branded foods in brazil – forecasts to 2013 2008 edition · sadia company profile and swot...

Branded foods in Brazil – forecasts to 2013

2008 edition

Page i

Branded foods in Brazil – forecasts to 2013 2008 edition By Helen Lewis

July 2008

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Page iv Table of contents

Table of contents

Single-user licence edition............................................................................................................. ii Copyright statement .................................................................................................................. ii Incredible ROI for your budget – single and multi-user licences............................................... ii just-food.com membership........................................................................................................iii

Table of contents ........................................................................................................................... iv

List of figures ................................................................................................................................. vi

List of tables .................................................................................................................................. vii

Chapter 1 Introduction.................................................................................................................... 1 Aims and objectives of the report..............................................................................................1 Report methodology.................................................................................................................. 1 The BRICM market ................................................................................................................... 2 BRICM food industry ranking ....................................................................................................3 Population size and growth....................................................................................................... 4 Gross domestic product growth ................................................................................................ 5 Packaged food market value .................................................................................................... 6

Chapter 2 The Brazilian food and drinks market ......................................................................... 7 Future forecast .......................................................................................................................... 9

Chapter 3 The grocery retail market in Brazil............................................................................. 10 Introduction ............................................................................................................................. 10 Major retailers in Brazil............................................................................................................ 12

Chapter 4 Category analysis – major players ............................................................................ 15 Bakery and cereals ................................................................................................................. 16 Confectionery .......................................................................................................................... 17 Dairy........................................................................................................................................ 20 Savoury snacks....................................................................................................................... 21

Chapter 5 Domestic company focus ........................................................................................... 23 Introduction ............................................................................................................................. 23 Sadia company profile and SWOT analysis............................................................................ 26

Financial overview .......................................................................................................... 26 Background .................................................................................................................... 27 Best-practice strategy analysis....................................................................................... 28 International growth plan ................................................................................................ 29 Recent M&A activity ....................................................................................................... 29

International expansion............................................................................................ 29 Acquisition of Big Foods .......................................................................................... 30

SWOT analysis............................................................................................................... 30


Page v Table of contents

Strengths ................................................................................................................. 30 Weaknesses ............................................................................................................ 30 Opportunities ........................................................................................................... 31 Threats..................................................................................................................... 31

Perdigão company profile and SWOT analysis ...................................................................... 32 Financial overview .......................................................................................................... 32 Best-practice strategy analysis....................................................................................... 34 International growth plan ................................................................................................ 35 Recent M&A activity ....................................................................................................... 36 SWOT analysis............................................................................................................... 37

Strengths ................................................................................................................. 37 Weaknesses ............................................................................................................ 37 Opportunities ........................................................................................................... 37 Threats..................................................................................................................... 38

Chapter 6 Trends analysis ........................................................................................................... 39 Introduction ............................................................................................................................. 39 Premiumisation ....................................................................................................................... 39 Convenience and packaging................................................................................................... 39

Case study...................................................................................................................... 40 Health and wellness................................................................................................................ 42

Trans fats ban.................................................................................................................42 Functional foods ............................................................................................................. 43

Government investment ..........................................................................................................45 Low and light ........................................................................................................................... 45 Future trend forecasts ............................................................................................................. 46


Page vi List of figures

List of figures

Figure 1: Brazil’s packaged food market share by value, 2007 (%)................................................ 16

Figure 2: Instant Gel Schoko replaces up to 30% of the fat in chocolate without changing the

product’s characteristics ........................................................................................... 20

Figure 3: Siol launched its tomato range in flexible packaging for convenience and to add value

versus traditional tin and glass jar packaging........................................................... 42


Page vii List of tables

List of tables

Table 1: BRICM packaged food market investment potential ranking .............................................. 3

Table 2: Population size of each BRICM country, 2002-2007 (‘000s) .............................................. 4

Table 3: Real GDP growth of each BRICM country, 2003-2007 (%) ................................................ 5

Table 4: Packaged food market values of each BRICM country, 2002-2007 (US$m and %)........... 6

Table 5: Brazilian packaged food market value forecasts, 2008-2013 (US$bn and %).................... 9

Table 6: Brazil overall retail market value sales forecasts, 2006-2013 (US$bn and %) ................. 10

Table 7: Brazil grocery retail sales value forecast, 2006-2013 (US$bn and %).............................. 11

Table 8: Brazil packaged food market value and selected categories market value, 2001-2007

(US$m and %) .......................................................................................................... 15

Table 9: Brazil packaged food market value by selected categories, 2008-2013 (US$m and %) ..16

Table 10: World beef production, 2007-2008 (‘000 tonnes and %)................................................. 25

Table 11: Brazilian food and drink export value, 2001-2007 (US$bn and %) ................................. 26

Table 12: Sadia financial overview, 2003-2007 (BRLm and %)...................................................... 26

Table 13: Sadia production volumes overview, 2003-2007 (‘000 tonnes and %) ........................... 27

Table 14: Sadia export revenue share by region, 2007 (%)............................................................ 27

Table 15: Perdigão financial overview, 2003-2007 (BRLm and %)................................................. 32

Table 16: Perdigão export market share, 2006-2007 (%) ............................................................... 33

Table 17: Perdigão production volumes overview, 2006-2007 ....................................................... 34

Table 18: Brazil and global functional food market by value 2006-2013 (US$bn and %)............... 44


Chapter 1 Introduction

Chapter 1 Introduction

Aims and objectives of the report

This exclusive just-food report is part of a brand new series considering five

countries known as the ‘BRICM’ economies – Brazil, Russia, India, China and

Mexico – from the perspective of the branded/packaged food industry. The five

countries are regarded by numerous industry and economic analysts as the

ultimate destination for manufacturers and retailers prepared to invest now in

order to reap the rewards once the countries ‘come of age’.

Although there are many advantages for food companies seeking global

expansion to target the BRICM economies, the countries are also fraught with

problems as they are developing markets often burdened with antiquated

(compared to regions such as Western Europe) regulations and entry

procedures. There are many differences between each country, and internally

within each country, particularly considering the incredible size of China and

India, so local market conditions can change quickly.

The local food production industry is starting to thrive in each of the five key

markets and represent credible competition for all foreign investors.

Multinational retailers and producers/brand owners are present in the BRICM

region and many are performing well. This report focuses solely on activity in

Brazil. The other four countries are addressed in detail in individual reports.

Report methodology

The region cannot be addressed as a single entity – there are too many

differences between each country: from consumer attitudes to shopping; from

the unique food cultures to attitudes to shopping in supermarkets and

hypermarkets; and, of course, spending power. This series of just-food reports

provides analysis and insight into the potential of the food sector in Brazil,

Russia, India, China and Mexico by considering the best-practice strategies

employed by leading multinational and domestic manufacturers alongside

trend analysis. Market value forecasts by category are provided to 2013,

based on secondary research conducted by just-food in 2008. SWOT analyses

are also included for two major domestic food companies per country.


Chapter 2 The Brazilian food and drinks market

Chapter 2 The Brazilian food and drinks market

The Brazilian food and drinks market is increasing in sales value each year,

driven by rising disposable income and greater economic, political and social

stability. According to the Brazilian Food Industry Association (ABIA), in the

first half of 2007 food companies spent BRLxxxxbn on marketing and

advertising, almost matching the entire year’s spend in 2006 (which came in at

BRLxxxxbn). Investment in NPD in the Brazilian food and drink sector is,

however, slowing down (at least it was in 2007 versus 2006) according to

ABIA, indicating that companies are instead choosing to focus on building

awareness and customer loyalty for existing brands and line extensions. This

is commonly viewed as a less risky strategy compared to researching,

developing and marketing entirely new products.

Consumers in Brazil can be categorised into two groups: ‘the wealthy’ with

similar purchasing power as the average US consumer, and ‘the majority’ of

the population, which ranges from extreme poverty to low spending power.

Brazilian food and drink companies are aware of the need to appeal to both

consumer groups, but to differentiate a premium brand from a mainstream

offering. In general, neither consumer group would be happy to pay for a

product targeted at the other. Premiumisation is also addressed in Chapter 6.

The level of competition within the Brazilian food and drink market has been

compared to that in Europe by the European Commission (June 2008). The

EC is currently focusing on competitiveness, innovation and safety in the food

industry through the formation of a new group, which aims to identify and

address issues that determine the competitiveness of the agro-food industry.

Ultimately, the new EC working group will formulate a set of recommendations

to achieve a predictable and stable framework for future development. The

competitiveness of Europe’s food industry is “weak compared to the US and

Canada, and at a similar level to Australia’s and Brazil’s”, according to the

Commission’s report, entitled Competitiveness of the European Food Industry:

An economic and legal assessment. The report stated that weak

competitiveness is a continuing challenge facing the EU food industry, despite


Chapter 3 The grocery retail market in Brazil

Chapter 3 The grocery retail market in Brazil

Introduction

Brazilian retail may have attracted fewer column inches than that in Russia,

China or India, but it has a strong future in the global retail market and is set to

attract more and more foreign investment over the next five years. Brazil is a

rapidly developing market growing at exceptional rates and offering substantial

opportunities for domestic and foreign retailers, with much of the country still

underdeveloped and untouched by global retail brands.

According to just-food estimates, the Brazilian market is performing well across

a number of formats from the smaller stores to the huge hypermarkets. Growth

between 2002 and 2007 exceeded xx% for smaller retail operators and just

over xx% for hypermarket owners. Overall retail sales in 2007 were estimated

at US$xxxxxbn, up from US$xxxxxbn in 2006.

Table 6: Brazil overall retail market value sales forecasts, 2006-2013 (US$bn and %)

2006 2007 2008 2009 2010 2011 2012 2013 % change 2006-2013

xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxx%

Source: just-food

just-food estimates that the Brazilian retail market will record growth of xxxx%

over the forecast period to reach a value of US$xxxxxbn in 2013. Grocery

retail growth will fall slightly behind this rate at xxxx% and climb from

US$xxxxbn in 2006 to US$xxxxbn by 2013. Over the forecast period, grocery

retail will continue to account for slightly more than one-third of the overall

retail value in Brazil. Hypermarkets and supermarkets may only account for

just under x% of the total number of retail outlets in Brazil in 2007, but they

contributed two-thirds of the total grocery sector value.


Chapter 4 Category analysis – major players

Chapter 4 Category analysis – major players

The Brazilian packaged food market reached an estimated value of

US$xxxxxbn in 2007 according to just-food. Major categories such as bakery

and cereals, confectionery, dairy and savoury snacks are driving growth in the

market as consumers increasingly choose to purchase pre-packaged (and

often, pre-prepared) food. Packaged meat, followed by bakery and cereals

categories contributed the highest value to the Brazilian packaged food

market.

Table 8: Brazil packaged food market value and selected categories market value, 2001-2007 (US$m and %)

2001 2002 2003 2004 2005 2006 2007

Growth 2001-2007

Bakery and cereals xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxx%

Confectionery xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxx%

Dairy xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxx%

Savoury snacks xxx xxx xxx xxx xxx xxx xxx xxxx%

Total packaged food market value

xxxxxx xxxxxx xxxxx xxxxx xxxxx xxxxx xxxxxx xxxx%

Source: just-food

The packaged food market is divided into the following segments by value

share in 2007, shown in Figure 1.


Chapter 5 Domestic company focus

Chapter 5 Domestic company focus

Introduction

Brazilian food and drink manufacturers are feeling confident amid a strong

national currency and growing consumer confidence. In the global market, high

food commodity prices and growing interest in Brazilian produce are fuelling

expansion by domestic producers out of Brazil and into the global market.

Brazilian food producers are increasingly looking outside of Brazil to increase

profitability in the long term through mergers and acquisitions. Perdigão

finalised its acquisition of Plusfood, a Dutch distribution company, in January

2008 but the initial discussions began in the first half of 2007. In May 2007,

JBS SA announced it would acquire privately held Swift Foods Co., the third-

largest US beef and pork processor with operations also located in Australia.

The purchase promoted JBS’s meatpacker, the Friboi Group, to the number

one beef company in the world by sales – ahead of Tyson Foods. The JBS

acquisition gave Brazil its first operational presence in the US meat market

(the biggest beef-consuming nation in the world).

Meat is an important and profitable sector for the Brazilian food industry. It is

the leading beef and poultry exporter and the third biggest pork exporter in the

world.

The main exporters of beef in the world, according to the United States

Department of Agriculture (USDA) in November 2007, are: Brazil; Australia;

India; US; Canada; Argentina; New Zealand; and Uruguay.

The main exporters of poultry in the world, according to the USDA in

November 2007, are: Brazil; US; Europe; China; Thailand; and Argentina.

The main exporters of pork in the world, according to the USDA in November

2007, are: Europe; Canada; Brazil; China; and Chile.

Despite the global focus adopted by some, the domestic market remains the

priority for the majority of Brazilian manufacturers. The domestic market is

particularly important in many food categories, as competition is extremely

high in many other sectors around the world. Boosting market share in Brazil,

increasing production volumes, focusing on product quality and investing in


Chapter 6 Trends analysis

Chapter 6 Trends analysis

Introduction

It is impossible to generalise trends across a country or group of countries

such as the BRICM economies because there are so many differences on a

regional basis. Purchasing habits, food culture and shopping patterns vary

within each country, particularly for more developing/emerging markets, where

rural regions still dominate. It is typical to find a more developed retail market

and a higher spend on packaged food and drink in urban centres such as São

Paulo and Rio de Janeiro than in the more rural areas, which are also linked to

lower levels of disposable income to spend on food. Income, spending power

and consumer tastes differ by region within each of the BRICM markets. In

Brazil, extreme poverty and wealth literally live side-by-side in many parts of

the country providing a complex and political scenario for investors.

Premiumisation

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, i.e. purchasing the more exclusive,

expensive and exotic brands. 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.

Convenience and packaging

The convenience megatrend is starting to be felt within the Brazilian food and

drinks market. Flexible packaging dominates many food product sectors

including cereal, rice, beans, flour and sugar. According to packaging

consultancy Pira International, flexible packs are used for supermarket private

labels and are popular for Brazilian branded goods.


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