General Mills secured its entry into the fledgling but growing Brazilian yoghurt market with the acquisition of local player Carolina just before Christmas. But, with Carolina’s tiny market share, will the move pay off in meeting General Mills’ wider ambitions for growth in emerging markets?
In a move made just two days before Christmas, General Mills announced it had snapped up Brazilian yoghurt maker Carolina Administracao e Participacoes Societarias.
Set up in 1969, Carolina operates primarily in the south and south-east of Brazil. A spokesperson for General Mills tells just-food Carolina has “grown to be a leading regional player in Brazil”.
The deal comes with General Mills struggling to grow its top line. Around 60% of the company’s annual net sales come from the US retail channel and industry watchers have argued the group needs to look to emerging markets to improve its growth prospects.
General Mills has made some moves in faster-growing markets. Last year, it launched its Yoplait brand in China after setting up a plant in the country. In 2014, Yoplait was relaunched in Morocco. However, General Mills’ last significant move came four years ago, with its acquisition of Brazilian popcorn and soup maker Yoki.
“The company recognises the importance of emerging markets for future growth as these markets currently only represent 10% of its global packaged food portfolio. General Mills’ decision to launch the Yoplait brand in China was a first step in recognising China’s importance to future global growth in yoghurt. Now, Brazil is rightfully part of their portfolio too,” explains Lianne van den Bos, an analyst at Euromonitor International.
General Mills describes Brazil as “a strategic market” and Carolina provides the company with a fair opportunity. Euromonitor says from 2015 to 2020. Brazil’s yoghurt market will see the third-largest growth in absolute terms. The Brazilian yoghurt market in 2015 was worth US$4.6bn in value terms, up from US$2.42bn in 2010.
However, a present, the sector is dominated by international players Danone and Nestle. Citing Euromonitor data for 2015, Preben Mikkelsen of PM Dairy & Consulting explains both players hold a 37% and 21% market share respectively. The next three largest players across Brazil are Japan’s Yakult Honsha, Lactalis and then Brazilian dairy player Itambe, which has a 4% share of the market.
One of the challenges of the Brazilian yoghurt market is its fragmented nature with lots of players occupying tiny shares of the market. Mikkelsen says there is a number of companies with a market share of less than 0.1% and together they account for 19% of the market.
A further challenge is how selective Brazilians are when it comes to yoghurt. Industry analyst Ana Paula Picasso says the top three factors influencing choice are price, flavour and brand. Price leads the way especially at present with the Brazilian economy under pressure. And drinkable yoghurts, often coming in large family-size options that appear to offer greater value for money, dominate in terms of sales.
“Brazilians live in big families and often its cheaper to buy these sorts of larger options,” explains Picasso.
Moreover, with a pressured economy causing Brazilians to watch their spending habits, there has been a spike in own-label sales and Picasso says the yoghurt sector is feeling the impact.
“Consumer habits hare changing,” notes Picasso. “Consumers are looking for offers and stock up on products too. One interesting thing is the shift to own-brand. Traditionally, in Latin America, own-brand has not been very popular.” She points to the Extra Supermarcado retailer and says in 2014, a survey of its best-selling 100 products revealed a 10% jump in own-label products.
One group that is considering own-label offerings is what Picasso calls “the new middle class”; a group of people that migrated upwards from working class when the Brazilian economy was booming. This “C1+C2” group, she adds, has the highest consumption of yoghurt in Brazil.
“The first three categories that grew in Brazil around ten years ago when people found they had more disposable income were yoghurt, chocolate and soft drinks. They got this luxury and now they don’t want to compromise and so are considering own-brand. They are also cutting down on some basics so they don’t have to give up these little luxuries.”
Carolina finds itself in a position to capitalise on the demand for private-label production since “retailers have already recognised the excellence of Carolina’s manufacturing capabilities and Carolina manufactures for a number of those retailers,” the General Mills spokesperson says.
Beyond this, what are General Mills’ plans for the business? “General Mills’ stated intention is to invest in making Carolina products. A successful, well-established dairy products company, such as Carolina, will be an advantage for General Mills as it grows its business in the Brazil market. Our first priority is to understand the Brazilian yoghurt market and the company portfolio,” the spokesperson says.
Euromonitor’s van den Bos says the deal allows General Mills to leverage Carolina’s local distribution network and gain knowledge of the market. “Although its distribution network is limited to southern regions of Brazil, it is likely that General Mills will expand the brand’s presence nationally,” says van den Bos.
While General Mills is firmly sticking to its agenda of expanding Carolina’s presence across the market, van den Bos believes the acquisition could see a re-entry of the Yoplait brand. Yoplait was sold in Brazil through partnership agreements but was removed from the market around 15 years ago. Mikkelsen, however, believes General Mills is unlikely to leverage Carolina’s distribution capabilities to launch its own yoghurt brands into the market, The acquisition he says, “can only be seen as an entry ticket to watch the market – not to play”.
“The milk base of Carolina and market share is so small…it is difficult to see how General Mills can compete with the big multinationals already present,” he adds.
With a population of 200m, and an increasing middle class, the Brazilian market that suggest the country could offer General Mills opportunities over the longer term. According to Euromonitor, the country’s per capita consumption of yoghurt has doubled in the last decade to 8kg in 2014. Announcing the deal, General Mills said per capita yoghurt consumption in Brazil is “well below other key markets in Latin America”.
Furthermore, the proportion of the Brazilian population aged 50 and over is expected to “grow significantly”, van den Bos says. She believes there will be a real need for fortified foods that aid in bone and joint health as well as immune support.
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