Astor Group Brazil: Food and Beverage Market

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Brazil: Food and Beverage Market

Although inflation and interest rates will continue to fluctuate over the coming years, we believe that positive macro trends will drive sustained growth in Brazil’s food and beverage industry and even more attention from multinational companies and private equity investors. Interest in Brazil is predicated on strong fundamentals and a market too large to ignore. In a country famed for income inequality, extreme poverty was cut in half between 2003 and 2008, and Brazil’s C class alone now represents a larger market than the entire population of Germany, France or the United Kingdom. While effective social programs have received a lot of the credit, substantial increases in real wages and the lowest unemployment in Brazil’s history have been significant factors. Moreover, the expansion of consumer credit has fueled a new class of consumers eager to enjoy what for so long has been out of reach. In the coming years, demographic trends will only accelerate these consumers’ aggregate purchasing power. Unlike the United States, where baby boomers are now retiring, or China, where the one-child policy has caused the working-age population to shrink, Brazil is entering its prime. The percentage of people between 25 and 50 is expected to grow 30 percent over the next 10 years. The impact on the food and beverage industry of more consumers, with more money and more credit cannot be overstated. - Organic foods - Snacks - Nutritional foods - Diet and light products - Ready-to-drink fruit juices

Domestic Market Overview
Outperforming Food Categories
- Organic foods - Snacks - Nutritional foods - Diet and light products - Ready-to-drink fruit juices

Lifestyle Trends
- Increasing demand for chilled frozen and ready-made products - Increasing proportion of meals consumed outside of the home.

Food Retail
-2nd wave of private label introductions, with image adjustment, quality improvement, and price slightly under the brand leader -Emphasis in economic mergers to increase competitiveness

Distribution Channels

The downstream end of the food industry is comprised of the domestic and import market distribution industry (including milling and processing firms which purchase grain and other commodities), wholesalers and distributors, importers, international distributors, retail chains, national and international food service segments, such as fast food chains, restaurants and hotels.

In 2010, 70% of sales to the domestic market were distributed through food retailers, and 30% through food service providers. As seen by the chart below, food service providers have played an increasing role in the distribution of industry product (25% of domestic sales in 2002 vs. 30% now) as out-of-home dining has increased in prevalence in Brazil.

Brazilian food production: global rankings and share
#1: sugarcane, coffee, tropical fruits, orange juice, beef (cattle herd) size, alcohol, tropical fruits #2: soybeans (behind the US), poultry (moved up from 3rd place in 2010), candies and confectioneries Important producer of pork (4th-largest), corn (4th-largest), cotton (5thlargest), chocolate (5th-largest), tobacco, pulp, milk (6th-largest), seafood Further market share gains are expected in the near-term driven by favorable domestic and global trends

Brazilian Food & Beverage Companies

By Revenue BRF Brasil Foods Bunge Alimentos Cargill JBS-Friboi LDC Brasil

R$ Millions 15,905.8 15,779.5 13,489.0 5,148.8 4,720.3 3,963.0 2,771.9 2,624.6 2,518.0 2,507.2

A survey published in Exame magazine (2010) on the 500 largest companies in Brazil showed that 40 are food industry companies and seven are beverage producers. Among the larger companies, foreign capital’s share of the food industry stands at 59% (based on total sector sales), while foreign capital’s share in the beverage industry stands at 19%. The sector employs 1,521,000 workers in Brazil and includes 38,128...
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