As the Brazilian economy develops, consumers are becoming increasingly sophisticated in how and what they buy. According to a new report from just-food, the growth forecast for the Brazilian packaged food market over the next five years offers huge potential for both domestic and international investors. Ben Cooper reports.
There is no doubting the significance of Brazil as one of the key emerging growth economies in the world alongside Russia, India, China and Mexico, and there is also no doubt about the significant role the packaged food industry is playing in that development, and of course what it stands to gain.
In the past month, three major food retailers, Wal-Mart, Casino and Carrefour, have made public statements confirming Brazil as an important growth market.
Late last month, Casino announced that it has exercised an option to increase its stake in Brazilian retailer CBD to 35.3%. Earlier in the month, Casino said CBD had posted an 8.1% increase in same-store sales for the first half of the year. Meanwhile, Carrefour said its like-for-like sales in Latin America rose by 14.2% in the first half on the back of strong growth in Brazil and Argentina. When Wal-Mart raised its second-quarter guidance last month, it stated that sales in Brazil were strong.
Clearly these retail groups are eyeing Brazil’s rapidly developing consumer economy with eager eyes, and a recently published report from just-food confirms why. According to the report, Branded foods in Brazil – forecasts to 2013, the Brazilian packaged food market will be worth approximately US$125.2bn by 2013, having grown by 37.3% from a projected $91.2bn for 2008.
While the report points out that the compound annual growth rate (CAGR) over the coming five years will be 6.2%, slightly lower than the 6.7% achieved between 2002 and 2007, it says growth “is still very strong, reinforcing the huge potential in the Brazilian food market for domestic and foreign investors”.
The report forecasts that rising disposable incomes among the upper-income bracket and the middle class, as well as increasing food prices, are set to fuel growth. But crucially the developing retail scene, and particularly growth in own label, will be a further catalyst for growth. “The development of a high-quality but lower-priced private-label portfolio by the major retailers such as Carrefour will appeal to low-income households,” the report states.
Interestingly, it is not just hypermarkets that are reaping the benefit of Brazil’s development. The report points out that rising disposable incomes have spawned trends towards premiumisation and healthier foods, which has in turn fostered growth for smaller store concepts.
According to just-food estimates, the Brazilian retail market is performing well across a number of formats, from smaller stores to hypermarkets. Growth from 2002 to 2007 exceeded 70% for smaller retail operators, while hypermarket sales grew by just over 50%. Overall retail sales reached an estimated US$135.6bn in 2007, up from US$127bn in 2006. Hypermarkets and supermarkets nevertheless accounted for around two thirds of the total grocery sector by value in 2007.
“Brazilians are shopping more frequently and are more interested in brands than ever before,” the report states. “Smaller grocery stores are benefiting from evolving shopping habits, which are focused on convenience and product quality. Strong GDP growth has increased expenditure on food and drink among middle-class urban consumers, but it has also impacted on overall food expenditure. Value and volume growth in the Brazilian retail market is being driven by increasing wealth and health consciousness and a propensity for higher-income consumers to trade up to premium and indulgent variants.”
The report continues: “Economic growth, the strength of the Brazilian real and rising disposable incomes in Brazil are building a premium food sector with potential for strong growth over the next three to five years. Consumers are becoming more sophisticated in their food and drink choices with many in the higher-income bracket using food as a status symbol, purchasing the more exclusive, expensive and exotic brands.”
Another key trend resulting from rising incomes and changing lifestyles is growth in impulse purchasing. “Impulse purchasing is also rising and boosting demand for snack products with a premium positioning. More affluent consumers are purchasing products that offer indulgence, convenience and health benefits – and are prepared to pay a premium for such items.”
Brazilian consumers are not only demanding greater convenience in how and where they shop but also in how food is packaged. “The convenience megatrend is starting to be felt within the Brazilian food and drinks market,” the report says. “Flexible packaging dominates many food product sectors including cereal, rice, beans, flour and sugar. Transparent packaging is also increasing in popularity, particularly in the health and wellness sector, as consumers want to see that the product inside is fresh and visually appealing.”
According to the report, as economic growth continues to rise over the next five years, the growth trend in premium and better-for-you products will only become stronger. Among the product categories expected to benefit from this trend are fruit- and nut-based snack bars, dark chocolate and sugar-free gum.
In addition, functional foods are also expected to grow in popularity, particularly in the dairy sector, which is already associated with widely accepted health perceptions. The report states: “New product development is likely to focus on adding vitamins and minerals to products that are already popularly consumed such as yoghurts, rather than trying to convince consumers to purchase an additional product outside of their usual shopping list such as a one-shot drink.”
One of the key observations the report makes is that Brazil will see a similar pattern emerging as has been seen in more developed markets, that of the parallel development of both healthier options and premium, indulgence foods.
“Outside of the healthy food market, premium and indulgent products will increase in popularity throughout the food and drink sector, although private labels will be a driving force, as they open up indulgent items to a bigger, more mass-market target audience,” the report states. “Exclusive products will be developed to target the high-end market, but these will have a stronger focus on higher-quality ingredients and the look and feel of the product.”
For more information or to download this report, go to https://www.just-food.com/store/product.aspx?id=66499&lk=rotw_arch