Chile-based retailer Cencosud has revealed that it remains committed to Peru following the election of left-leaning President Ollanta Humala. The firm had planned to invest US$220mn in Peru during 2011, and the firm's president, Horst Paulmann, stated that it will follow through with this because it was 'betting on Peru'. This sentiment is in line with our view that the risks associated with a Humala victory have to some extent been overblown. It looks increasingly likely that the new government will pursue a much more moderate economic policy path than had originally been expected.
Peru's consumer sector has consistently been labelled by BMI as one of the region's most attractive, and the election of Humala could have an impact on this analysis. There are a number of different directions the country could take, ranging from the popular form of capitalism pursued by President Luiz Inácio Lula da Silva in Brazil (which successfully took millions out of poverty and created a larger consumer base for retailers to market to) to the extreme socialism pursued by President Hugo Chávez in Brazil (which has culminated in the assets of the country's largest grocery retailer Exito being nationalised). We currently think that the most likely scenario is that Humala will successfully rule as a moderate, which is positive for our food and drink outlook.
Headline Industry Data (local currency)
- 2012 per capita food consumption = +10.7%; forecast to 2016 = +55.2%
- 2012 mass grocery retail sales = +11.9%; forecast to 2016 = +64.8%
Key Industry Trends & Developments
Chilean Retailers Investing In Peru To Take Advantage Of Burgeoning Consumer Demand: Chilean retailers Cencosud and Falabella have detailed their investment plans for Peru as they look to take advantage of the country's growing consumer affluence. Cencosud, which is already the country's leading supermarket operator, plans to enter the department store sector by investing US$70mn to establish 10 of its Paris branded department stores in Peru by 2014. Falabella has said it will also invest US$70mn to expand its range of supermarkets, department stores and hardware outlets. Chilean department store operator Ripley is also investing, having announced plans in December 2010 to spend US$56mn to open eight new outlets in Peru by 2013. These investments are in line with a long-term trend of Chilean firms aggressively expanding their Peruvian operations and are a sign of confidence in the Peruvian consumer story.
Aje Group Could Grow To Be Global Soft Drinks Challenger: In a March 2011 interview with The Wall
Street Journal, an executive for Peruvian soft drinks company Aje Group announced that the firm plans to issue its first bond, worth US$200mn, to help fund expansion. The vice president for finance and administration, Carlos Ananos, said the group was exploring options for an initial public offering (IPO) as it looks to expand its reach further into Asia and Latin America. The prospect of more rapid growth for the Peruvian firm, which was founded in 1988, is not likely to be well received in the offices of The Coca-Cola Company and PepsiCo, with the firm currently eating up market share across Latin American and Asia thanks to a well-received strategy of undercutting the prices offered by the two soft drinks giants.
Key Risks to Outlook
Export Demand Hit: We caution that there remains the risk of a further global slowdown, which would hit demand for Peruvian exports and reduce investment inflows, posing a downside risk to our otherwise bullish outlook for the economy.
Social Unrest: A second risk is related to the election of Humala. Although an increase in social unrest and political violence is seen as an unlikely scenario, a descent into regular serious violence, most likely over foreign-owned mining concessions, cannot be completely discounted given relatively high income inequality and simmering tensions among Peru's ethnically diverse population. This scenario would likely see the intensification of existing income and ethnic disputes and could necessitate a much-increased military presence across the country as the government seeks to regain public order.
Click for Report details:Peru Food and Drink Report 2012
