Latin Finance - May/June 2011 - 22

backus

AJEGroup, a family business that began producing low-cost soft drinks 20 years ago and has grown into one of Peru’s largest multinationals, with presence throughout LatAm and increasingly in Asia. AJEGroup branched out into the beer market in early 2008 with its own brand, Franca. It took nearly 8% of the market within a year, according to CCR Latin America, targeting Backus’ lower end customers. It has since fallen slowly to around 2%. AJEGroup has added three additional brands, including Tres Cruces, unveiled this year to compete against Backus’ premium brands. The AmBev-AJEGroup combination reduced Backus to its lowest level of market penetration, with the company holding 81.6% of the market in the first quarter of 2008, according to CCR Latin America. It has been rebounding ever since, however, which Priday attributes to a three-pronged strategy that allowed it to ride Peru’s wave of growth and aggressively fight the competition. The company ended 2010 with approximately 90.7% of the market, according to the Beverage Committee of the National Society of Industries (SNI). This has been done, according to Priday, by indentifying the consumer, developing a portfolio and differentiating the market. It worked. “The Peruvian economy is healthy, but one thing is having an economy that is growing and another is taking advantage of the opportunities that this creates. The fundamental issues are understanding customers and creating a portfolio to meet their needs,” says Priday. “Next is turning these advantages into revenue.” The company has transformed in the past years from a potential trouble spot for SABMiller into one of its stars, says Urrutia. It is considered fifth among the company’s revenue-drivers for 2011, after the United States, South Africa, Colombia and Poland, he adds. Things should continue to improve for Backus and the rest of the sector, according to the SNI, which forecasts beer consumption to increase 10% for the next two to three years. Backus not only sees expansion in

the burgeoning economy, but Priday says legislation passed in December to eliminate informal alcoholic beverages – mainly homemade, cane-based alcohol or modified industrial alcohol. Informal alcohol accounted for around 50% of the market a decade ago and has since dropped to roughly 30%, thanks to expansion of the middle class and new, less expensive beer offered by Backus and its competitors, according to the SNI. Backus expects the legislation to add 20% to sales over the coming two to three years.

a lot of money from what we pay in taxes so no one wants to touch it,” says Priday. Critics also argue that not only should taxes remain at the current rate, or even increase, but have pushed for additional warnings about alcohol consumption on labels. Congressman Yhony Lescano, of the opposition Popular Action party, says that lowering taxes would lead to a massive increase in alcohol abuse. The National Institute of Health reports that alcohol consumption is responsible for 12% of deaths in the country and is the most important risk factor in the deaths of males between the ages of 15 and 45.

Dramatic Impact

Competition keeps us innovating, says Priday. Another big boost, but one that is still only a dream, would come if brewers were able to convince policy makers to re-examine the tax system that applies to beer, says Priday. The excise tax on beer is 27.8%, which is levied in addition to the 18% VAT. This combination gives Peru one of the highest overall taxes on beer in the world. The excise tax for beer is also applied to the retail price, which is not the case for other alcoholic beverages, bringing the full tax consumers pay for a liter of beer to 45.8%. All other alcoholic beverages are levied a 20% tax on top of the VAT, but it is on the price at production, so the final price per liter to consumers is considerably less than what is paid for beer. “This is a fundamental flaw in the legislation, but the government is making

Urrutia, of Inteligo, says economic growth has been essential to increasing per capita consumption of beer, but says that SABMiller’s acquisition of Backus just as Ambev was moving in had a dramatic impact on the way things had been done in Peru beforehand. “Competition between Backus and AmBev has changed the market. Backus understood that segmentation of the market would help with penetration,” says Urrutia. “Its products were in competition with each other, creating a kind of cannibalism. This has changed as a result of competition and each brand now has its own specific target population, which has allowed each brand to grow.” Backus has slowly changed its strategy, marketing brands to low, middle and upper-market segments, instead of brands competing against each other. This has allowed to it grow all of its brands. Pablo Nano, a sector analyst at the economic research unit of the Peruvian branch of Canada’s Scotiabank, also says that Backus made the right moves just as the market began taking off. “The focus on developing a portfolio of brands for different segments of the population has worked. They have been able to consolidate brands at all levels,” he says. Priday agrees. He says he has never seen brand differentiation work as well as it has in Peru. “What is astounding is when you hear everyday Peruvians talking about the position of brands. If your core consumers can talk about brands the way you want them to, you have done something unbelievable. I don’t think it has

22 LatinFinance

May/June 2011



Latin Finance - May/June 2011

Table of Contents for the Digital Edition of Latin Finance - May/June 2011

Latin Finance - May/June 2011
Contents
Brazilian Corporate Focus
Peru Beverage Market
Peru Healthcare
Mexican Corporate Outlook
Corporate Sustainability
Centam Telecom
Panama Outlook
Caribbean Investor Report
Latin Finance - May/June 2011 - Latin Finance - May/June 2011
Latin Finance - May/June 2011 - Cover2
Latin Finance - May/June 2011 - Contents
Latin Finance - May/June 2011 - 2
Latin Finance - May/June 2011 - 3
Latin Finance - May/June 2011 - 4
Latin Finance - May/June 2011 - 5
Latin Finance - May/June 2011 - 6
Latin Finance - May/June 2011 - 7
Latin Finance - May/June 2011 - 8
Latin Finance - May/June 2011 - 9
Latin Finance - May/June 2011 - 10
Latin Finance - May/June 2011 - 11
Latin Finance - May/June 2011 - Brazilian Corporate Focus
Latin Finance - May/June 2011 - 13
Latin Finance - May/June 2011 - 14
Latin Finance - May/June 2011 - 15
Latin Finance - May/June 2011 - 16
Latin Finance - May/June 2011 - 17
Latin Finance - May/June 2011 - 18
Latin Finance - May/June 2011 - 19
Latin Finance - May/June 2011 - Peru Beverage Market
Latin Finance - May/June 2011 - 21
Latin Finance - May/June 2011 - 22
Latin Finance - May/June 2011 - 23
Latin Finance - May/June 2011 - Peru Healthcare
Latin Finance - May/June 2011 - 25
Latin Finance - May/June 2011 - 26
Latin Finance - May/June 2011 - 27
Latin Finance - May/June 2011 - Mexican Corporate Outlook
Latin Finance - May/June 2011 - 29
Latin Finance - May/June 2011 - 30
Latin Finance - May/June 2011 - 31
Latin Finance - May/June 2011 - 32
Latin Finance - May/June 2011 - 33
Latin Finance - May/June 2011 - Corporate Sustainability
Latin Finance - May/June 2011 - 35
Latin Finance - May/June 2011 - 36
Latin Finance - May/June 2011 - Centam Telecom
Latin Finance - May/June 2011 - 38
Latin Finance - May/June 2011 - 39
Latin Finance - May/June 2011 - 40
Latin Finance - May/June 2011 - Panama Outlook
Latin Finance - May/June 2011 - 42
Latin Finance - May/June 2011 - 43
Latin Finance - May/June 2011 - 44
Latin Finance - May/June 2011 - Caribbean Investor Report
Latin Finance - May/June 2011 - 46
Latin Finance - May/June 2011 - 47
Latin Finance - May/June 2011 - 48
Latin Finance - May/June 2011 - Cover3
Latin Finance - May/June 2011 - Cover4
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