Alcoholic Drinks in Brazil

EXECUTIVE SUMMARY

Alcoholic drinks in 2023: The big picture

2023 was a more challenging year for alcoholic drinks in Brazil, which had shown resilience and solid total volume growth over 2020-2022 despite the COVID-19 pandemic. In 2023, total volume decreases were experienced across mid-priced lager, wine-based RTDs, wine, and certain spirits categories, such as whiskies and gin. These declines were influenced by rampant inflation, competition from other post-COVID-19 leisure activities, and a reversion to pre-pandemic consumption patterns.

Beer exhibited some interesting trends. Premium beer brands continued to grow, with many achieving double-digit percentage increases. In contrast, mainstream mid-priced beers suffered the most significant losses, as consumers opted for higher quality, and novel beer experiences. Notably, 2023 marked the year when “pure malt” became an industry standard, even for lower-tier mid-priced lagers. In addition, non alcoholic beer maintained its growth momentum, driven primarily by Heineken 0.0 and Anheuser-Busch InBev’s Budweiser 0.0. Brazil has become the largest market for Heineken 0.0 globally, as it is the leading non/low alcohol beer market in Latin America, and the third largest worldwide.

Spirits also faced significant challenges in 2023, especially amongst imported categories. Imports of whiskies and gin decreased, leading to reduced volume sales. Imported gin also faced increased competition from local brands that offered similar quality at more competitive prices. Surprisingly, cachaça experienced slight growth in 2023, driven by consumers trading down from other spirits, and a rising interest in Brazilian products and identity. The rapid expansion of premium cachaça options encouraged experimentation and enhanced perceived value.

Wine continued to lose consumer interest, primarily due to a shift towards other alcoholic drinks, with a move away from still red wine in particular. However, still white and rosé wine showed resilience, appealing to Brazilians as refreshing beverages suitable for drinking cold, or even with ice. Sparkling wine experienced significant growth in 2023, underscoring the value of such products as a celebratory drink. The category aligns well with the Brazilian preference for cold, sparkling, and refreshing beverages. Brazilian sparkling wine production continues to grow in both volume and quality, making the product more accessible and driving its popularity.

Ready-to-drink beverages (RTDs) had an interesting year, with growth across all categories except for wine-based RTDs. Wine-based RTDs, primarily driven by the low-priced brand Catuaba Selvagem, lost consumer interest as people traded up to beer, or embraced the booming cocktail culture, favouring spirit-based RTDs. Spirit-based RTDs saw growth not only due to the popularity of cocktails and RTD cocktails, but also because labelling the type of spirit used became a quality assurance mark.

2023 key trends

The growth of premium lager in Brazil was remarkable in 2023, especially considering the economic turmoil and rising inflation in the country, and global malt shortages. Despite these challenges, the category showed resilience and success due to several factors. Companies focused on launching new brands and investing heavily in publicity, tapping into a newfound consumer interest in quality lager. In addition, Brazil’s tradition of consuming beer ice-cold was further boosted by the unusually hot climate brought about by El Niño.

Mixology and cocktails continued to thrive in 2023, as evidenced by the excellent performance of cocktail bars over the past year. This trend drove brands in RTDs to expand their portfolios to include cocktails, moving away from malt-based beverages. The cocktail culture also inspired consumers to experiment with making cocktails at home, particularly when entertaining friends or during social gatherings. This trend helped propel the popularity of drinks such as negronis and Fitzgeralds in 2023. Moreover, the interest in mixology encouraged low-income consumers to explore and experiment with creating their own cocktails, further expanding the cocktail culture in Brazil.

Competitive landscape

Although 2023 saw few significant changes in the competitive landscape, several developments are worth discussing. The beer category was particularly valuable for premium brands, with Heineken’s portfolio experiencing substantial double-digit growth in premium lager. This success highlights the efficacy of Heineken’s premium brand strategy. However, it is also crucial to note continued innovation and investment from Anheuser-Busch InBev (ABI). Its direct-to-consumer platform, Zé Delivery, and its B2B system, BEES, demonstrate the company’s prowess in logistics and innovative approaches.

In RTDs, emerging brands such as Xeque Mate have gained attention. This rum-based RTD, infused with Brazilian flavours of yerba mate and guaraná, significantly increased its presence during Carnaval 2023, achieving impressive volumes. Xeque Mate’s success illustrates how a small brand can penetrate the market with a strong value proposition: quality, Brazilian flavours, and a convenient RTD format.

In spirits, volume losses in some categories indicate that premiumisation strategies by major companies are problematic in a price-sensitive region. To address this, companies are showcasing value and transforming brands into aspirational products without abandoning their premium portfolios. Pernod Ricard’s investment in Chivas and its association with funk music exemplifies this strategy. Understanding local consumer behaviour is crucial, as premium spirits are often viewed as durable goods, reserved for special occasions, and displayed as decorative pieces in home bars. Adapting to this market requires flexible payment methods and innovative communication tools.

In addition, the illicit market remains a significant issue for spirits and wine. These categories are plagued by various illegal activities, including refilling premium bottles with counterfeit products, the illegal importation of spirits to avoid taxes, and cargo theft. Robust measures will be required to combat these illicit practices and protect the integrity of the industry.

Retailing developments

Retailing of alcoholic drinks continues to be heavily influenced by the economic landscape in Brazil. Atacarejos, which are similar to wholesale clubs, continued to grow in 2023, as consumers affected by the rampant inflation of 2022 and low income growth sought cost-effective shopping options. On another front, proximity shopping was on the rise, with small local grocers and convenience stores experiencing stable or rising shares. The hypermarkets channel appeared to be at an inflection point in 2023, losing popularity amongst Brazilians. Meanwhile, supermarkets maintained a stable share by operating in versatile ways, sometimes serving as proximity stores, and other times offering broader appeal, all while maintaining competitive prices.

Retail e-commerce saw a decline in 2023, with a premium often charged for convenience amidst high fuel prices, which drove up delivery costs. An exception to this trend was Zé Delivery, which focuses on facilitating bar-to-consumer delivery, using bars as stock points to keep costs lower.

In larger metropolitan areas, the phenomenon of adegas continues to rise. These storefronts offer cheaper options for street consumption, allowing consumers to purchase bottles or drinks at retail prices without the additional costs associated with on-trade services, which can increase the final bill by up to 15%.

On-trade vs off-trade split

Nuances have emerged in beer. Heineken’s investment in its own logistics has enhanced the company’s positioning across both off-trade and on-trade, with a particular focus on the southeastern part of Brazil. This strategic move has strengthened the company’s presence and efficiency in these markets. ABI, on the other hand, has improved its standing and logistics in the on-trade through its BEES platform. This not only boosts its operational efficiency, but also aligns with its sustainability goals by promoting the use of returnable glass bottles in the on-trade and enhancing the collection process.

In other categories, stability persists, although the off-trade gradually gained ground in 2022 and 2023 as consumers sought more competitive pricing and had less disposable income for on-trade experiences. In the long run, the on-trade/off-trade split is likely to remain stable, with minor fluctuations depending on the dynamics of specific categories.

What next for alcoholic drinks?

The future of alcoholic drinks in Brazil is likely to vary significantly across categories, with premiumisation emerging as a common trend. In beer, premium brands will continue to drive growth, while champagne surprisingly increased its imports in 2023, indicating opportunities for premium sparkling wines in Brazil. However, as most beer brands are premiumising, differentiation is likely to become increasingly challenging, potentially resetting the category. This is leading new companies to explore “semi-artisanal” brands, combining an artisanal approach with large-scale production. Brands such as Colorado, Baden Baden, and Patagonia offer diverse portfolios beyond traditional lagers, including IPAs, wheat beers, and flavoured varieties.

Spirits faces challenges with premiumisation, despite this being a prevailing trend. 2023 highlighted the difficulty of showcasing value perception versus pricing amidst competition from beer, convenient cocktail RTDs, and emerging premium spirits such as premium cachaça. Premium cachaça, which aligns with Brazilian culture and locally sourced ingredients, has gained traction. The future for spirits is in creating aspirational value, and understanding the differences between premium-plus and fast-moving consumer goods. Investing in buy-now-pay-later methods could offset this, aligning with Brazilians’ preference for paying in instalments.

RTDs is expected to continue to grow, driven by the convenience of mixology-focused options such as caipirinhas, gin and tonics, and negronis. These offer trading-down from purchasing the individual spirits and mixers, while still being a trade-up from beer and traditional RTDs. RTDs appeal particularly to younger consumers of legal drinking age, with new launches such as Xeque Mate gaining a cult following.

Wine is likely to face challenges, as consumer interest has decreased, particularly in still red wine, while still white and rosé wine, and sparkling wine are gaining popularity due to their suitability for the local culture and climate. Brand-building offers opportunities for innovation in the traditional wine category. Exploring new channels and occasions, such as wine butecos, which combine traditional bar experiences with wine offerings, could be a long-term commitment to broaden the appeal of wine beyond its traditional perception.

MARKET BACKGROUND

Legislation

Legal purchasing age and legal drinking age

The legal drinking and purchasing age for alcoholic drinks in Brazil is 18, as established by Law 13.106/15. This law, approved by former President Dilma Rousseff and published in the Brazilian Official Gazette in February 2015, modified the Statute of Children and Adolescents, and also applies to other products that cause physical or psychological dependence.

It is a criminal offence to sell, supply, or deliver alcoholic drinks to individuals under 18 years of age, according to Law 13.106/15. The penalties for violating this law include fines ranging from BRL3,000 to BRL10,000, and imprisonment for 2-4 years. Furthermore, businesses that sell alcoholic drinks to minors may be shut down. Despite this legislation, minors around the age of 16 can still be seen consuming alcohol, indicating that the law has not been entirely effective.

Drink driving

The Brazilian Traffic Code, Law 9.503/97, initially prohibited individuals with a blood alcohol level above 0.3mg per litre from driving, with potential penalties including a fine and confiscation of the driver’s licence. However, drink driving legislation in Brazil has undergone several changes over the years, with the most significant being the introduction of Law 11.705/08, commonly known as “Lei Seca” or the “Dry Law”. This law adopts a zero-tolerance policy, making it illegal to drive with any measurable amount of alcohol in the blood. Offenders face a minimum fine of BRL2,935 and, depending on the outcome of an administrative process, may also be banned from driving for 12 months. Repeat offenders caught driving under the influence within 12 months of a previous offence face a fine of BRL5,869, and may even face permanent disqualification from driving.

Advertising

The advertising of alcoholic drinks in Brazil is strictly regulated by Law 9.294/06. This law prohibits the use of certain images in advertisements for alcoholic drinks brands, such as those featuring children, teenagers, talking animals, animated graphics, or cartoons, as well as women in bikinis who are not in the immediate vicinity of a beach or swimming pool. Moreover, it is illegal to feature women under the age of 26 in advertising campaigns, or to associate alcoholic drinks with athletes.

To ensure the responsible consumption of alcohol, advertisements for alcoholic drinks on television and radio stations are only permitted between 21:00hrs and 06:00hrs. In addition, all alcoholic drinks packaging labels must include the statements “avoid excessive consumption of alcohol”, and “enjoy in moderation”.

In recent years, many alcoholic drinks manufacturers have invested in communication campaigns urging consumers not to drink and drive. As a result, there has been a notable shift in the content of advertising campaigns. Companies are also abandoning objectified images of women in bikinis and focusing more on product attributes. Moreover, they are increasingly incorporating socially responsible concepts such as gender equality and ethnic or sexual diversity into advertising campaigns.

A main channel for recent advertising has been online, especially on social media, in which brands can explore new communications, partnerships with influencers, as well as have a very precise approach to their target audience.

Smoking ban

Law 9.294/96 prohibits smoking in enclosed private and public spaces, with the exception of designated smoking areas that are properly isolated and have adequate air circulation. It also prohibits smoking on aircraft, in cinemas, theatres, and all forms of public transportation. In December 2014, new legislation came into effect in Brazil that banned designated smoking areas, including delimited spaces near doors, known as fumódromos, in bars, clubs, and other on-trade establishments.

Opening hours

The sale of alcoholic drinks in on-trade and off-trade outlets in Brazil is not governed by specific federal laws regarding hours of operation. However, municipal authorities across the country introduced new regulations in recent years. For example, in São Paulo, the “Silence Law” requires bars and restaurants that operate after 01:00hrs to be soundproofed and have security guards and a car park. On-trade establishments in the city that are deemed excessively loud can face penalties based on their decibel levels, according to Law 16.402/16.

Opening hours for off-trade establishments are largely determined by consumer demand, with some supermarkets and hypermarkets operating 24/7, and others closing at 22:00hrs. Forecourt retailers in major urban areas often stay open around the clock.

On-trade establishments

The on-trade channel continued to see growth in outlet numbers in 2023, with more consumers looking for socialisation, although the number of outlets still did not return to the pre-pandemic level. Certain trends were identified and improvements were made to the on-trade experience, which created a reason for consumers to leave their homes. On-trade outlets specialising in offering an experience, be it novelty or quality, therefore saw more growth and interest than others. These included better portfolios of alcoholic drinks, better quality food, as demanded by consumers, as well as cocktail bars gaining ground as destinations.

Sustainability also played a role in on-trade growth, as most companies saw this as an opportunity to invest in attracting consumers back to on-trade outlets, appease shareholders’ demands, as well as to improve their sustainability standing.

TAXATION AND DUTY LEVIES

The Brazilian taxation system is notoriously complex, and the following table provides only a basic overview, as it fails to capture all the intricacies of the current taxation system. In Brazil, taxation cannot be summarised by a single tax, as different rates are levied depending on the origin, sale, and purchase context, as well as packaging format and sizes often resulting in double taxation. Furthermore, there is wide differentiation, and not just in terms of product type; for example, the Simples Nacional taxation scheme offers special tax rates for small companies, including those in the alcoholic drinks industry. Tax rates can also vary from state to state, compounding the complexity of the Brazilian tax system.

In 2016, the excise system for wine and spirits in Brazil was overhauled, and taxes are now calculated as a percentage of the retail selling price. The reform aimed to increase tax revenues and reduce the federal budget deficit, but it disproportionately impacted more expensive products.

There is an expectation that during the forecast period new taxation formats will be introduced, focusing on simplifying the current system, but also it has been confirmed that alcoholic drinks will follow specific percentages and taxation levels falling under the “sin products” concept. There is no confirmation if this will increase the taxation levels or if they will remain the same, but the focus should be on simplifying the process. There is an ongoing dispute between beer and spirits companies to see if there will be taxation parity between these products, or continued differences.

OPERATING ENVIRONMENT

Contraband/parallel trade

Contraband and counterfeits continue to be a problem in alcoholic drinks in Brazil, in particular for spirits and wine, which due to their high aggregated value, present themselves as an opportunity for illicit trade. There are two main forms of illicit alcoholic drinks – the first is associated with contraband or cargo theft, while the other is associated with counterfeiting. Cases of cargo theft have been reported when it comes to wine, specifically targeting premium and prestige brands such as Catena and Zacapa, which are then sold illegally, often through online marketplaces. Meanwhile, it is not uncommon to find empty spirits bottles being sold online, refilled, and sold on the black market. Counterfeiting seems to be a worse problem on-trade, where certain bars and restaurants work together with counterfeiters, providing them with the empty bottles to be refilled with unknown low quality alcoholic drinks.

Duty free

Although duty free accounts for a small percentage of sales in Brazil, with tourism, especially international travel, coming back after several years of pandemic impact, this channel has started to attract attention once again. This is not so much to create volume sales, but to create brand awareness. An important cachaça brand, Weber Haus, which is the namesake of premium and high quality cachaça, bets on this channel to improve consumer perception of the product, both nationally and internationally.

Cross-border/private imports

There are cross-border and private imports in Brazil, especially via the borders between Brazil and Paraguay, Argentina, and Uruguay. However, due to the continental size of the country, and the population being concentrated mainly in the coastal area of the country, these volumes remain small, and involve a low percentage of all alcoholic drinks consumed internally. Cross-border movements prioritise spirits and wine due to their premium positioning and the taxation differences between Brazil and neighbouring countries.

KEY NEW PRODUCT LAUNCHES

The Brazilian market has been one with many new product innovations, ranging from totally new brands, SKU expansion, and large companies exploring whole new categories. The most interesting and disruptive new product developments have been in the RTDs category, such as Xeque Mate, a rum, guaraná, yerba mate, and lime-based RTD, and Amstel Vibes, Heineken’s foray into RTDs with a malt-based RTD.

Heineken’s quick innovation pipeline also pushed Devassa Tropicâe Maracujá and Lime, which are two flavoured beers that also contain the “pure malt” claim.

Anheuser-Busch InBev (ABI) also invested in wine in Brazil, in a surprising move, while spirits companies continue to align innovation in communication with their traditional products. One interesting case was Cointreau’s partnership with Café do Ponto, a traditional coffee brand in Brazil, to produce two signature cocktails.

Lamas Destilaria, a Brazilian distiller that has recently been focusing on whiskies, also launched its Brazilian Turf Whisky, bringing unique Brazilian flavours to an international category.

Outlook

The alcoholic drinks industry in Brazil is poised for a phase of increased variety and strategic experimentation. Latin American Gen Z consumers are less likely to abstain from drinking due to health reasons when they are of legal drinking age than their North American and European counterparts. However, the growing success of non alcoholic beer suggests that the non alcoholic segment is still largely untapped. With companies such as Kiro, a fermented non alcoholic RTD, leading the charge and building their consumer base, it is likely that more brands will be introduced, and these products will gain traction.

Meanwhile, players’ strategy around new product development will also continue to be the infusion of local flavours into international categories, as seen with Xeque Mate in RTDs, therefore increasing the accessibility of many alcoholic drinks in the Brazilian market.