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Chile Food and Drink Report Q3 2011
Business Monitor International, June 2011, Pages: 91
Chile 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 Chile's food and drink industry.
While the Chilean economy has managed considerable diversification away from the mining sector, mineral exports, of copper in particular, remain central to the country's economic prospects and consequently domestic consumption. With over 45% of Chile's copper exported to China, the outlook for Chinese growth is crucial, and in this respect our Asia team's upgrade of the 2011 real GDP growth forecast for China bodes well for Chile's economic performance in the short term.
Over the longer term we expect private consumption to also play a major role in driving economic growth. We forecast that private consumption will increase by 5.4% year-on-year (y-o-y) in 2011 and 5.0% y-o-y in 2012 as wages increase nationwide and unemployment continues on its downward trajectory (over 300,000 new jobs were added in 2010, according to preliminary figures). A host of leading indicators, such as supermarket and new vehicles sales, showed the consumer sector strengthening in 2010 and during the first few months of 2011. We anticipate a similar performance for the rest of the year and into 2012, with positive implications for Chile’s food, drink and retail sectors.
Headline Industry Data
- 2011 per capita food consumption = +8.4%; forecast to 2015 = +25%
- 2011 alcoholic drink sales = +6.4%; forecast to 2015 = +19.2%
- 2011 soft drink sales = +9.5% ; forecast to 2015 = +30.6%
- 2011 mass grocery retail sales = +5.2%; forecast to 2015 = +14.5%
Key Company Trends
Fonterra And Nestlé's Plan For Chilean Merger Derailed By Opposition – Two of Chile's major dairy producers have withdrawn their plan to merge their operations due to significant local opposition. New Zealand-based dairy giant Fonterra planned to merge its Chilean subsidiary Soprole with Nestlé's liquid and dairy business in the country. The two firms already operate a successful partnership elsewhere in Latin America called Dairy Partners of America (DPA) but were forced to call a halt to the Chilean plan after opposition from local farmers and politicians concerned about the increased level of concentration within milk buying. The news is something of a setback for the two firms, and the dairy industry as a whole, which could have leveraged the scale of the combined business to make greater inroads into the regional dairy sector.
Walmart Expansion Taking Advantage Of Rising Chilean Affluence – In April 2010, Walmart announced plans to invest US$250-300mn in Chile in 2011 to fund expansion. The investment will be focused on its SuperBodega Acuenta and Ekono discount formats, with the firm suggesting that penetration in these segments is low and provides room for growth. Walmart's investment chimes with our positive outlook for Chile's consumer, based on stable economic growth and the gradual shifting of the economy away from exports and towards consumption. The firm's focus on lower-priced formats underlines the fact that the upper end of the retail spectrum is fairly well catered for, while a large proportion of Chile's lowincome population remain outside the net of organised retailing.
Key Risks To Outlook
Market maturity – A limiting factor on our growth forecasts is the growing maturity of the food, drink and retail sectors; for example, Chileans are already among the highest consumers of soft drinks in the world. In addition, the organised retail sector already accounts for around 62% of all grocery sales (compared to 27% in neighbouring Peru), and, with expansion opportunities limited, supermarket sales in real terms have advanced by only around 20% since 2005. This figure compares unfavourably to other countries in the region.
Growth remains tied to Chinese prospects – With the Chilean economy still highly dependent on the export of minerals to China, any slowdown in this market would have significant negative implications for Chilean economic growth and consumption.
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