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Peru Food and Drink Report 2007
Business Monitor International, Jan 2007, Pages: 71
The Peru Food Drink Report provides independent forecasts and competitive intelligence on Perus food and drink industry.
We expect 2007 to be Peru’s ninth consecutive year of economic expansion, though the GDP growth rate, likely to be around 4%, will be somewhat less than in both 2005 (6.7%) and 2006 (which we forecast will come in at 5.3%). However, the growth will be more evenly spread throughout the year, unlike in 2006, which saw stop-start growth and investment curves, associated with anxieties around the unpredictable presidential election in April.
Over our forecast period as a whole, it remains to be seen how far interest rate developments will lead to declining consumer confidence, as credit becomes more expensive, with interest rates continuing to rise in late 2006 and early 2007. Nonetheless, based on the assumption that the new Alan Garcia government will continue with its market-friendly economic policies, the author forecasts mass grocery retail (MGR) sales to increase by 59.8% over the full forecast period, reaching US$1.69bn by 2010.
The dominant news in this final quarter of the year is that mass grocery retailers in Peru - especially Wong and Supermercados Peruanos - are finally biting the bullet and making plans to expand out of their comfort zone - the metropolitan area of Lima - into hitherto uncharted parts of the country, beginning with secondary and tertiary cities. Their target is the three-quarters of food and drink sales that occur in ‘traditional’ street markets and small, corner shop outlets. With their greater buying power, these leading mass grocery retailers should be able to make inroads into Peru’s provinces in a relatively short space of time. Considering the higher prices of products in traditional markets and stores, the benefits to consumers will be considerable. Of course, modern retailers will have to tweak their product portfolios somewhat, and offer many items in smaller packets and portion-sizes, sacrificing a degree of profit, but obtaining the large sales volumes should more than
compensate.
In the food and drink sector, the outlook continues to brighten following eight years of economic growth - though the same limitations we initially highlighted in Q306 still apply, with widespread poverty and high unemployment putting a break on domestic growth. However, operators’ optimism appears to on the rise, exemplified by Coca-Cola’s and SABMiller’s plans to build new plants to increase production levels. Overall, we estimate a continued rise in per-capita food consumption for the rest of the decade, rising from its current US$570 to US$630 in 2010.
The export segment is currently the rising star of the food and drink sector. Leading the way is the poultry industry, which has just secured export agreements in a number of new markets, including the EU, Costa Rica, Singapore, Thailand and China. Poultry production in Peru has been increasing rapidly recently in recent years and the country now has a poultry population of around 320mn birds per annum. Not far behind the poultry industry is the food-processing sector, where we see promising investment opportunities in export-oriented activities. The emerging frozen dinner and entrée category is a case in point: some Peruvian companies are beginning to target them to ethnic groups worldwide. Peruvian cuisine is one of the most diverse in the world; we believe its similarity to Mexican and Thai dishes (with spicy, contrasting tastes) make Peruvian meals a competitive alternative product. Opportunity abounds here for a range of producers, including those in the poultry, meat and vegetable industries, to add value to their staple products and earn valuable foreign currency.
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