Research in focus-Is this finally the time Brazil’s cachaca!

Cachaça, the Brazilian national spirit, has been discussed as ‘the next big thing’ in the international spirits arena on many occasions over the years but has so far failed to take off. However, a new IWSR/just-drinks report suggests there are reasons for renewed optimism for cachaça producers.

Such is the international potential drinks marketers have always attached to Brazil ‘Copacobana in a bottle’, cachaça, that the product has had a few false dawns over the years.

If the Copacabana, Carnevale and the glamour of Ayrton Senna and Pele could be bottled, it would have cachaça on the label. Sadly, in spite of that potential, for a variety of reasons cachaça has failed to break through on the international stage. Sales are still dominated by the domestic market which accounts for 99.1% of global shipments, according to IWSR data. Moreover, international sales are only showing modest growth.

In fact, cachaça only sells more than 100,000 nine-litre cases in two markets, Germany (229,000 cases) and the US (115,000 cases).

However, a new report from IWSR and just-drinks suggests conditions could now be set fairer than ever before for Brazil’s national spirit finally to make a significant and lasting impact on the international drinks market.

The IWSR/just-drinks report, Global Market Review of Cachaça – Forecasts to 2014, points to a number of conspiring positive factors. Not least among these is the combination of Brazil holding both the Football World Cup and the Olympic Games within two years of one another. The success of cachaça from a marketing standpoint is closely bound up with communicating the spirit of Brazilian culture, so the prominence which these events will bring could be invaluable.

“For most, cachaça is closely associated with the Brazilian lifestyle,” the report states. “Brazil is currently trendy and set to become even more so as it is due to host the 2014 Football World Cup and 2016 Summer Olympics. These high-profile events present one giant sampling opportunity for the cachaça industry.”

The primary focus will remain Europe and the US, though cachaça companies are also eyeing Asian markets for longer term development. As cachaça closely resembles rum in terms of product qualities and imagery, many consider it logical to follow the footprint established by the rum category.

The report explains, however, that cachaça is disadvantaged against rum in Europe as rums from the Africa-Caribbean-Pacific (ACP) nations receive preferential duty treatment and subsidies, and the fact that this long-standing disadvantage could soon be removed is a further reason for optimism among cachaça producers. Ongoing negotiations between the Mercosur countries and the EU over a trade agreement could mean lower tariffs for cachaça. If a trade agreement is reached, cachaça “stands to become significantly more competitive in Europe”, states the report.

Furthermore, a rather more negative aspect to cachaça’s current fortunes may end up having a positive impact on export progress, the report suggests. “The large domestic market, while obviously advantageous, tended to slow its international development. With a vast domestic market to service there was relatively little incentive for producers to focus on exports. But as domestic sales have declined recently, producers are beginning to look toward export markets to offset this.”

The last few years have also seen the launch of a number of brands geared for export markets, such as Sagatiba and Leblon. On the other hand the report also points out that to date only a half dozen or so cachaça producers or bottlers have set up export departments, while many producers have focused on bulk shipping, though the report does point out that bottled exports are on the rise, another positive portent for the category.

Another reason why cachaça has lagged behind other product categories in many international markets is the absence of innovation – particularly at the premium end of the market.

Today, 97.8% (or 84.39m) of total cachaça sales in Brazil are low-priced. The value segment accounts for a further 3% (up from 2% in 2004), or 2.6m cases. The standard segment is just 0.2%, or 186,000 cases, and premium sales are minimal. But there is considerable scope for premiumisation, says the report, and a growing interest in aged cachaça, with a corresponding increase in the number of high-end offerings hitting the market last year.

Some companies believe there is a need for a generic trade organisation focused on building cachaça in export markets, in particular to coordinate consumer education programmes. To date, most consumer education about cachaça has taken place informally through the on-premise market, as bartenders have introduced the spirit, notably through serving the famous cachaça cocktail, the caipirinha.

The further popularisation of the caipirinha will also be critical to the category’s expansion. “As the cocktail culture expands globally so does the caipirinha and theoretically people’s exposure to cachaça. Besides, there is a global fashion for exotic Latino-themed bars and restaurants. Brazilian/Samba-themed parties are fashionable, especially in beach outlets along the Mediterranean coast.” Research suggests that growing awareness of cachaça is closely linked to awareness of the caipirinha.

The other critical factor which the report suggests has been holding cachaça back in export markets is the lack of multinational investment in the category.

The report suggests that multinationals, such as Bacardi, Pernod Ricard and Diageo (all of which have a cachaça brand within their portfolios), need to “lead the way for the conservative and often inexperienced Brazilian cachaça producers and bottlers”. However, as it stands Bacardi, through its shareholding in Leblon, is “the only company that has shown any real inclination to invest in the category.”

While there is involvement in the category from major international groups, cachaça has so far not been a high priority for them. The question is the degree to which this is likely to change over the coming few years if some real momentum begins to build. Some might suggest that for that momentum to build the multinationals have to believe in the category so the Brazilians are caught in something of a Catch 22. But with the World Cup and the Olympics coming to Brazil, the continued growth in the cocktail culture and the unquestionable consumer appeal of the caipirinha it is possible that now might be the time the majors really do start to back the category.

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