Cachaça: Critical Mass

06 February, 2013
51, Cachaca, caiprinha, Pitu, Velho Barreiro, Ypioca

(Image: Shutterstock)

With Ypicoa in Brazil, leading baijiu brand Shui Jing Fang in China and now a controlling share in United Spirits in India, Diageo is a big Russian brand away from completing the BRIC quartet. It also has Europe’s great hope in the bag with the 2011 purchase of Turkish raki giant Mey Içki. As Ashley Everett Rountree, MD of market investment banking firm CW Downer & Co, neatly puts it: “Emerging markets have been a significant part of the spirits industry’s recovering growth story.”

But back to Brazil. Joeny Cremasco, international trade manager of the country’s number four brand, Velho Barreiro, talks us through the cachaça territories of Brazil: “The north east of Brazil belongs to Ypióca and Pitú. But the south east, which includes Sao Paolo and Rio De Janeiro, is Pirassununga 51 and Velho Barreiro territory.” Despite his brand being Ypióca’s closest competitor in volume terms, if not geographically, Cremasco welcomes Diageo to the category. “Diageo will increase the distillation and sales of Ypióca and for the category this is good. When we have a big company like Diageo involved, the category can only grow.”

Looking back to his homeland with great interest is Cosme Gomes, a willing cachaça commentator and founder of the US-stationed super-premium brand Bossa. “I suspect this purchase was more about leveraging Diageo’s existing world brands via Ypióca’s existing sales channels than anything else, because I can’t imagine how much more market share Diageo will gain with a family of cachaça brands that has successfully existed in Brazil for more than 160 years. In other words: What does Diageo know about Brazil that the Teles family didn’t already know after more than a century doing business there?” 

Expansion

Through its existing network, Diageo has much of the south eastern corner covered. So expansion into the north east is akin to the journey that is underway from the first to the second and third tier cities of China. But Diageo’s strategy could also be one of necessity, not adventure. Is expansion into second cities an acknowledgement that Brazil’s first cities are becoming increasingly competitive and saturated? Gomes picks up the point: “Much like the large traditional Brazilian cachaça makers, brands such as Smirnoff and Johnnie Walker have been around Brazil for decades. 

“The newly affluent are finally learning about other premium brands such as Absolut, Skyy, Laphroaig, Balvenie, etc. So, if that is the case, Diageo had no choice but to expand its coverage to the now relatively more affluent classes B and C in Brazil. Its older ‘winners’ are possibly a step behind the curve in terms of generational appeal to the ‘old money’ class A and young and trendy adults.”

And of course Diageo’s portfolio is not restricted to spirits. “Beer in Brazil is another huge market which is looking for exotic new products,” Gomes says. “In this scenario, Guinness fits the bill perfectly, especially with the World Cup coming up and millions of men flocking to Brazil for the event.”  

With Diageo’s seemingly obsessive drive to be the leader where ever it goes, whatever it does, you might think Pirassununga 51’s owner, Cia Muller, has something to be worried about. “Cachaça 51 has 30% of market share (in litres) in Brazil,” says Ricardo Gonçalves CEO of the sugarcane spirit goliath. “Sales in the Brazilian market correspond to an average of 1.6m 9-litre cases per month. This is an expressive number even for other global brands. We were happy with the entry of a multinational such as Diageo in the cachaça business. We believe this group will have an important contribution to both local and international markets.”





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