On the potential for growth in the spirits market in Peru and the importance of omnichannel strategies
On the potential for growth in the spirits market in Peru and the importance of omnichannel strategies How much potential for growth do you foresee for the premium beverage market in the short to medium term?
JAVIER DE LA VIUDA: There is great potential for growth for the premium beverage market. Premium spirits have the potential to double their size in four to five years and specifically the luxury segment could multiply its size by more than four times. A particularity of the Peruvian market is that beer disproportionately dominates the alcoholic beverage market, with 95% of consumed alcoholic beverages and the remaining 5% divided between wine and spirits. Furthermore, the demographic composition of Peru, with a growing emerging middle class and its demographic pyramid, also allows foreseeing significant growth in coming years. In regard to spirits, even though rum is the most important category in terms of volume, in terms of value whisky is the top spirit in the market with 50% of share. This fact positions Peru as one of the most important markets for whisky in South America. It is worth mentioning that whisky is an aspirational drink, which combined with the growth of the middle class opens up a window of opportunity for the growth of whisky consumption. When analysing the market of premium spirits, Peru stands out above most of its neighbours with a higher percentage of the highest wealthy class, which is the main market for the luxury segment.
To what extent is Peru’s highly centralised premium market a barrier to growth beyond Lima?
DE LA VIUDA: Consumer behaviour is similar across the country. What changes are the proportions of consumption of each type of beverage, as a result of differences in the socioeconomic distribution of provinces. In other words, the percentage of wealthy consumers is smaller, and therefore reserve and premium portfolios are less developed outside of Lima. Having said that, it is also important to consider that logistics in the country are difficult: we are talking about a country with an extremely complex geography made of a very narrow desert coast-line to the west, followed by a mountain range above 3500 metres that crosses the country from north to south, and the Amazonian rainforest to the east.
What role does innovation play in reaching increasingly more educated and demanding consumers?
DE LA VIUDA: In Peru, modern trade and e-commerce are far less developed than in many other Latin American countries or in Europe. Traditional sales are still the norm. The weight that modern channels have on sales will continue to grow in response to an increasingly developed economy and digitalised social habits. Therefore, product and commercial innovation is key in this process. However, innovation will also play a role by modernising the traditional trade with upgraded convenience stores and other retail formats. The vast majority of consumers are omni-channel oriented, meaning they purchase through traditional and modern channels. On a different note, decreasing informality levels is key to enhancing sales, both online and in-store. In fact, the impact of informality on alcoholic beverage consumption is high. A number of studies have shown that around 30% of alcoholic beverages consumed in Peru are informal, either through contraband or adulteration, with this figure even higher in regards to online sales. This is a handicap for the development of the online channel. In fact, informality is the single most important challenge that the alcoholic beverages sector faces.
How can regulatory measures be implemented to enhance competitiveness?
DE LA VIUDA: While Peru has a competitive framework in comparative terms, the fiscal pressure over alcoholic beverages is not among the highest in the region although it could be simplified. The current framework is a combination of ad valorem and per litre sold whilst experience shows that spirits should only be taxed depending on the alcoholic volume, regardless the value of the beverage. In regards to commercial regulation, the regulatory framework is rather flexible compared to the region, having reasonable requirements for advertorials in media. The real challenge comes from weak law enforcement to fight informality, contraband and adulteration. It is worth mentioning that in recent years the private sector has taken important self-regulatory measures in order to increase awareness of the dangers of excessive alcohol consumption, as well as to dissuade consumers from driving under the influence. As part of such efforts, the Lima Chamber of Commerce and the National Society of Industries approved the Code of Ethics and Self-Regulation in December 2017. The implementation of this code was fundamental for the industry. Moderate and responsible consumption of alcoholic beverages is a must to promote sustainable and balanced lifestyles.
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