Latin American woes hit imports hardest
By just-drinks.com editorial team | 20 May 2002
In the first of a series of market overviews for just-drinks, analysts Euromonitor take a snapshot of the Latin American spirits market. Trudi Griggs finds a region in dire economic difficulties. Consumers are still drinking but are turning their backs on expensive foreign products.
When the Brazilian real is down Latin American consumers don't stop drinking, they just trade down to the cheap spirits.
Latin America is in the grips of a currency devaluation. Although ranked fifth in value terms, ahead of only Africa and Middle East and Australasia, it is still the third largest region in volume terms with consumption exceeding 2.2 billion litres in 2001.
Latin America is characterised by a culture that favours the regular consumption of local spirits, such as cachaça in Brazil. Domestic spirits tend to be popular due to their low cost, even through on-trade channels.
Currency devaluation in core markets had a direct and negative impact on consumer spending and value sales. Modest gains in volume in 2001 were mainly due to consumers trading down to the cheapest products in a time of economic crisis.
Accounting for 68.2% of the total Latin American spirits market volume in 2001, Brazil enjoyed strong value growth over the 1997-2001 review period, although sales declined by 0.8% in 2001. The market was prone to fluctuation in accordance with an often precarious macro-economic context - culminating in severe value decline following currency devaluation in 2001.
Cheaper local products - mainly cachaça and rum - helped buoy volume sales throughout Brazil, although decline was also due to a growing consumer preference for healthier, lower-alcohol drinks. Growth in constant local currency terms was more positive, at 1% in 2001, although this reflected a substantially slower growth rate compared to the review period overall.
Mexico was the second largest market in both volume and value sales. At US$6,153 million in 2001, the Mexican spirits market was close to that of Brazil in value terms, despite Brazil's far greater level of volume consumption. High value sales reflected the wide availability of imported brands and growing importance of higher-quality products with greater brand equity. However, price-consciousness remains acute amongst many Mexican consumers and inflated prices on Tequila tended to undermine both volume growth - a mere 0.5% in 2001 - and value growth 0.1%.
Colombia experienced minor volume growth in 2001, where the country's further descent into recession encouraged more people to turn to drink, almost exclusively inexpensive products, notably aguardiente.
Rising unit prices also had the effect of inflating value sales in Colombia, despite an unstable economic climate and low consumer spending confidence. Even the cheaper local spirits tended to command higher average unit prices in 2001.
The other major markets of Latin America were characterised by declining sales in both volume and value terms, symptomatic of wider macro-economic adversity and generally low consumer confidence and disposable incomes.
Chile saw only slight volume decline of 0.3% in 2001, although value growth was far more pronounced at -7.7% in constant local currency terms, with a bearish economy decimating per capita expenditure levels.
Decline was particularly pronounced in Venezuela, with volume sales falling by 5.7% and value sales in constant local currency terms down by 20.2%, as the bolivar was devalued again in 2001 and the country was pushed further into abysmal recession.
Spirits in Argentina also showed signs of a worsening economic environment, although value sales were perhaps surprisingly resilient, with decline restricted to 0.7%, despite volume sales diminishing by 3.7%. Decline accelerated at the end of 2001, however, following the critical condition of the peso, with graver repercussions for the spirits industry expected in 2002.
Per capita consumption levels were subdued in 2001, static in Mexico, Chile and Argentina, and in decline in Brazil and Venezuela. Slowdown in consumption was largely attributable to the higher price of spirits compared to other alcoholic drinks, such as beer or wine. As virtually all Latin American countries experienced economic difficulties in 2001, more expensive sprits were most directly impacted amongst alcoholic drinks.
Colombia was the only country to experience a substantially discernible increase in per capita consumption, rising to 1.9 litres in 2001. Growth was very much attributable to more affordable spirits - mainly aguardiente and locally produced rum.
Per capita expenditure declined in nearly all major Latin American markets, as economic pressure resulted in more consumers trading down to lower-priced alcoholic drinks and consuming spirits less frequently. The only major exception was Mexico, where per capita expenditure rose to US$61.3, partially attributable to inflated prices of Tequila, following the shortage of the agave plant.
"Other" spirits dominated volume sales of spirits in four of the six major Latin American national markets.
In Brazil, "other" spirits, primarily consisting of the sugar-based speciality cachaça, accounted for 88.2% of total volume sales. The development of superior quality cachaça over the review period also consolidated its position as the country's most popular spirit.
As with other Latin American countries, macro-economic adversity in Colombia also tended to drive consumers away from even the more popular imports, such as gin, given its higher pricing compared to domestic rum, for example. Other spirits such as aguardiente and vino de café accounted for 58.5% of total sales in Colombia in 2001. Both rum and aguardiente benefited from the dominance of state-run distilleries in Colombia.
"Other" spirits represented 53.5% of the market in Venezuela, where premium, prestigious choices such as whisk(e)y gradually lost share due to diminished consumer affluence.
In contrast, "other" spirits accounted for a very minor share in Mexico and a negligible presence in Argentina, which tend to be more diverse markets in terms of spirit consumption.
In Mexico, the spirits market was more evenly split between brandy and Cognac (33.4%), rum (35.3%) and Tequila (26.1%).
Whisk(e)y accounted for the highest share of volume sales in Argentina, at just over 50% in 2001. White spirits and liqueurs also accounted for significant shares in Argentina, at 19.4% of total volume and 28.4% respectively.
Ascertaining potential high growth in many Latin American markets is problematic, given the precarious economic environment of core countries such as Brazil and Argentina. To a great extent, spirits tend to be more susceptible to recession and diminished consumer confidence due to their high average unit price in relation to cheaper beer or wine.
Subsequently, high growth sectors in many Latin American markets are expected to encompass cheaper, domestically produced spirits - "other" spirits, such as cachaça in Brazil and aguardiente in Colombia, and local liqueurs in Argentina and Venezuela.
Total volume of spirits in Latin America
000 litres 1997 2001
Latin America 2,023,693.00 2,246,169.30
Argentina 36,775.00 36,120.00
Brazil 1,398,246.00 1,532,479.00
Chile 43,234.00 39,201.00
Colombia 61,448.00 73,308.50
Mexico 278,890.00 316,626.80
Venezuela 55,113.00 79,104.00
Other Latin America 149,987.00 169,330.10
© Copyright and Database Right Euromonitor 2002
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Latin American woes hit imports hardest
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