Friday, June 29, 2012

CATEGORY PROFILE: Global Market Review of Cachaca

(Teatro Naturale - 6/26/12) By S.C. - A downward trend for cachaça in its home market of Brazil is pushing producers of the white spirit to look abroad for growth, according to a recently-published report from the IWSR and just-drinks.

The report, entitled 'Global market review of cachaça – forecasts to 2016', says that cachaça is the ninth-largest global spirits category at 82.7m nine-litre cases. 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 10 years (2001-2011), representing a compound annual growth rate (CAGR) of -2.3%," the report states. Nevertheless, the category in Brazil is too large to ignore. The IWSR's Brazil analyst Daniel Mettyear says: "When we talk about cachaça losing volume we must remember that this is still an absolutely huge industry and market. While it may lose around 2% a year, this is absolute peanuts compared to the nearly 83m cases it sells. Consumption is still very strong in the north-east and the interior of nearly all other states. São Paulo is where imports are really taking off and here the consumption is not as high as, say, the north-east."

The slide in sales in Brazil could mean that more cachaça producers will focus on exports for future growth. There are barriers to heading overseas, however. "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."

The category remains relatively underdeveloped in international markets. Global export sales amounted to just 793,410 cases in 2011, a decline of -5% over 2010, according to the IWSR. That follows a 6.1% CAGR between 2005 and 2010. At present, 99.02% of cachaça sales are derived from the domestic market – only marginally lower than the 99.7% in 2000.

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

Cachaça certainly possesses many of the ingredients for international success. It is a highly mixable white spirit that readily lends itself to cocktail usage. Cachaça's development will go hand in hand with the global expansion of cocktail culture. Trendy mixologists are seeking out more exotic spirits as a base for their cocktails and cachaça is one spirit that stands to benefit.

With economic growth in Brazil, there is an increase in demand for premium products in what had formerly been a very low-priced category. Cachaça producers have sought to meet the demand by introducing their own high-end versions of their leading brands.

This premiumisation has also encouraged some multinational producers, such as Campari and Diageo, to enter the category through the recent acquisitions of Sagatiba and Ypióca, respectively. Brazil has become a priority market for these producers and cachaça represents a valuable addition to their local portfolios. As these companies begin to bring their recognised marketing and innovation skills to bear it will serve to raise the image of the cachaça category. The greater multinational involvement also promises improved international distribution and will lead to a long-anticipated export breakthrough.

by S. C.
26 June 2012 Teatro Naturale International n. 6 Year 4

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