If the Western European and North American alcoholic drinks markets resemble a tired, middle- aged punter futilely attempting to follow the steps of an outdated waltz after a three-day bender, the Brazilian market would be fittingly represented by a young samba dancer performing acrobatics while juggling bottles of beer, wine and spirits.
Providing – more than just – a silver lining to the still gloomy global operating environment, the Brazilian alcoholic drinks market has been quick to bounce back from a temporary slowdown, reflecting a buoyant outlook for the country’s key economic indicators as well as its rising stature in the changing global arena.
Spiros Malandrakis, Alcoholic Drinks Analyst at Euromonitor International, investigates the market’s carnival-like present and future prospects.
Looking at Euromonitor International’s latest findings for what has come to be considered one of the poster children of the ubiquitous BRICs acronym is a far cry from the subdued, sobering or outright bearish picture being witnessed in most of the Western world. Wit
verall alcoholic drinks sales in the country set to post defiantly strong volume growth of over 6% in 2010, recessionary references are becoming obsolete in an operating environment that is reminiscent of the days before doom and gloom descended on the industry.
Yet the optimism is deeply rooted, supported by solid socio-economic performance and driven by an aspirational wave that is reshaping the drinking habits and consumption behaviour of the rapidly rising Brazilian middle-classes.
Since 2002, all income groups in the country have seen a marked improvement in earnings. Social security programmes promoted by the Brazilian government, such as the “Family Grant” (Bolsa Família), and a 50% increase in the minimum wage over the 2004-2010 period inadvertently led to the eventual expansion of the still burgeoning middle-class.
The wide offer of consumer credit also played an integral part in the steady rise of purchasing power, a development that successfully fuelled aspirational consumption while escaping the excesses that brought Western economies to their knees.
Beer, wine and spirits in a celebratory mood
With beer accounting for roughly 85% of overall alcoholic drinks volumes sold in the country, the industry’s fortunes are intricately connected to the category. And what a great year 2010 is shaping up to be.
According to Euromonitor International’s latest findings, premium lager and dark beer are set to experience the strongest growth within the category in 2010, posting skyrocketing volume gains of 20% and 23%, respectively. Both categories exemplify the ripple effects of the evolving sophistication trend as well as the growing number of imported brands available in the market.
In 2010, Cervejarias Kaiser Brasil has introduced Amstel Pulse, Birra Moretti, Edelweiss, Murphy’s Irish Stout and Murphy’s Irish Red. Cervejaria Petrópolis has released Weltenburger in response as the flurry of launches underscore the market’s still massive untapped potential, especially in terms of product diversification, in view of the fact that lager still accounts for nine out of every 10 pints sold in the country.
Product diversification and generous investment in production capacity are also reshaping the Brazilian wine market. Set to post robust 13% volume growth in 2010, wine is witnessing a relative slowdown compared to 2009, although still far outperforming the 2005-2010 volume CAGR of 3%. Sparkling wines are seeing the strongest growth in 2010, spurred by sales of other sparkling wines, mainly represented by local brands.
Younger, upwardly mobile and Western-influenced audiences remain the segment’s primary target as manufacturers continue their efforts to increase consumption in on-trade channels where margins are higher.
Educational campaigns, point-of-sale merchandising, food pairing suggestions and continuous innovative activity have also spurred sales of still light grape wine, while premiumisation is running rampant with grape varietals and country of origin determining the choices of an increasingly savvy audience.
Spirits are not doing too badly either. The top line figure of roughly 2% total volume growth for 2010 is actually only masking the bullish performance of the majority of strategic imported spirits categories that are in effect operating under the heavy shadow of the dominant cachaça segment. Tequila and bourbon are well on their way to posting double-digit growth rates for 2010, while whisky, vodka and cognac are closing in with mid single-digit volume increases.
Even cachaça , accounting for an impressive 84% share of overall spirits volumes sold in the country, and unsurprisingly constrained by its traditional status and saturated reach, is still set to post healthy 1.3% total volume growth for 2010 at the same time as artisanal, higher-end varietals are revamping the category’s image, positioning and targeting.
Migration to the off-trade, an almost uniform international trend that has taken the industry by storm over the past couple of years, is also taking centre stage in Brazil. However, comparisons and discrepancies between the two channels should not be confused with the diametrically opposite performances posted in mature Western markets. In Brazil, both on and off-trade sales have been strong; the off-trade has just been stronger.
The party has only just began
Euromonitor International expects overall alcoholic drinks to post a 4% total volume CAGR over 2010-2015, lower than the 5% witnessed over the 2005-2010 period, although still enviably higher than the vast majority of mature markets.
Beer will sustain its key role as the primary driver of the industry over the short to medium term, although wine, whisky and vodka will also stand to gain from Brazilian consumers’ transition to more sophisticated, Western and aspirational tipples.
According to Euromonitor International’s estimates, GDP will grow on average by more than 4% per year, unemployment will remain relatively steady (at around 8%) and, the poverty rate will continue to fall while the up-and-coming middle-classes will continue to reaffirm their clout.
So, one wonders, where is the catch? In the context of a global market where pessimistic projections are fast becoming the norm and alcoholic drinks glasses tend to be viewed as half empty rather than half full, Brazil does appear to be an exception. Alcoholic drinks companies had better line up and join the party.