Custom report service – Beer market in Brazil

Consumer trends

Economic forecast

It is not surprising that the recent macroeconomic problems in Latin America have had a considerable impact on beer sales across the continent. Brazil is the region';s largest economy and it was dealing in 2015 with one of its deepest recessions since 1990, with the annual real gross domestic product (GDP) contracting by 3.8%. Brazil continues to emerge slowly from the 2015 recession, which led to high rates of inflation, unemployment, falling wages and currency depreciation leading to reduce consumer incomes and spending. The Real GDP increased by 1.0% in 2017 and gains of 1.4% are expected in 2018. Consumers are therefore cautious and are cutting back on non-essential spending. Although the economy is showing tentative signs of a recovery, consumers are continuing to take a cautious attitude toward their discretionary spending.

Brazil is one of the most populated countries in the world (209 millions in 2017) and has an estimated urban population of over 87% (Brazilian Institute of Geography and Statistics). Brazil has a fragmented market with high levels of inequality and uneven opportunities between different age cohorts and income bands, as well as across cities and regions. Wealth is mainly concentrated in urban and coastal cities located in the south of the country such as Sao Paulo, Rio de Janeiro, Salvador and Fortaleza.

Premiumization

The global trend of "drinking less but drinking better" reflects the recent evolution in beer in Brazil. Brazilian consumers are cutting back on the frequency of their beer drinking but are choosing higher-quality options when they do. One third of the growth in beer sales in Latin America during the forecast period (2018–2022) should come from premium lagers, a segment that currently accounts for only 10% of the total volume of beer sales in the region. Brazilian';s middle-market consumers are trading up to higher levels of quality and taste. Top brewers are already trying to mitigate the impact of the drop in beer sales in Brazil by focusing on creating a value-added product rather than on volume sales.

Despite difficult economic times, Brazilians between 21-34 years old (millennials) are willing to pay a premium for what they perceived as a well-designed and a well-crafted beer. They are increasingly trading up quality over quantity. Local craft beers and imported beers with European influences are perceived as an affordable luxury that often possessed the artisanal touches of traditional luxury goods, but which are not found in the Brazilian mainstream beer market. Brands and companies that offer "premium" or imported beers should predominantly target millennials because they represent the largest segment of this market.  

Female consumers

Historically, beer marketing in Brazil has almost entirely been aimed at men. Consequently, the advertising campaigns of these brands have focused on attracting and speaking only to male consumers. In recent years, however, women have gained importance in the beer market and have started to drink and understand the product in depth, and breweries have adapted their products accordingly. They lead the beer market segment with a low alcohol content or low calorie intake. Beers with fruity flavours or pilsner are very popular with this segment.

European influences

The Brazilian beer market is heavily influenced by the German standards of brewing due to the German immigration in the early 19^th century in Brazil. As a result, Pilsner is the dominant type of beer in Brazil. However, the average consumer between 21-43 years old is becoming more adventurous, and has started experimenting with modern styles like dark ale (stout and porter), pale ale (IPA) or simply other types of lagers (dry, dortmunde or helles).

Brazilian market

Beer holds a special place in the hearts of Brazilians. The country is the third largest beer market in the world, and Brazilians consume approximately 140 million hectolitres of beer per year. Despite the tough economic conditions in Brazil, premium lager continues to grow faster than mid-priced and economy brands, thus reinforcing the "drinking less but drinking better" trend.

The actual value of retail sales grew by 9.3% per year on average between 2013 and 2017, reaching US$46.6 billion in 2018. The current average unit prices of beer rose 7% in 2017 to BRL11 (Brazilian real) (Can$3.81 as of November 28, 2018) per litre owing to increased production costs and added value. Mid-priced lagers accounted for nearly 86% of the total volume of beer sales in Brazil in 2017.

Non-alcoholic or low-alcohol beer and flavoured/mixed lagers continue to be the growth leaders in terms of volume, as they still have numerous growth opportunities throughout the country.

Since many consumers are still struggling to save money, restaurant meals are a rare treat for many Brazilians. As a result, many consumers choose to drink beer at home. The increased offer of high-end brands in distribution networks has contributed significantly to this migration. During the forecast period, even though the two channels should show signs of a recovery, beer drinking at home should return to pre-crisis levels more quickly than sales of products that must be consumed on site.

The craft beer boom in Brazil

One of the reasons that Brazil is so innovative in the craft beer sector is that for decades the offer was the same and dominated by the major breweries. The average consumer in the country';s major urban centres therefore did not have many options when it came to buying higher-quality beer. In parallel, it was precisely market conditions like these that led to the craft brewery counter-revolution in the United States in the 1980s and 1990s, and Brazil is going through a similar process. Consumers are essentially frustrated and bored with the lack of choice and, consequently, are increasingly more likely to try craft breweries.

According to forecasts put out by ABRACERVA (Brazilian Association of Craft Breweries), "the number of consumers enjoying craft beer is growing, and craft beer should account for approximately 1,000 breweries by the end of 2019." According to Brazil';s Ministry of Agriculture, Brazil already had at least 650 registered breweries in 2017.

Brazilian craft breweries that make their own high-end Brazilian beer have gradually made an impact internationally, even though they are smaller in number. It is estimated that premium beer brands have only 2% of the market share across the country. Since there is limited availability of craft beer, it is considered a product for the urban elite, much like wine. Most microbreweries manufacture small batches; a large craft brewery will produce around 10,000 to 13,000 hectolitres per year.

Local brewers have started to use local ingredients such as passion fruit, taperebá, bacuri, Brazilian-grown coffee, cassava, Brazil nuts and Amburana wood. Brewers also age the beer in locally harvested wood barrels. Brazilians have adopted these ingredients because the country';s climate is too hot to grow hops and because ingredients imported from Europe and the United States are expensive.

Top brewers from other parts of the world are starting to realize the potential of Brazilian craft beer. New York breweries such as Brooklyn Brewers and the Danish brewery Mikkeller are working with the Brazilian breweries Cervejaria Wäls and Cervejaria Way Beer, respectively.

According to the president of ABRACERVA, Carlo Lapolli, craft production in the formal brewery market is focused mainly in the south and southeast regions, but a movement is already underway in the rest of the country. "It is still a niche market, but with a very loyal clientele that is in full growth," explained Mr. Lapolli.

Challenges

One of the issues hindering the craft beer market is product price, but it is not the fault of the craft brewing industry, as one might imagine, but because of Brazil';s complicated tax system, which varies considerably from region to region. The tax on the same product might be 35% in one state and as much as 80% in another. Mr. Lapolli explained that the same beer might cost BRL15 (Can$5.20) in Santa Catarina and between BRL25 (Can$8.65) and BRL30 (Can$10.38) in the Federal District. The recent macroeconomic turbulence seen in a large part of Latin America has clearly shown that, despite the anticipated dynamic future growth, solid and consistent performance in the region cannot be taken as a given. Nevertheless, the country';s political and economic situation could change rapidly.

Distribution channels

Consumers are becoming more open to online shopping, with a growing number of sales made on laptops and smartphones. However, club warehouses and discounters have also performed well, which indicates that consumers are still being rational in their purchasing decisions and constantly seek out the best offer.

Although located only in major urban sectors and serving only certain neighbourhoods, more and more manufacturers are opening their own online stores in order to be less dependent on retailer margins and conditions. Online retail sales will really expand over the next decade (2018–2028).

Companies

Brasil Kirin was acquired by Heineken in the first quarter of 2017. The deal increased Heineken';s production capacity and enabled the company to increase its presence in the non-alcoholic beverage market. However, distribution problems have made the merger very challenging. An ongoing dispute between the exclusive distributors of Brasil Kirin and Coca-Cola FEMSA (former official distributor of Heineken) has required Heineken to maintain two separate distribution systems. In terms of market share, the company is still in second place behind Anheuser-Busch InBev NV.

Anheuser-Busch InBev NV invests in premium brands but continues to depend on the performance of its selection of mid-range lagers, including brands such as Skol, Brahma and Antarctica. However, the company recently began investing heavily in its portfolio of high-end products, particularly brands such as Budweiser and Stella Artois. These investments are consistent with the global trend toward "drinking less but drinking better." Consumers are buying smaller quantities, but of more premium brands. Strategically, this trend should help the company be less dependent on mass-market brands, which are losing market share to new, more sophisticated products.

In the coming years, the company expects to invest in marketing campaigns for premium brands, as well as in diversifying its selection of packaging sizes and types and the availability of its products in different channels, in order to reach a broader range of consumers and thus become more competitive, especially with Heineken.

In 2017, the Petrópolis group was overtaken by Heineken, which now owns the Brasil Kirin brands. After falling to third place, the group decided to increase its production capacity, particularly for existing beer brands, and to launch new selections. The company will strive to focus on expansion, which was already showing results in the second quarter of 2018. In addition, in order to increase its competitiveness with other companies, the brand launched Itaipava Go Draft, a brand-extension beer that is produced through a quintuple filtering process and is positioned in the premium segment. In the coming years, the group plans to invest in the management and expansion of its portfolio in order to close the gap with the main players.

Export, taxes and legal issues

Since 2016, wines and spirits have been subject to a system of different excises, with a tax being added in each zone based on price. This means that more expensive beverages are subject to higher taxes (for example, vodka: 30%; cider/perry: 10%; gin: 30%; vermouth: 15%; wine: 10%; whisky: 30%). As a result of this change, the federal government is expected to collect larger amounts of tax in order to offset the fiscal shortfall that continues to grow.

Counterfeit alcohol in the Brazilian market has created issues of trust among consumers and as a result, Brazilian consumers are often reluctant to buy high-priced products. Exporters can legitimize their brand in the Brazilian market in various ways: tastings at restaurants, bars or local specialized retailers, activities on Brazilian social networks and participation in local food shows.

Analysis of product launches

In the last five years, 1,037 new beers have been launched in Brazil. Of these, 387 were beers that were actually new to the shelves of Brazilian stores. Given the uncertain economic scenario, manufacturers remain cautious about launching new products, especially as the cost of a misjudged investment is very high in Brazil. Most "new products" are actually additions to the range or new sizes/types of packaging for existing brands. Many existing products undergo a minor makeover (depending on the manufacturer) and are then reintroduced on the market with the claim of "premium" status or an "improved formula." The trend in recent years has been for launches of new products to offer new flavours, new packaging or new additions to existing ranges, rather than something completely new. Brazilian brewers are turning to native plants, the forest and yeast to create the national identity for their beers.

Description of above image

Launch type	2013	2014	2015	2016	2017	Total
New product	75	70	96	72	74	387
New packaging	66	83	75	84	68	376
New variety/addition to range	14	42	57	69	75	257
Relaunch	2	5	2	3	5	17
Total	157	200	230	228	222	1,037

Source: Mintel, 2018

Description of above image

Size of unit package (ml)	Number of variants
600 ml	217
500 ml	207
350 ml	132
355 ml	104
330 ml	90
473 ml	53
300 ml	48
Other container types	84
Total	1,037

Source: Mintel, 2018

Description of above image

Price in US$ group	Bottle	Can	Total
US$0.25-US$2.76	112	175	336
US$2.77-US$5.28	309	27	287
US$5.29-US$7.80	223	31	254
US$7.81-US$10.32	59	21	80
US$10.33-US$12.84	31	20	51
US$12.85-US$15.36	14	2	16
US$15.37 and up	11	1	13
Total	759	276	1,037

Source: Mintel, 2018

Examples of product launches

Tangerine Wheat Beer

Company	Brew Center
Brand	Lübeck
Country of manufacture	Brazil
Store type	Supermarket
Date published	September 2017
Launch type	New poduct
Price in local currency	BRL15.57
Price in US dollars	4.93

Lübeck Cerveja de Trigo com Tangerina (Tangerine Wheat Beer) is now available. The product features complex notes of spices and a light fruity taste of tangerine. It is unfiltered, has a natural turbidity and straw yellow colour, and is said to pair well with cheeses, seafood and Japanese food. The artisanal special beer retails in a 500ml recyclable bottle.

Pilsner beer

Company	Mufaza Distribuidora de Bebidas
Brand	Mufaza
Country of manufacture	Brazil
Store type	Convenience store
Launch date	December 2017
Launch type	New poduct
Price in local currency	BRL23.80
Price in US dollars	7.23

Mufaza Cerveja Pilsen (Pilsner beer) is described as a low-fermentation, filtered, pure malt beer with a bitter flavour. It contains malt and hops imported from Germany and the Czech Republic and has no added preservatives. The product is sold in retail outlets in a 600ml bottle bearing the Facebook and Instagram logos.

New England IPA

Company	Cervejaria Campo Bom
Brand	Roleta Russa
Country of manufacture	Brazil
Launch date	December 2017
Launch type	New variety/addition to range
Price in local currency	BRL19.90
Price in US dollars	6.15

Roleta Russa Cerveja Tipo New England IPA (New England-style IPA beer) is renowned for its cloudy appearance due to yeast in suspension and for its velvety, creamy body, which is the result of the combination of malted and unmalted grains such as barley, wheat and oats. This bitter, dry, hoppy beer is made from a complex recipe using many American and Australian hops to create an incredibly fruity aroma and flavour. It has an IBU of 64 and is sold in a 500ml recyclable bottle bearing the Facebook and Instagram logos as well as the silver medal from the Concurso Brasileiro de Cervejas 2017.

N^o. 006 German Pilsner – light beer

Company	Laboratório da Cerveja Indústria
Brand	Votus
Country of manufacture	Brazil
Store type	Supermarkets
Launch date	December 2017
Launch type	New variety/addition to range
Price in local currency	BRL17.49
Price in US dollars	5.37

Votus N^o 006 Cerveja Clara German Pils (N^o. 006 German Pilsner light beer) has a crystalline, golden colour, a herbed, malted hop aroma and a sweet taste with a malty bitterness. This beer was created by master brewer Matthias R. Reinold and is sold in 600-ml bottles.

Jambu Bier

Company	Krug Bier
Brand	Krug Bier
Country of manufacture	Brazil
Store type	Club store
Launch date	December 2017
Launch type	New variety/ range extension
Price in local currency	BRL25.90
Price in US dollars	8.01

Krug Bier Cerveja de Jambu is a summer beer described as a modern ale inspired by the tropical climate of the Amazon. This pure malt beer is said to be refreshing and tasty, and its Ella hops create an explosion of aromas with passion fruit and mango notes and a touch of citrus. It also has a numbing effect on the tongue from the first sip thanks to the effect of the Brazilian herb jambu, its IBU is 18, and it is sold in 500-ml bottles.

Stout

Company	Convenção São Paulo Industria de Bebidas e Conexos
Brand	Zebu
Country of manufacture	Brazil
Store type	Supermarkets
Launch date	November 2017
Launch type	New packaging
Price in local currency	BRL3.80
Price in US dollars	1.16

Zebu Cerveja Forte Escura Tipo Stout (stout) is now available in new packaging. This strong dark beer is sold in 355ml bottles.

Gluten-free malt beer

Company	Cervejaria Farrapos
Brand	Farrapos
Country of manufacture	Brazil
Store type	Supermarkets
Launch date	October 2017
Launch type	New variety/addition to range
Price in local currency	BRL14.98
Price in US dollars	4.74

Farrapos Malzbier Sem Glúten (gluten-free malt beer) is described as a dark beer with sweet hazelnut notes. It is made with gluten-free barley malt treated with enzymes and is suitable for persons with celiac disease. This product retails in a 330ml bottle.

Customized report service – Beer market in Brazil
Global Analysis Report

Prepared by: François Thériault, International Market Analyst, Global Analysis

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