Confidence in Brazilian biscuit market could crumble

By Vladimir Pekic

- Last updated on GMT

Brazil's biscuit sector woes to hit popular brands most, says ABIMAPI
Brazil's biscuit sector woes to hit popular brands most, says ABIMAPI

Related tags: Brazil

Brazilian biscuit makers are set for a tough year in light of planned energy price hikes and a sharp currency depreciation, warns Brazil's Association of Biscuit, Pasta, Industrial Bread and Cake Industries (ABIMAPI).

In its 2015 annual report, the trade association said manufacturers would struggle with costs.

While the [higher] price of electricity causes an increase of costs inside production plants, fuel price hikes put pressure on transportation costs​,” said ABIMAPI.

Brazil’s biscuit manufacturers are also feeling the heat from a sharp depreciation of the Brazilian real in recent months, it said, which is making imported raw materials much more expensive.

The Brazilian real lost 40.62% of its value against the US dollar since last September. The US dollar traded for BRL3.15 on May 26, compared to just BRL2.24 on September 1, 2014.

It is not only wheat that has become more expensive. Another factor putting pressure on prices is the cost of packaging, which accounts for up to 25% of the [final] cost of biscuits that reach retailing channels​,” the association said. 

These price hikes of energy and imported materials will cause a restructuring of biscuit prices throughout the Brazilian biscuit industry in Brazil, resulting in an 8% to 10% nominal increase in the value of biscuit sales, it said.

Popular brands to suffer, mergers to slow

The ABIMAPI said these pressures would hit popular brands the hardest.

Although it is intuitive to think that premium biscuits suffer a greater impact in a scenario of weak economic growth and high inflation, in fact, the most penalized items are the popular brands. Contrary to what occurs in other industry segments, the low-income population does not migrate to a cheaper category of products, they simply stop buying​,” it said.

Compared to last year, where Brazil’s biscuit industry boasted a strong performance​ with earnings rising 10.56% to BRL19.67b tonnes and volumes remaining stable at around 1.7m t, the ABIMAPI predicted 2015 sales volumes growth to rest between 1-2%.

It also said consolidation would slow down in the near future because of the economic uncertainties and internal economic policies in Brazil. M&A activity over the past decade has led to 20 biscuit makers accounting for 70% of the market.

Of the 1,704 biscuit manufacturing plants operating within the national territory, most are located in the Southeast; the region with the highest per-capita income in the country and the main center of consumption for the product​,” it said.

Nevertheless, this expected growth for 2015 is not as impressive in real terms, having in mind that the IMF’s baseline scenario for the country predicts that Brazil will experience an inflation rate of 7.7% in 2015. This is reflected in ABIMAPI’s modest growth expectations for sales volumes this year, as the association predicts that sales will grow between 1% and 2%.

Niche markets buoyant

As for per capita consumption, Brazil reached 8.4 kilos per inhabitant in 2014, a cumulative growth of 17% since 2010, while the volume of consumption reached 7.18 kg per inhabitant. This is still far from the 12.44 kg of biscuits consumed annually by Brazil’s Argentinean neighbors.

Biscuit penetration in Brazilian households reached an impressive mark of 99.6%, according to Kantar Worldpanel. Many factors led the country to hit that mark, but the population’s culture plays a predominant role in the results. Biscuit consumption, driven by the product’s practicality, indulgence, cost-benefit, and longer expiration dates, has become embedded into the daily lives of the general population.

Since it is not possible to expand the penetration of biscuits, the challenge now is to place a larger number of packages in Brazilian homes. More options must be offered to consumers, by releasing new and differentiated products​,” said ABIMAPI. The category of club type biscuits, sold in small packs for one-time consumption, has grown very fast in Brazil, while another booming niche is biscuits with added cereals and functional nutrients.  

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