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The Colombia Food & Drink Report Provides Independent Forecasts and Competitive Intelligence on Colombia's Food & Drink Industry

Posted on: Tuesday, 5 June 2007, 06:00 CDT

Research and Markets (http://www.researchandmarkets.com/reports/c58814) has announced the addition of "Colombia Food And Drink Report Q1 2007" to their offering.

The GDP growth rate for the Colombian economy in 2006, which we expect to be confirmed at 4.8%, was just above the average (4.7%) for the region. For 2007, it will be very similar, if slightly lower, at around 4.5%. We forecast inflation to remain in the 4.5% - 4.9% band.

Growth did not go higher in 2006 because of the high peso exchange rate, against both the US dollar and the euro, being maintained by the Uribe administration. The high peso is acting as a disincentive for the export sector, which tends to employ larger numbers of workers than other sectors, thus having a depressing effect upon unemployment numbers and, in turn, total purchasing power in the economy. Fruit, vegetable and flower exporters have been especially hard hit, as just a small rise in their price can cause buyers to look elsewhere.

In stark contrast, the domestic economy in general, and the retail sector in particular, are fairly booming at the moment. Imports are cheap and investor and consumer confidence are both high. Confidence, of course, is a see-saw phenomenon in Colombia, with violent incidents and government-guerrilla paramilitary clashes still very much a part of the national scene. President Uribe continues with his 'strong-arm' policy towards the insurgents, but it will be some time before he can declare anything like victory.

Despite the internal conflict, the retail sector goes very much on with its business. Indeed, the Colombian mass grocery retail (MGR) sector is the site of something of a high-stakes chess game at the moment among some of the world's leading retailers: French retailer Grupo Casino saw fit in January 2007 to block the entry of Chilean retailer Cencosud into the market; Wal-Mart is keeping everyone guessing with its strategy of registering products and brands with government authorities in Bogota, without (yet) making any physical moves into the market; and Carrefour is pursuing a tremendously energetic expansion programme, inaugurating a new store almost every other week -- in upper and lower income areas, as much in large metropolitan cities as in smaller, but fast-growing towns and cities. The aim of each is to capture the largest possible share of a retail market that has never had it so good. Almacenes Exito, for example, recorded record-breaking growth rates in 2006; its revenues for the first six months alone shot up by over 80%.

Early 2007 has seen more M&A activity. The Colombian anti-trust agency authorised the merger of the two largest retailers, Exito and Carulla Vivero, on the condition that the merged entity sell 11 stores out of the total of 256 operated by the two retailers. The merged entity will control more than 50% of the MGR market, ahead of next-biggest Carrefour, with an 18% market share. The power that such a large market share gives the new entity over its suppliers could have a distorting effect upon the sector in 2007.

Colombian regulators will need to look at this further, to ensure that fair competition is maintained. Additionally, fourth-largest retailer Olimpica agreed the purchase in January of La Galeria supermarket chain, which has stores in the cities of Cali, Cartago and Palmira, as well as in the south western Valle del Cauca part of the country. The purchase forms part of Olìmpica's wider strategy of strengthening its portfolio ahead of a much-rumoured merger or alliance with a strong national or international group, which we believe may be announced this year. Chilean retailer Cencosud, bruised early in the year by its failed bid for part of Exito, is a likely buyer.

Rising sales in the retail sector is motivating food and drink producers to launch and re-launch a whole series of products. International producers of premium beers, for instance, are seizing the moment in an attempt to capture market share. Anheuser-Busch (AB), whose beers have never sold well in Colombia,is re-launching its Budweiser brand, which will be distributed from early 2007 by Heineken. This time the pitch -- a premium beer for a price just 10% higher than for a standard national beer -- is different from earlier in the decade, when AB tried, and failed, to sell Budweiser at between double and triple the price of national beers.

Producers of organic foods, too, are taking full advantage of the retail boom to introduce their products onto the market, beginning with fruits, vegetables, and yogurts. Demand for organic bananas, in particular, is about to spike, with Dole Food's announcement in December 2006 that it will increase the volume of organic bananas that it imports into the US from Colombia. The demand for organic (fresh, pesticide-free) fruits and vegetables has reached such a high that retailers in North America and Europe have not been able to satisfy demand now for some time. In the US, grocery sales are increasing at around

1% per year, while organic food and drink sales are growing at over 15%. Meanwhile, in Colombia, with its sizeable educated, middle-class population, we expect organic food to take off sooner than in most other Latin American markets.

Topics Covered:

Business Environment

Retail

Food & Drink

Tobacco

Competitive Landscape

Companies Mentioned:

Cencosud

Cadbury Schweppes

Kraft Foods Inc.

CI Unión de Bananeros de Urabá, SA ((Uniban)

Alianza Team (Tecnologia Empresarial de Alimentos SA)

Nacional de Chocolates

Postobon

Almacenes Exito

Olimpica

Grupo Empresarial Bavaria

For more information, visit http://www.researchandmarkets.com/reports/c58814

Source: Business Wire

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