. Though some people would say the film begins with old pictures, "for me, they're just pictures," Mendonça explained. "That's what we're living now, but in black and white." If you drive 40 kilometers outside of Recife and shoot photos without color, Mendonça told me, you'll get the same images.

The Genre Film Gap

Brazilian genre films aren't taken seriously by critics, Mendonça lamented. There are no Brazilian horror movies, except for Zé do Caixão, and no science fiction; these types of movies are often dismissed as being unrealistic. Mendonça made a choice with "Neighboring Sounds" not to venture into this realm by say, landing a spaceship in the middle of the street. And while it wasn't a horror film, the element of fear was important, and Mendonça created a film that leaves viewers feeling on edge for the entirety of the movie. In the future, Mendonça considers making true genre movies. "I go back to me as a viewer," he said. "It’s basically the kind of thing I would like to see."

Image: Universo Produção

Building Startups in Rio: An Interview with 21212's Benjamin White

Because of a slowing economy, Brazil may no longer be the darling of international investors and media, but one American is hedging his bets on the Brazilian market. Benjamin White, one of the co-founders of Brazil-focused startup accelerator 21212, moved from New York to Rio in part because of his belief in the vast potential of Brazil's digital space. He's combining New York know-how and pragmatism with Rio ingenuity and creativity to build some of the most innovative startups in Brazil.

How it All Began

White previously worked as vice president of digital media at MTV and as chief creative officer at Sling Media in New York, as well as an angel investor. But after marrying his Brazilian wife in 2009 and spending six months traveling around Brazil, he began to set his sights on the South American country. At the time, "things were really shaping up in Brazil," White said. He had an epiphany that he wanted to do something in the digital space but was uneasy about investing his own money, so he spent a year building his network in Brazil and meeting companies. "I kept getting more and more convinced that the opportunity was massive," White explained.

So he and his Brazilian partners decided to start an accelerator, which has similar goals to that of an angel investor. White and his partners saw a need to bridge Brazil's experience gap, especially when it came to building digital businesses. White noted that Brazil hasn't had a long tradition of entrepreneurship, but has seen a "meteoric rise" in digital penetration. He sees Brazil's opportunities in the digital space as an "invitability story." With only 40 percent of the population online but as the number 2 country in Facebook and Twitter and exponential growth in e-commerce, "the opportunities in the digital space are inevitable."

The Rio-New York Connection

White hoped to build a bridge between Brazil and the United States through the company, both literally and figuratively. He hails from New York, and his partners from Rio, and they opened offices in both cities. They named the company after the phone codes of Rio (21) and New York (212). White believes 21212 has a distinct advantage over other similar companies operating in Brazil because of the U.S. connection. Since the United States is in a leadership position in tech and internet development, White said, it's helpful to not only source mentors and best practices from successful U.S. companies, but it's also easier to launch Brazilian companies in the U.S. (Plus, White pointed out, New York beats Silicon Valley when it comes to doing business with Brazil, given fewer time zones and flight times separating the two.) While 21212's vision is to build companies in Brazil, for Brazil, it also aims to help Brazilian companies expand to the U.S. market. Queremos, an innovative crowdfunding music platform in 21212's second class, is now setting up shop in New York, and launched as WeDemand! for the U.S. market.

The Startups

Many of 21212's companies have found something unique about the Brazilian market and built incredible web-based solutions. Pagpop, for example, is an e-payment online platform started by a dentist who was only able to accept cash and checks from patients, given the difficulty in acquiring a credit-card processing machine. (Until a few years ago, White said, there was a duopoly for these machines, but now that's changing because of legislation to open up the space.) ResolveAí is a mobile app that allows users to order cabs and track their location. "Now you can actually see if the cab is really 5 minutes away," explained White, "which is a huge confidence-builder." The company has expanded from Rio to 23 other cities throughout Brazil. ZeroPaper is a cloud-based accounting solution for small businesses, created after entrepreneurs discovered that many small business owners in Brazil either still use pen and paper for their accounts, or use Excel spreadsheets or paid desktop programs. The program is online-based, free, and easy to use. BidCorp is another example of a web-based solution for businesses. This site works as a marketplace for surplus assets from large construction companies who have trouble managing equipment. Bidcorp resells everything from heavy machinery to office equipment, helping companies become more efficient and manage their inventory. "Nobody's doing what they're doing," said White.

As of December 2012, 21212's companies had raised R$5.5 million, which has increased since. The accelerator recently accepted its third class, and now has 27 companies.

Streamlining the Startup Process

21212 is using New York pragmatism and a no-nonsense approach to building startups, in what White calls an ecosystem-building mode. "Our number one basic thesis is that there's an abundance of opportunity in Brazil and a dearth of resources," White explained. So 21212 is working to take advantage of mentors and lessons from abroad from people who built similar businesses to apply them in Brazil.

One thing the company is doing is systematize the process of starting business."There are all sorts of barriers to doing business in Brazil that you have to figure out how to overcome in order to seize the opportunities," White said. "Setting up a company in Brazil is notoriously difficult," he noted, "and is a huge obstacle for startups." It can take months. So 21212 sought to become as efficient as possible, with one Brazilian and one American lawyer on staff doing the exact same paperwork for all of the startups. The system is now so efficient that the company is able to do it faster than almost everyone they know. From an investor's perspective, White says, "I want my founding teams working on their product and their business, not at the cartório for three weeks straight."

Visas are another obstacle, since there's a lot of interest from foreigners who want to work in Brazil but it's difficult to get visas for them to work with startups. From the policy side, "The jury is still out if there's the political will to do what's best for the country," White explained. "For me, it's clear you have to open up and bring talent in."

Rio: Brazil's Silicon Valley?

For White, Rio is a natural location not only for an accelerator, but as a potential Silicon Valley in Brazil. Since companies have to import talent and foreign money, Rio is the place where that can happen, White believes, because foreigners want to go there to have the full Brazil experience. "It's an emotional, lifestyle thing, not a bottom line, money-making thing," White said, "but it's probably more powerful of any other aspect of 'why Rio' question." Botafogo, where 21212 has its offices, is becoming the city's tech hub with a growing number of startup companies. "Startups cluster to rely on each other," White noted. Botafogo has the advantage of being more "homey" as well as being a convenient location with easy transportation, near the airports, and close to other parts of Zona Sul where international visitors stay. White notes that São Paulo is close enough to do business, but isn't as appealing for foreigners coming from big cities. "If you need to get your best talent to work in Brazil, Rio is a much easier sell," he said.

Image: Courtesy of 21212