Opportunities in the Brazilian Wine Market

Global Wine & Spirits Market Reports 2013 BRAZILIAN WINE MARKET

OPPORTUNITIES IN THE BRAZILIAN WINE MARKET

by Marie-Claude Veillette www.globalwinespirits.com 1 BRAZILIAN WINE MARKET

2 Brazil: a promised land for wine producers

3 Imports

4 What is Mercosur?

5 Types of wines imported & distribution network

5 Import opportunities: sparkling wines

7 Brazil: a wine-producing & wine-consuming country

9 History

9 Consumer profile

10 Wine preferences of Brazilians

10 Sale price

11 Exporting to Brazil: what you need to know

12 Want to export? GWS can help you

13 General information on Brazil

14 Bibliography BRAZILIAN WINE MARKET 2

Driven by a strong domestic demand, the Brazilian economy is booming. During the last decade, 30 million people have emerged out of poverty and BRAZIL: joined the ranks of the lower middle class which now constitutes some 95 million people, about half of the country’s population. Those citizens, who earn A PROMISED between $600 and $2,600 U.S. dollars per month, are the largest group of consumers in Brazil.1 LAND With more than 200 million people and 355 million liters consumed annually, FOR WINE Brazil is the second largest consumer of wine in Latin America after Argentina (30 L per capita/year). PRODUCERS The increase in personal wealth has had a direct impact on the wine industry that currently enjoys sustained growth thanks to a young population that is more educated and affluent.

Despite the fact that the annual consumption of wine remains modest with 1.9 liters per person, the Brazilian Wine Institute (IBRAVIN) estimates that within the next 15 years, consumption will increase to 9 liters per person. If this forecast proves true, Brazil, the world’s sixth economic power, would become the world’s fifth largest wine consumer.

For now, wine consumption is concentrated in large urban areas that are densely populated such as São Paulo, Rio de Janeiro, Belo Horizonte and Brasilia.

Although the value of wine imported to Brazil rose from $65.2m USD to $261.6m USD in the last ten years2 – an increase of 315% – beer (65 liters per capita/year in 2010) and cachaça (white alcohol made from sugar cane) remain to this day the two most widely consumed alcoholic beverages in the country.

As domestic production is still often low in quantity and quality, the Brazilian wine market remains largely open to imports. Major events like the 2014 FIFA World Cup (International Federation of Association Football) and the 2016 Olympics should be conducive to the consumption of wine with thousands of foreign visitors flocking to Brazil from around the world. Brazil is a market that should be seriously considered for any winery looking to expand its export portfolio.

This report was designed to address the interest voiced by many wine producers in understanding and identifying strategies for expanding business opportunities into Brazil and other constituents of the BRICs countries - Brazil, Russia, India, China and more recently South Africa.

(1) Brazilian Wine Market Report, JBC International (2) Wine Business International 3 BRAZILIAN WINE MARKET

Of the 75 million liters of wine imported on average every year into Brazil, 60% come from Chile and Argentina: Chilean wines account for 36% of total IMPORTS sales, while Argentinean ones account for 25%.3 Italy, which has always played a very significant role in terms of wine imports into Brazil – due in part to an important Italian community in the São Paulo area – ranks third. Portugal occupies the fourth position as there are also important economic ties between Portugal and Brazil, especially in Rio de Janeiro. France comes in fifth position.

30 25 20 15 10 Liters (Million) 5 0 2009 2010 2011 Year

Chile Argentina Italy Portugal France Uruguay Spain Germany South Africa United States Australia Greece Others

Source : Uvibra União Brasileira Vitivinicultura (UVIBRA)

Unlike other major exporters doing business in Brazil, Argentinean and Chilean producers benefit from a huge advantage: they do not have to pay customs duty on wine under the Mercosur agreement, which allows the free trade and the free movement of goods, people and currency among member countries. As an associated country, Chile – whose wines had enjoyed a preferential tax rate of 22% - has been completely exempt from taxes since 2011.

On the other hand, Italian, Portuguese and French exporters – who previously occupied a more dominant position on the Brazilian market – are taxed at 27% and have consequently seen their market shares decrease significantly in favor of New World wines.

Despite high import taxes, Brazil is still considered a young market with strong growth potential with wine imports and gourmet food on the rise.

(3) International Wine & Spirits Research (IWSR), Brazil Wine Market Report 2012 BRAZILIAN WINE MARKET 4

Also known as the Southern Common Market (Spanish Mercado Común del Sur) or Mercosul (Portuguese Mercado Comum do Sul), Mercosur was WHAT IS established March 26, 1991 with the Treaty of Asunción signed by Brazil, Argentina, Paraguay and Uruguay. This is the third integrated market in the MERCOSUR? world after the Europeen Union and NAFTA. Its purpose is to promote the free trade and the free movement of goods, people and currency, as well as the creation of a common external tariff, the harmonization of economic policies and the harmonization of legislation among members. 4

Permanent members Associated members Country temporarily excluded

\\ Argentina (1991) \\ Bolivia (1996) \\ Paraguay (1991) \\ Brazil (1991) \\ Chile (1996) \\ Uruguay (1991) \\ Peru (2003) \\ Venezuela (2012) \\ Colombia (2004) \\ Ecuador (2004)

Unasur* and Mercosur, the two main economic groups in South America, have decided to suspend Paraguay after the impeachment of President Fernando Lugo on June 22, 2012. This double exclusion may be lifted with the recent election of president Horacio Cartes in April 2013. Meanwhile, Venezuela has somehow taken the place of the excluded country within Mercosur. Venezuela’s accession was previously blocked by the Paraguayan Parliament, which is predominantly right wing.

What is Unasur?

Unasur is a regional political alliance formed by Argentina, Bolivia, Brazil, Colombia, Chile, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela.

(4) Wikipedia.org 5 BRAZILIAN WINE MARKET

Brazil imports very little sparkling wines and bulk wine. Bottled wines represent 89% of all imported wine in terms of value and 93% in terms of TYPES OF WINES volume. IMPORTED & Traditionally, demand for wine reaches its peak during the winter months, from July to September, and during the Easter holiday period where wine DISTRIBUTION is offered as a gift. Today, the seasonality of sales is gradually disappearing, though the second half of the year is generally better than the first. NETWORK Nearly half (50%) of wine sales in Brazil are made through the supermarket and hypermarket network. Wines sold in supermarkets tend to be more popular brands, while those in hypermarkets may be less well-known. However, hypermarkets often employ sommeliers to advise customers, which can have a direct influence on their purchase decisions. The hypermarket network can thus represent an interesting opportunity for smaller, lesser known brands in Brazil.

30% of wine sales are made via cafes, hotels and restaurants. 5 The remaining sales are made within small grocery stores, direct sales and online sales.

Mass retailers like Wal-Mart and Carrefour are becoming significant players and offer additional opportunities for the sale of imported wines.

Brazilians now enjoy more and more sparkling wine and the majority of what is consumed is produced locally, approximately 80%. Within a five year period, IMPORT Brazilian sparkling wine sales have nearly doubled passing from 4.8 million liters in 2004 to 8.7 million liters in 2009.6 The total consumption is estimated OPPORTUNITIES: at 30 million bottles annually. SPARKLING In the tropical region of Recife in the North, winemakers are producing sparkling wines that have received excellent reviews. In 2012, wines WINES produced locally were awarded more than 30 medals at the International Wine Challenge in London and more than a hundred in 2011 in various international competitions. 7

In terms of wine production in Brazil, the production of sparkling wine has increased the most, growing at a rate of achieving 7.4 % Compound Annual Growth Rate (CAGR) between 2006 and 2010. 8

Brazilian sparkling wines are perceived as having a good price: quality ratio, competing strongly in the under R50$ price bracket (approximately $25 USD) against imports from South America, Italy, France, Spain and Portugal.

As it stands, locally produced sparkling wines dominate because of their low price points; however, this niche still represents an interesting market opportunity for foreign producers as consumption in this category continues to grow.

Among imports, which represent only 18% of the total sparkling wine market, Italian wines account for 31% of sales, French wines for a total of 23% (Champagne - 12%; Other - 11%) and those from Argentina 22%.

Because of customs duties, taxes and the various distribution channels, the retail price of a bottle of Champagne can range between 70 and 105 Euros in Brazil. Despite the higher cost of this luxury product, Champagne shipments to Brazil reached almost 1 million bottles in 2010. 9

In recent years, there has been an increase in Cava consumption, as well as Chilean and French sparkling wines.

(9) www.champagne.fr 7 BRAZILIAN WINE MARKET

With more than 83.718 hectares of vines10 , Brazil is the third largest wine producer in South America after Chile and Argentina. More than 85% of BRAZIL: the country’s vineyards are located in the state of Rio Grande do Sul (Serra Gaúcha, Campanha, Serra do Sudeste and Campos de Cima da Serra) near A WINE- the Uruguayan border. There is also an emerging area in the state of Santa Catarina (Planalto Catarinense) in the south and one in the São Francisco PRODUCING Valley in the northeast of Brazil. There are other smaller producing areas near Recife in the north where the climate is extremely hot. & WINE- Approximately 55% of wine production in Brazil comes from the State of Rio CONSUMING Grande do Sul.11 COUNTRY Brazil now has more than 1,100 vineyards, mostly family-owned, with an average of 2 hectares per property. Among the large players are Casa Di Conti, Cooperativa Vinícola Aurora, Vinícola Salton, Bacardi-Martini do Brasil and Vinícola Miolo – considered to be the largest wine producer in Brazil with 40% of domestic market share. Vinícola Miolo is also the largest wine exporter with a hundred different labels.

National Wine Producers Million of liters Casa Di Conti 19.4 Cooperativa Vinícola Aurora 1 7. 6 Vinícola Salton 13 Bacardi-Martini do Brasil 10.3 Vinícola Miolo 7. 4 Tous les autres 256.7

Source : Brazilian Wine Market Report, JBC International (Euromonitor, 2009) Source : Wines of Brasil 2009) Brazil produces about 3.5 million hectoliters of wine per year, which represents 1% of the global wine production.12

Countries with Highest Import of Brazilian Wine in the First Half of 2012.13

1 — China 6 — United States 2 — United Kingdom 7 — Poland 3 — Russia 8 — Switzerland 4 — Holland 9 — Finland 5 — France 10 — Belgium

(10) Brazilian Institute of Geography and Statistics (IBGE), 2010 (11) Brazilian Institute of Geography and Statistics (IBGE), 2009 (12) International Organization of Vine and Wine (OIV) – Press release, March 22, 2012 (13) Wines of Brasil – Press release, September 17, 2012 BRAZILIAN WINE MARKET 8

The Brazilian fine wines market remains marginal with 20 million liters sold annually. Amidst a sharp growth in imported wine sales since 2005, domestic wine sales in Brazil have declined by 11 percent. This explains why local producers have asked for a reinforcement of protectionist measures and for a raise on the levy on imported wines from 27 to 55%.

To the relief of countries that export their wines to Brazil, the “Salvaguardas” measure or safeguard measure demanded by Brazilian growers was rejected in October 2012. To appease the dissidents, the Government is committed to making the promotion of national wines with the hope of doubling sales by 2016 to reach 40 million liters per year.

Commercialization of Brazilian Wines vs. Imported Wines in Brazil (millions of liters) 14

100%

90% 18,019,433 18,375,394 19,546,202

80%

70%

60%

50%

40% 56,009,505 71,009,725 72,705,446 30%

20%

10%

0% 2009 2010 2011

Total Imported Wines Total Brazil’s Fine Wines

(14) Uvibra União Brasileira Vitivinicultura (UVIBRA) 9 BRAZILIAN WINE MARKET

The first vines were brought to Brazil by the Portuguese in 1532 and were planted in São Paulo. During the nineteenth century, German and Italian HISTORY immigrants settled in the south of the country and imported European vines, but due to the hot and humid climate, they were difficult to cultivate. This is why 95% of the grape production ended up destined for direct consumption rather than for wine production.

As the wine culture was almost nonexistent, Brazil has for centuries produced poor quality wines made from non-vinifera grapes. The production of fine wines, obtained from noble grape varieties, started only about twenty years ago. The most common varieties are Cabernet Sauvignon, Merlot, Chardonnay and Muscat.15 Techniques adopted from abroad helped in growing grapes that are more suitable for wine production.

Despite their lack of experience and a climate that does not necessarily lend itself to the culture of vine in most regions, Brazilian producers are now able to achieve better quality wine. The rainy weather in the south is more favorable to the production of white wines, especially sparkling wines. This type of wine is increasingly recognized as being of high quality by professionals worldwide.

94% of Brazilian consumers prefer red wine. They are middle aged, with 54% between 31 and 50 years old. They drink more frequently than in the past and they consider themselves to be social drinkers, with 80% of consumers CONSUMER drinking either with friends or on special occasions. 16 As wine consumption remains closely linked to the combination of food and wine, selling wine by PROFILE the glass is very uncommon. Wine is not served by itself, but rather is always accompanied by a dish or an appetizer.

More educated, younger consumers, between the ages of 25 and 30, are traveling abroad more than ever, and as in all emerging economies, have acquired a taste for luxury products. Most of these young consumers belonging to the upper class drink more imported wines and this group’s consumption is rising.

The vast majority of consumers still consider wine as a symbol of luxury and prestige and they are attracted to brands that convey a contemporary image and stamp of authenticity.

As most Brazilians do not have a great knowledge of wine, they tend to select a wine based on its price : quality ratio. Chilean, Argentinean, Italian and Portuguese wines are those that are the most popular based on those criteria.

Among the other selection criteria are brand recognition, color, country of origin and flavor.

(15) Brazilian Agricultural Research Corporation (EMBRAPA) (16) Wine Business International BRAZILIAN WINE MARKET 10

Reds are generally the wine of choice for Brazilians, accounting for 75% of all consumption. Preference tends to be for oaked wines. They appreciate sweet WINE and fruity wines. Wines with higher acidity are generally not favored. PREFERENCES Considering the hot climate, Brazilians’ taste for red wine can seem quite surprising – one would tend to think more of consuming a chilled white or OF BRAZILIANS rosé. However, drinking red wine is more deeply rooted in tradition than drinking white.

Sparkling wine consumption is also growing rapidly.

Rosé wines are not popular in Brazil, which may be due in part to the fact that Brazilians have been exposed to several bad rosé wines over the years from Italy and Portugal. Though the wines may have been of a good quality, they often arrived seriously damaged following shipment overseas.

Brazilians generally prefer imported wines. Amongst European wines, Italian and Portuguese are the top picks. French wines have an excellent reputation, but because of their price, they are often perceived as luxury products, still inaccessible to most of the lower-middle class. The most popular varieties are Cabernet Sauvignon, Merlot and Zinfandel for red and Chardonnay for white wine.17

These days, a good bottle of imported wine retails for between $R25 (approximately $12 USD) and $R60 (approximately $28 USD). In 2010, the SALE PRICE majority of imported French wines retailed above the $R100 mark, or about $47 USD a bottle.

Chilean and Argentinean wines, offered at reasonable prices for a bottle of decent quality (from $R18, or about $8.50 USD), also helped fuel the growth in consumption.

70% of wines with asking prices of less than $R20 are sold in supermarkets, while premium wines are sold in boutiques, restaurants and hotels.

It is clear that Brazilians’ interest in wine is growing rapidly: local production is on the rise and improving in terms of quality, and wine imports and consumption are increasing year over year.

“Wine has become a common product in the supermarket trolley of the middle class,” says Carlos Cabral, Director of the wine division for Pão de Acucar supermarkets. 18

(17) Vinexport (18) Lepetitjournal.com 11 BRAZILIAN WINE MARKET

No one arrives in Brazil as if it were a conquered territory. Producers wishing to export to Brazil must not only master the language that has a rich and EXPORTING TO complex vocabulary, but also understand the culture of the country. This is why any producer wanting to export to the Brazilian market must absolutely BRAZIL: find an importer native of Brazil or who speaks the language and understands all of the cultural subtleties. WHAT YOU NEED “Producers can also deal with a consultant who will serve as an intermediary TO KNOW between the grower and importer,” says Sheilla Plumejeau, native of Brazil and co-owner of the Gonorderie vineyard19 in the Loire Valley in France.

Avoid direct negotiations with an importer if you do not know the language and if you do not understand all import formalities.

“Brazil remains a difficult country with very litigious and highly bureaucratic rules that are constantly changing,” warns Plumejeau. “If your cargo is blocked at customs because you have not fulfilled all of the conditions required by the authorities, you will not be ahead of the game. In the long run, it only makes sense to hire an expert who will take care of all clearance and customs procedures.”

In order to remain cost-effective and efficient in your efforts, Ms. Plumejeau also suggests delivering orders no less than one (1) ten foot container, that is, 600 cases of 12 bottles. Samples should also be included. If you are a smaller producer, it is possible to share a container with one or more producers for more savings.

Addressing the Brazilian market requires some investment in time and money. You need to plan sales trips to Brazil. You will have to organize tastings with those who sell your products.

“There are many sommeliers in Brazil, but the approach is very different from that of French sommeliers or those from countries with a more developed wine culture,” says Ms. Plumejeau.

Feel free to adapt your products to consumer tastes. For their first shipment, Ms. Plumejeau bet on a very fruity Cabernet Franc and a Rosé d’Anjou. However, with the general lack of enthusiasm for rosé wines in Brazil, Ms. Plumejeau renamed the wine - La Délicatesse – and designed a new label to appeal the female consumers.

“The bottle is transparent and the label is very feminine. I want to attract the attention of women who are mainly those doing the shopping.”

Unlike the Chinese market, which one day will perhaps focus more on its local production, Brazil will become loyal to foreign producers who have met the challenge of piercing the market, predicts Sheilla Plumejeau. BRAZILIAN WINE MARKET 12

Over the years, Global Wine & Spirits has developed unequalled export expertise. In contact with buyers worldwide, our account managers know WANT TO the industry and the latest trends in the international wine & spirits market. Our team of experts will refer you to the right contacts and help you expand, EXPORT? diversify and reach new markets. GWS CAN Global Wine & Spirits will allow you to: HELP YOU \\ Develop your export markets \\ Consult & reply to sourcing requests from international buyers \\ Promote your products to a select group of 3,000 professional buyers \\ Develop online presence for your brand

Plus, access our Trade Directory for business listings and detailed contact information for importers, distributors, wholesalers and other wine and spirits buyers worldwide.

Founded in the early 2000’s for wine professionals, the Global Wine & Spirits online platform connects an important and growing number of international wine importers, wholesalers, distributors, agents, retailers and other professional wine buyers who all find within one site a critical mass of producers, wine offers and industry information.

Working with both wine sellers and wine buyers, we have a direct connection to the global wine marketplace every day. We help our members to get a better sense of different wine trends and see how markets evolve. For all these reasons, GWS is well positioned to help you develop key international markets and offer you all the visibility you need to strategically position your business and your products on the World Wide Web.

Members of our network benefit from the expertise of qualified account managers, who will work with you to build your export business and can communicate in over 10 languages. With offices in Canada and China, we are well positioned to help you develop your presence in key markets.

Toll Free: (International): +800-2559-4630 (Canada and U.S.) 1-866-255-9463 Email: [email protected] www.globalwinespirits.com 13 BRAZILIAN WINE MARKET

Geographical situation Official language Brazil is the largest and most Portuguese GENERAL populous country of the South American continent. It covers Other languages INFORMATION 8,514,877 km² and has Many people influenced by the 7491 km of coastline on the American culture speak English. ON BRAZIL Atlantic Ocean. It is composed French is spoken by a smaller of 26 states and a federal district. elite. More and more people speak Spanish because of the Capital Mercosur agreement, but also Brasilia 15°48’S 47°54’W - because Brazil is surrounded by 2 million people Spanish-speaking countries such as Chile, Paraguay and Uruguay. GDP (2011) Brazil is the sixth largest Forecast growth economy in the world (before the GDP is expected to grow 3% in UK) with a GDP of $ 2.517 billion. 2012 (government data)

Major cities Local currency São Paulo: 18.4 million people Brazilian Real (BRL) Rio de Janeiro: 11.1 million people Annual wine imports Brazil imports an average of Other cities of importance 75 million liters per year, and Salvador da Bahia, Brasilia, exports little. In 2011, Brazil beat Fortaleza, Belo Horizonte, its previous year wine import Curitiba, Recife, Porto Alegre. volumes with 77 million liters worth approximately 295 million Population U.S. Brazilian wine imports have 205 million (July 2012 estimation) doubled between 2005 and 2012. Life expectancy Women 77 years - Men: 70 years Consumption of wine / capita 1.9 liters / year Median age 29 years | 66.8% of the population is aged between 15 and 64 years

Religion Catholic (74 %), Protestant (15 %) BRAZILIAN WINE MARKET 14

IWSR WINES OF BRASIL

BIBLIOGRAPHY http://www.iwsr.co.uk/pages/ http://www.winesofbrasil.com/ news/pressreleases/Highpoten- PressReleases.aspx?id=123 tialwinemarketsdampenedbymar- ketcomplexities.pdf http://www.winesofbrasil.com/ PressReleases.aspx?id=91 WINE INTELLIGENCE CHAMPAGNE FRANCE ORGANISATION INTERNATIO- http://www.wineintelli- http://www.champagne.fr/ NALE DE LA VIGNE ET DU VIN gence.com/wp-content/ wpFichiers/1/1/Ressources/ uploads/Wine-Intelli- file/ECONOMIE/Bulletin%20 http://www.oiv.int/oiv/info/frnote- gence-Opportunities-for-Spar- r%C3%A9capitulatif%20 conjoncture2012 kling-Wine-in-the-Emerging-Mar- des%20exp%C3%A9ditions%20 kets-Jan-2012.pdf de%20Champagne%20en%20 INSTITUTO BRASILEIRO DE 2010.pdf GEOGRAFIA E ESTATÍSTICA CALWINEXPORT MERCOSUR http://www.ibge.gov.br/english/ http://www.calwinexport.com/ files/Brazil%20Wine%20Mar- http://en.wikipedia.org/wiki/Mer- VINEXPORT ket%20Report%20JBC%20 cosur EMP%20July%202011.pdf http://www.ca-vinexport.com/fr/ LE MONDE fiches-pays/bresil http://www.uvibra.com.br/pdf/im- port_vinhos_espumantes_2006_ http://www.lemonde.fr/ REUTERS jul2012.pdf ameriques/article/2012/06/24/ paraguay-nouveau-pou- http://www.reuters.com/ http://www.calwinexport.com/ voir-et-president-destitue-veu- article/2012/06/13/us- files/Brazilian%20Wine%20Mar- lent-aller-au-sommet-du-mercos- brazil-trade-wines-idUS- ket_Sao%20Paulo%20ATO_Bra- ur_1723853_3222.html BRE85C1AP20120613 zil_2-24-2011.pdf L’EXPRESS JANCIS ROBINSON SUD DE FRANCE DÉVELOPPEMENT http://www.lexpress.fr/actu- http://www.jancisrobinson.com/ alites/1/economie/le-mercos- articles/a201203232.html http://www.suddefrance-develop- ur-suspend-le-paraguay-et-va-inte- pement.com/fr/fiches-pays/bresil/ grer-le-venezuela_1132652.html LE PETIT JOURNAL vin/circuits-de-distribution.html RFI http://www.lepetitjournal.com/ IBRAVIN eco-saopaulo/78203-eco--le- http://www.rfi.fr/amer- vin-francais-a-la-conquete-du- http://www.ibravin.org.br/ iques/20120630--mercosur-par- marche-bresilien.html aguay-venezuela-chavez-lu- EMBRAPA go-bresil-argentine-urugay BBC http://www.embrapa.br/english http://www.bbc.co.uk/portuguese/noticias/2012/11/121113_ vinho_classe_media_mc.shtml 1111, St-Charles Street West, East Tower Suite 255 Longueuil, Quebec, Canada J4K 5G4