just The Facts - Cachaça and Diageo

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Earlier today (28 May), Diageo confirmed it will pay BRL900m (US$453.9m) for the Ypióca cachaça brand in Brazil from Ypióca Agroindustrial Limitada. Here, just-drinks looks at some of the figures that prompted Diageo to jump in to the market for cachaça, Brazil's best-selling spirit.

  • As of 2009, Ypióca is Brazil's third-largest cachaça producer. Top of the tree is Companhia Müller de Bebidas' Cachaca 51 with Engarrafamento Pitu's Pitu second. Industria Reunidas de Bebidas Tatuzinho 3 Fazendas' Velho Barreiro brand is fourth. The top ten producers in Brazil control about two-thirds of the crowded cachaça market.
  • While cachaça is Brazil's national drink, it has limited leverage elsewhere. In 2009, 99.1% of cachaça sales were in Brazil, with about 87m nine-litre cases.
  • The export market accounts for less than 1m cases, with about one-third sold to Germany. The US takes 115,000 cases, and those mainly go to states such as Florida that have a large Brazilian ex-pat community.
  • That said, awareness of the drink in the US has increased from virtually zero in 2005 to about 25% in 2009, according to just-drinks' research. Cachaça-based cocktail caipirinha has more recognition in the US than the drink it is made from. 
  • Diageo hopes cachaça's profile will get a boost from the Rio Olympics in 2016 and the FIFA World Cup, due to be held in Brazil in 2014.
  • But, Diageo is not placing all its hopes in the international market. The drinks company said Ypióca will provide it with an “enhanced platform from which to accelerate the long-term growth of our premium international spirits brands in Brazil”.
  • Brazil is the sixth-largest economy in the world, with per capita income forecast to increase consistently at 4% over the next five years, Diageo said. Half of the country's 191m population is under 29 years old and there is a fast-growing middle class. Last year, CNBC reported that an estimated 35m people joined the middle class between 2003 and 2009, and 20m more are expected to be included by 2014.
  • All of which puts emphasis on cachaça's burgeoning premiumisation prospects. In 2010, 97.8% of total cachaça sales in Brazil were low priced, according to just-drinks' research.
  • Diageo's latest acquisition, Ypióca, which is from Ceará, was the first to premiumise its brand in Brazil to a significant extent. Premium brands are aged for about three years (low-price brands are not aged at all), however, ageing procedures have had little or no inspection or certification procedures in the past.
  • Sagatiba, a premium start-up by a Brazilian entrepreneur was sold in 2010 to Gruppo Campari for US$26m. The brand, launched in 2004, had hoped to turn its back on the home market but as of 2011, only 30% of its annual sales of 112,000 cases were sold abroad.
  • And finally, what is cachaça? Basically, it's rum made in Brazil with sugar cane.

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