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Central America Food and Drink Report 2010
Business Monitor International, Jan 2011, Pages: 59
The Central America Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Central America's food and drink industry.
The Central American food and drink sector has continued to attract significant investment over the last three months. In perhaps the most significant announcement, Mexican soft drinks producer Coca-Cola Femsa revealed that it had signed a preliminary agreement to acquire Panama-based diary company Grupo Industrias Láctea, which we think highlights the strong growth prospects for the region’s dairy sector. Soft drinks were also a target for investment during the quarter, with Mexico-based Embotelladoras Arca, revealing that it is to expand into Ecuador, through the creation of a joint venture with local operator Ecuador Bottling Operator (ECB). These two announcements come shortly after the world’s largest food firm Nestlé announced it is to become the majority shareholder in the Guatemala based Mahler Group. This significant investment activity chimes well with our optimistic outlook for consumption in the region.
Headline Industry Data (Regional Averages):
- 2011 per capita food consumption (local currency) = +7%; forecast to 2015 = +49.1%-
- 2011 alcoholic drink sales (litres) = +6.3%; forecast to 2015 = +33.5%
- 2011 soft drink sales (litres) = +6.2% ; forecast to 2015 = +32.0%
- 2011 mass grocery retail sales (local currency) = +6.6%; forecast to 2015 = +46.6%
Key Company Trends:
Consolidation in soft drinks – Consolidation in the region’s high growth soft drink sector has continued in 2010 with Mexico's second largest Coca-Cola bottler, Embotelladoras Arca, revealing its joint venture with Ecuador Bottling Operator (ECB). Arca will combine its Argentine operations with ECB and take a75% stake in the new business in exchange for about US$345mn. The move will allow Arca continue its expansion outside of the maturing Mexican market and, given the relatively unsaturated nature of the Ecuadorian soft drinks sector, it offers the potential for stronger sales and earnings growth.
Femsa investing in dairy – In October 2010, Mexico-based Coca-Cola Femsa signed a preliminary agreement to acquire Panama-based diary company Grupo Industrias Láctea. The move represents a significant departure for the soft drink firm and will have been driven by the high growth rates in the Latin American dairy sector. Given Femsa's increasing dominance of the Latin American soft drink sector we believe this could be the start of a significant programme of sideways expansion into the immature, but attractive Latin American dairy field.
Key Risks to Outlook:
US Slowdown – Central America is gradually reducing reliance on its US trade ties, exemplified by the signing of a liberal trade agreement with the EU in late May 2010. However, the US remains the region’s major trade partner absorbing 41% of its total exports.
Political Risk –this is also a significant factor for some Central American markets. Failure to address structural and institutional shortcomings could see the region struggle to attract new investors – a process we see as key to the continued development of the consumer sector.
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