BRAZIL: Domestic travails see cachaça firms target exports - research

By | 20 June 2012

A downward trend for cachaça in its home market of Brazil is pushing producers of the domestic white spirit to look abroad for growth, according to a new report.

Cachaça is the ninth-largest global spirits category at 82.7m nine-litre cases, according to a joint report from The IWSR and just-drinks, published this month. However, domestic sales, which account for 99% of total sales, are in steady decline, prompting companies to consider export markets.

“The (cachaça) category shed some 21.5m cases over the past ten years (2001 to 2011), representing a compound annual growth rate (CAGR) of -2.3%,” the report states.

“Brazil’s economic recovery during that time did not bring respite to cachaça producers, bottlers and brand owners, and may even have exacerbated the decline as consumers traded up into more prestigious categories such as Scotch and vodka.”

“The cachaça category isn’t progressing as might be expected; posting a disappointing 6.5% decline in 2011 over 2010,” the report notes. “That follows a 6.1% compound annual growth rate (CAGR) between 2005 and 2010."

Despite the hope that exports could come to the category's rescue, global export sales amounted to just 793,410 cases in 2011, a decline of 5% over 2010, according to The IWSR.

“At present, 99.02% of cachaça sales are derived from the domestic market – only marginally lower than the 99.7% in 2000.”

Germany remains the leading global market by some distance, at 283,000 cases, followed by Portugal at 81,000 cases. The US, France and Spain round out the top five markets.

With a domestic market that dominates sales so comprehensively, there has been little incentive to focus on exports. “However,” the report says, “with domestic sales showing long-term decline, albeit from a very high base, this could eventually change.”

The fragmented industry structure has been another impediment. “Most cachaça producers operate on a regional or very local level,” the report continues. “Not many producers have the resources to fund a national push, never mind an export push.”

However, with Brazil set to host both the Football World Cup in 2014 and the Summer Olympics in Rio in 2016, “there has possibly never been a better time to build global awareness around the national spirit”, the report concludes.

Cachaça, which is often compared to rum, is distilled directly from fermented cane juice. Rum is usually distilled from a brew made of molasses, a by-product of sugar production.

The report, 'Global market review of Cachaça – forecasts to 2016' by The IWSR and just-drinks, is available now.

Expert analysis

Global market review of cachaça – forecasts to 2016

Cachaça is the ninth-largest global spirits category at 82.67m nine-litre cases, deriving the vast majority of this volume from the domestic market, selling some 81.8m cases in Brazil in 2011. It has been widely tipped as the next big international spirits category. Much of that enthusiasm is based on potential, rather than actual, international performance to date. With Brazil scheduled to host both the Football World Cup in 2014 and the Summer Olympics in Rio in 2016, there has possibly never been a better time to build global awareness around the national spirit.

Sectors: Emerging markets – BRIC, Spirits

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Late last month, Diageo acquired the Ypióca cachaça brand in Brazil from Ypióca Agroindustrial Limitada. The domestic spirit may be struggling at home, but its global potential remains great.

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