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Brazil Food and Drink Report Q2 2011
Business Monitor International, Feb 2011, Pages: 88
The Brazil 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 Brazil's food and drink industry.
After a barnstorming 2010, the challenge for Brazil in 2011 will be to turn this strength into a sustainable economic growth trajectory that allows the country to avoid the boom and bust cycles that have blighted its recent history.
With domestic demand surging, and the export picture turning increasingly favourable amid strong Asian demand for Brazil's varied commodities complex, the medium-term outlook for Brazil is one of abovetrend growth, with annual real GDP growth set to average 4.9% y-o-y between 2011 and 2015.
Headline Industry Data:
- 2011 per capita food consumption = +5.7%; forecast to 2015 = +45%
- 2010 alcoholic drink sales = +3.5%; forecast to 2015 = +17.6%
- 2011 soft drink sales = +8.8%; forecast to 2015= +44.7%
- 2011 mass grocery retail sales (MGR) = +7.3%; forecast to 2015 = +35.9%
Key Company Trends:
Beer Prospects Look Bright in Brazil – At the end of 2010, Brazil’s largest brewer AmBev reported that domestic sales have been the major powerhouse for the company over the year. Following a 15% increase in beer volume sales over H110 in Brazil, the company registered a 12.5% rise in volume sales in the third quarter. The country is rapidly catching up the USA to become AmBev’s largest market by volume, boosted by a vibrant economy, a young population and lower per capita consumption levels of beer than for example in Mexico or the USA. Company officials have stated that AmBev's strong sales momentum in Brazil is attributable to consumers trading up; the brewer is now looking to increase its presence in the northeast of the country, where it has been traditionally less strong than in Rio de Janeiro or San Paulo. In 2011, AmBev plans to launch its Budweiser brand in Brazil and has said that “premiumisation remains a strong opportunity” in the country.
Cencosud Builds Momentum in Brazil– Chilean retail group Cencosud has recently announced the acquisition of Brazilian supermarket operator Supermercado Bretas for BRL1.35bn (US$814mn). Bretas operates 62 supermarkets and three distribution centres and the acquisition will significantly expand Cencosud's Brazilian operations. This is in line with our expectations, with the publisher previously suggesting that the firm is likely to focus its expansion on the fast growing markets of Brazil and Peru as it seeks to reduce its reliance on the more mature Chilean market.
Key Risks to Outlook:
Rising Inflation – Of particular concern in the opening months of 2011 is the direction of monetary policy, with building signs that Brazil might be moving away from the tight inflation control that has underpinned much of the economic success of recent years. We believe that the authorities will seek to put off interest rate hikes at all cost - and expect rates to remain on hold at 10.75% in 2011 - but with inflation firmly on the up, this could undermine investor confidence in Brazil.
Slowdown in China – In 2009, China became Brazil’s main trade partner, and strong Chinese demand for strategic raw materials has helped to prop up Brazilian exports. However, overly accommodative fiscal and monetary stimuli in China have led to overheating, which could result in a sharp withdrawal in 2011. As a major commodity-exporting country, Brazil now faces the additional challenge of shifting its exports to markets with more promising longer-term demand than the US, and possibly even China.
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