Comment - Wehring's Way - Brazil: A(nother) Headache from the BRIC Wall
I can't remember precisely when I first saw the BRIC acronym. Indeed, with only ten years' experience of the drinks industry, it seems to be have been around longer than I have. I can remember, however, how the four markets were heralded as the next big things for the global drinks industry.
One by one, however, Brazil, Russia, India and China have all given us headaches of one sort or another.
Russia upset the brewers of the world in 2010, when authorities introduced a three-fold hike in beer excise. The country has also clamped down on sales outlets and advertising for alcohol in recent months. India, meanwhile, still has its crazy high duty on imported wine and spirits, while China's clampdown on gift-giving and banquets by state employees looks set to hit brown spirits in the next quarter or two.
All of this left Brazil as the beacon among the dark clouds.
Warning bells were sounded earlier this month, when Diageo flagged “consumer weakness” in the country during its third quarter. The bells got louder last week, with Heineken posting falling Brazilian volumes in the first three months of 2013, and also blamed contracting consumer confidence.
In the meantime, Coca-Cola FEMSA said Brazil was proving a challenge, while Pernod Ricard also noted a slowdown in the country.
Today, things became rather klaxon-like, as Anheuser-Busch InBev blamed Brazil for hauling back sales and volumes in its Q1.
So, what's going on? Why has this great white hope suddenly been deemed responsible for the ills of the drinks world? And, what does the longer-term forecast look like?
February and March offered slim pickings for the drinks industry in Brazil, as bad weather conditions hampered sales. Add in the earlier timing for Carnival in Rio de Janeiro, and it all looks like a flash in the first-quarter pan.
However, several other factors suggest the troubles will continue for a while yet. The recent introduction of stricter drink-driving laws were cited by many companies, and these laws are here to stay. Then, several firms observed a shift in consumption from single- to multi-serve presentations, and from the traditional 'mom & pop' outlets towards supermarkets. Both of these 'problems' are opportunities, certainly. But, navigation will be required, and fast.
Finally, and most worryingly, the country is suffering from high food inflation and a slowdown in growth of disposable income.
There's the biggest headache.
While all FMCG companies will be jockeying for position in Brazil, ahead of a bonanza period that will start next year with the FIFA World Cup in Brazil, followed by the Olympics in Rio in 2016, these headaches come at the right time: Better sooner than later, surely?
But, with so many companies investing heavily in the BRIC markets, such Brazilian headaches need soothing now, so the rewards can be reaped in 2014.
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