Drinks Industry Logistics in the BRIC Markets - SWOT Analysis - Part I: Brazil
This four-part management briefing takes a look at the strengths, weaknesses, opportunities and threats for drinks companies in the area of logistics in the BRIC markets. Part one looks at Brazil.
Brazil is a growing market for drinks logistics. With more than 1m points of sale for beverages, this is a fertile market for companies involved in drinks distribution. According to the Ilos Institute of Logistics & Supply Chain, which handles shipping into Brazil for Coca-Cola Co and PepsiCo among others, about 81% of Brazilian drinks logistics by volume is outsourced to third parties, to reduce costs. Indeed, 73% of all Brazilian companies outsource their logistics to focus more on core tasks, such as manufacturing and marketing. It is a sensible move given that Brazil is a huge 8.9m-square-kilometre market with 192m consumers.
That said, there are major urban centres aiding logistics: As the richest and most populated state, São Paulo has about 40% of the drinks logistics market. It also commends a strategic location, having good access to the port of Santos, the largest port in Latin America, where most imports arrive.
With millions of dollars being invested into infrastructure to help Brazil host the World Cup next year and the summer Olympic Games in 2016, transport links are expected to improve. And, while Brazil is not the easiest country in which to work, foreign drinks logistics brands have created a presence – drinks carton packaging and filling machines supplier SIG Combibloc, part of the New Zealand-based Rank Group, is one example. SIG has storage centres in three Brazilian states, including strategic São Paulo and Parana locations.
Because of Brazil’s sheer size, including its vast Amazon rainforest, it can be very complicated to transport goods around Brazil. Beverage producers ideally need their factories or warehouses built close to their consumers. This could mean multiple commercial locations, which generates more spending on rent, security and labour. And, in a good example of Brazil’s fiscal complexity, there are also eight different taxes applied to drinks logistics; for instance, the state sales tax ICMS, federal VAT and profit sharing taxes. Brazil also has complex labour laws and there are also legal restrictions on the location of alcoholic beverage plants. Federal Law no. 11,705 on drink driving bans on-premises opertaions to sell alcohol if their premises are next to a federal highway. International drinks logistics providers have additional pressures, competing against local distributors with a well-developed network whose managers speak Portuguese, understand Brazil’s business culture, and, most importantly, understand the needs of local consumers. Beverage logistics specialist Grupo Petropolis is a good example: It has expanded since Brazil’s economy started to open up in the mid-1990s and is now present in 13 of Brazil’s 26 states and has four factories and distribution centres.
Last year alone, the sale of water, soft drinks, juice, beer, wine, and sparkling wine in Brazil totalled BRL17.7bn (US$8.94bn), according to Pyxis Consumption, a marketing research tool associated with Brazilian think-tank Ibope Intelligence. These sales are spread widely across the country: BRL3.26bn in the south; BRL2.97bn in the north-east; BRL1.53bn in the Brazilian mid-west, and BRL1.11bn in the north. But, nearly 50% of beverage consumption occurs in the south-east states of Rio de Janeiro, São Paulo, Minas Gerias, and Espirito Santo, reaching BRL8.83bn in sales last year.
Moreover, about 40% of these south-eastern consumers are considered as newly emerged middle-classes, with the potential to grow their earnings. The Olympics, World Cup and the 2013 Confederations Cup (another international football tournament in Brazil), beer sales are expected to grow, with more demand for premium brands generated by foreign visitors. For the Confederations Cup, there will be six host cities, while for the World Cup there will be 12, increasing logistical requirements in less populated areas such as the north and north-east. Brazilian beer producer and market leader AmBev, part of Anheuser-Busch InBev, claims its Brazil beer sales are rising anyway: between January and September 2012 they increased sales by 2.3% across Brazil, and by 7.1% in the north and north-east - three times the national average.
For overseas beer companies, the presence of a really strong local player in AmBev will always make delivering drinks in Brazil harder than it could be – AmBev will always have a head-start on securing logistics services. Also, AmBev's sales are only going to grow - especially as the 2014 World Cup approaches – giving marketing oxygen to its premium brand, Budweiser, an official sponsor, and the only beer to be sold inside the 12 Brazilian host stadiums. And, while sales opportunities will be there for rivals outside the stadia, there are transport concerns about some of the more remote host cities, such as Cuiaba and Manaus. Better roads are needed to aid the transport of beverages and there are fears that planned investment into these links will fall short or construction will not be ready for the 2014 World Cup.
Looking at the whole country, a recent report by the Court of Audit in Brazil (TCU) argued Brazil needs to invest BRL11.7bn (USD5.88bn) in urban mobility to ease the transport of goods.
To read the SWOT analyses of the other three BRIC markets, click here.
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