BMI View: The impact of the weakening macroeconomic environment and low consumer confidence is beginning to be felt by consumer goods businesses in the food and drink sector. Premium category products in particular are seeing a slowdown in sales, as more consumers opt for discount brands . This is likely to be the case over 2016 as well , as we see little scope for a rebound. The positive for the market will be an influx of high-spending tourists in August-September 2016 for the Rio Olympic Games.
A less favourable external environment (in light of an ongoing slowdown in Chinese growth), a poor domestic business environment and a lack of export competitiveness all pose significant headwinds to growth. Although we previously argued that Brazil was in the early stages of an economic policy shift with the appointment of an investor-friendly Finance Minister Joaquim Levy, we expect investor pessimism to rise, on the back of the economic recession, high inflation, currency weaknesses and the potential for delay in fiscal reforms. We also believe that a moderation in input prices (grains) could help margins for these companies to recover in coming months.
Headline Industry Data (Local Currency)
2015 per capita food consumption = +7.4% y-o-y; forecast compound annual growth rate (CAGR) to 2019 = +7.1%.
2015 alcoholic drink sales = +7.4% y-o-y; forecast CAGR to 2019 = +7.2%.
2015 soft drink sales = +7.6% y-o-y; forecast CAGR to 2019= +7.8%.
2015 mass grocery retail sales = +8.5% y-o-y; forecast CAGR to 2019 = +5.8%.
Key Company Trends
Regulator Permits Carrefour-BRF Deal: In August 2015, the Brazilian antitrust agency approved a stake purchase by Abilio Diniz, former chairman of Grupo Pao de Acucar (GPA), in French retailer Carrefour Brazil and food processer BRF. The clearance comes after the Council for Economic Defence rejected concerns that Diniz's holdings in the local unit of Carrefour and BRF would pose a risk to competition, reports Reuters. According to the ruling, Diniz is not violating antitrust law by renting real estate to GPA. Diniz has a 3% stake in BRF, which claims to be the world's largest poultry processor and one of Carrefour's suppliers. In addition, Diniz holds a stake of more than 5% in Carrefour.
Brazilian Beef Prices On Decline: Prices of beef in Brazil have dropped 28% since April 2015, the fall in domestic demand due to economic recession according to a new Mintec report. Beef exports have also declined 18% y-o-y in H115, as the result of lower demand from two of the country's main beef importers, Russia and Venezuela. However, exports to Egypt, Brazil's main beef market in the Arab nation, increased 46% y-o-y in September 2015, while exports to the UAE, Jordan, Palestine and Oman also saw an uptick during the month. The country's total beef exports stood at 117,700 tonnes in September, the highest level in 2015 so far. The increase in exports is expected to push the beef prices upwards in the short term, added Mintec.
CBD & Carrefour Well Positioned In Tough Environment: In spite of a weak consumer outlook, the Brazilian mass grocery retail (MGR) sector will continue offering robust growth opportunities and attracting investment. The structure of the MGR sector will continue to benefit leading retailers Companhia Brasileira de Distribuicao (CBD) and Carrefour Brazil, due to their strong local expertise and substantial investment in the country. Food retailers offering low price points and a large range of private label products are well positioned in this lower-spending environment. For example, Pao de Acucar (Casino 's subsidiary in Brazil), with its cash-and-carry format, provides good value for money and continues to expand rapidly in the country.
Key Risks To Outlook
The risks to our 2015 and 2016 real GDP growth forecasts lie primarily to the downside. The Petrobras corruption scandal continues to unfold, and could have a more substantial negative impact on headline real GDP growth than we currently anticipate. Should the company cut its capital expenditure programme more heavily than we expect, this would pose downside risks to our real fixed investment forecasts. Moreover, the corruption investigation could drag on for several quarters, forcing companies to stop work on projects while individuals are indicted and the tendering processes are examined. Overall, these factors could see Brazilian real GDP growth contract more significantly than we currently expect in 2015 and also underperform our expectations for 2016.
The Brazil Food & Drink Report features BMI Research's market assessment and independent forecasts for food and drink expenditure, consumption, sales, and imports/exports and forecasts for the mass grocery retail sector. The report also includes analyses of major regulatory developments, the background macroeconomic outlook and competitive landscape comparing national and multinational companies by leading products and services, sales, investments, partners and expansion strategies.
BMI's Brazil Food & Drink Report provides industry professionals and strategists, sector analysts, business investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the food and drink industry and the mass grocery retail market in Brazil.
- Benchmark BMI's independent food and drink industry forecasts for Brazil to test other views - a key input for successful budgeting and strategic business planning in the Brazilian food and drink market.
- Target business opportunities and risks in Brazil through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
- Exploit latest competitive intelligence on your competitors, partners and clients via our Company Profiles (inc. SWOTs, KPIs and latest activity) and Competitive Landscape Tables.
BMI Industry View
Summary of BMI’s key industry forecasts and views, covering food and drink manufacturing and consumption and the mass grocery retail market.
Industry SWOT Analysis
Analysis of the major strengths, weaknesses, opportunities and threats within the food, drink and mass grocery retail sectors and within the broader political, economic and business environment.
BMI’s Food and Drink Risk Reward Index
BMI’s Risk Reward Index provides investors (food and drink manufacturers and mass grocery retailers) looking for opportunities in the region with a clear country-comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic points. These provide indices of highest to lowest appeal to investors, with each position explained.
BMI’s food chapter is divided into sections such as meat, fish, confectionary, dairy and canned foods, and provides insight into each market’s food industry, centred on a forecast to end-2019 for the sector. The chapter includes the following elements:
- Industry Forecast Scenario: Historical data series and a forecast to end-2019 for growth of key indicators within a market’s food industry. Indicators include food consumption, food consumption as % of GDP, canned food sales, confectionery sales and food and drink imports and exports, among others.
- Industry Developments: A summary of corporate developments, including news on M&As, FDI, expansions, closures and financial results, in addition to analysis and explanation of the latest industry events and how these could influence further investment.
- Market Overview: An overview of the structure of the market, introducing the key players and discussing underlying trends.
Segmented the same way as BMI’s food chapter, the drink section provides insight into each market’s drink industry, centred on a forecast to end-2019 for the sector. Forecast indicators include alcoholic and soft drink sales by value, volume and sub-sector and tea and coffee sales, among others.
Mass Grocery Retail Forecasts
Segmented the same way as BMI’s food and drink chapters, the mass grocery retail section provides insight into each market’s grocery retail industry, centred on a forecast to end-2019 for the sector. Forecast indicators include mass grocery retail sales by format (including supermarkets, hypermarkets, convenience and discount stores) and a breakdown of the organised retail sector versus the traditional sector, among others.
Illustration of the mass grocery retail and food and drink industries via rankings tables comparing revenues, number of outlets and number of employees. This chapter also includes data-rich, in-depth regional analysis of the market position, business strategies and investment potential of the region’s leading mass grocery retail and food and drink operators.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
The Food & Drink reports draw on an extensive network primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.