Brazil puts better-for-you beverages to the test - Research in Focus
Bottled water is a competitive category in Brazil
All eyes are on Brazil at the moment as the country gears up for the Rio Olympics. Euromonitor International's senior beverage analyst, Hope Lee, looks at which brands and categories can win in Brazil's health-and-wellness beverage market over the next few years.
For the past few months, Brazil has been in the spotlight in terms of unfavourable news, such as political uncertainty and the Zika virus. The announcement by The Coca-Cola Co and Coca-Cola FEMSA of their joint acquisition of Unilever's AdeS, the soy-based fruit beverages business in Latin America, might lift the spirits somewhat in the beverage industry.
While the upcoming Olympics are not expected to generate substantial additional sales of soft drinks, partly due to the poor economic situation in the country, Euromonitor International's Health and Wellness (HW) database shows that naturally healthy (NH) soft drinks are set to continue to offer good growth through to 2020. Growth will be driven not only by the increasing penetration of certain categories in the country, such as NH RTD tea, but also by an increase in added-value products.
As Brazilians are becoming more aware of the benefits and importance of leading a healthier lifestyle, these products are gaining in relevance. Our HW database shows that NH soft drinks will largely outperform the overall market, with respective value CAGRs of 10% and 5% from 2015-2020. NH soft drinks will record a net increase of US$2.3bn in the next few years - so, which categories and major players will be the driving forces?
Brazil's NH bottled water category, accounting for nearly 70% of overall NH soft drinks sales, is likely to be the growth engine. Regionally, Brazil will contribute nearly 80% of Latin America's NH bottled water growth, making it a very attractive market that no major players can afford to ignore. Brazilians are well aware of the importance of hydration and, especially in major urban areas, busy lifestyles and long journeys to work further stimulates sales. It is possible to perceive the increasing use of differentiation strategies in terms of packaging in this category, as NH bottled water is very fragmented and most competition is based on price.
Increasingly, manufacturers are giving their water bottles a sophisticated design, with "cool looks" and affordable price selling well. Companies actively marketing their brands in NH natural mineral water will continue to see growing competition. Grupo Edson de Queiróz's Indaiá led the NH natural mineral water category with a 7% share in 2015, followed by Coca-Cola's Crystal and Danone's Bonafont at around 3% and Nestlé's Nestlé Pureza Vital at 1%. PepsiCo may miss out on this growth opportunity as it has not yet registered any category share in NH natural mineral water.
Juice-wise, NH superfruit 100% juice is expected to be the driver for the overall NH juice category, with a net increase of US$340m anticipated for 2015-2020, according to our HW database. One key reason for this strong performance is the continuing demand for coconut water in Brazil. Manufacturers keep on expanding their production facilities and product portfolios, with brands across all price bands, making coconut water affordable for consumers of all income levels.
The launch of new products is a constant in this category and, especially in 2015, the growing availability of coconut water with fruit juice or tea means there are more added-value products. An example is the coconut water line Obrigado, from Frysk Industrial Ltda, a premium product available in versions such as cranberry, detox juice, green tea, peach & pineapple, and jabuticaba. Unit prices can reach up to BRL15 (US$5), which are much higher than standard coconut water at BRL5. In contrast with its dim prospects in NH natural mineral water, PepsiCo has a strong position in NH superfruit 100% juice thanks to its brand Kero-coco, which leads the superfruit category with a 58% share. Nevertheless, Ducoco Alimentos SA's Ducoco has been making good progress in terms of share gains in recent years, while Coca-Cola has not registered a visible share in the superfruit category.
In terms of flavour, international players are also bold in experimenting with different ingredients to encourage consumption. Fruit-juice infusion or fruit flavour can be used to create the perception of a healthy image. For example, Red Bull, which has the perception of being an "unhealthy energy drink" among some consumers, introduced Red Bull Editions, fruit-flavoured versions to incentivise daily consumption and create a perception of healthiness. The Red Bull Editions have flavours such as lime, tropical fruits, cranberry and blueberry - mostly not so well known among Brazilian consumers.
Some local functional ingredients such as guaraná, açaí and even yerba mate are emerging as natural ingredients for energy drinks. For example, Brasil Beverages' Organique is an organic energy drink produced with these three ingredients, widely known to be energy boosters and familiar flavours for Brazilians.
All in all, there is huge potential for growth in NH soft drinks. The forthcoming Olympics may not boost the sales of overall soft drinks significantly, but consumers' desire for natural foods and beverages will be the fundamental factors in driving future product formulation and the development of natural flavouring.
Major players should also take the opportunity provided by the tournament to market and expose their NH brands to international visitors. Finally, our HW database shows that sales of NH non-cola carbonates in Brazil remain negligible and this is perhaps an area for major players to explore as consumers are moving away from standard cola.
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