In the past five years, craft beer has gone from a niche interest to one of the fast moving consumer goods (FMCG) industry’s most profitable sectors. Beer may be in maturation, but a craft beer reinvention that’s packed with flavor, clever branding, and premium appeal has helped to boost sales around the world, and give the alcohol industry food for thought.
Typically brewed by independent and traditional brewers, the global craft beer market is now worth an eye-watering US$38,183 million and expected to grow at a compound annual rate of 14.1% between 2019 and 2023. As such, brewers around the world are increasing their distribution networks, investing in marketing and entering into new territories to sell their beer worldwide, with Europe, the United Kingdom, Australia, and the United States key drinkers.
With consumers happy to pay a premium for craft beer for its exotic or unusual flavour and unique branding, firms are tapping into lucrative markets with large middle classes, willing to splash the cash on a delicious drink. One of those markets is Latin America, with a range of trade agreements, growing demand and experience making it a favourite amongst exporters.
Strengthening transpacific ties
Around the world, businesses and governments are working hard to strengthen ties and reduce their barriers to trade, in a bid to grow their economies and fuel job creation. One example of that is Australia, a country that sits in a unique geographic position, increasing its reliance on foreign trade with countries around the world – and it’s great news for craft beer.
The Australian craft beer market is expected to reach more than US$525.3 billion by 2025, a figure that will grow by more than five times from 2016 when figures put the market closer to US$101.8 billion.
Indeed, the sector is expected to grow more than 20% every year for the next six years, with Australian breweries increasing their penetration in markets such as South Africa and New Zealand, and with many smart Australian entrepreneurs turning to LATAM markets like Brazil and Colombia, significant revenue streams can be unlocked.
The Brazilian middle class is thought to be made up of more than 113 million people – that’s up 40 percent since 2003, a sign of the territory’s prosperity and propensity for growth. Some entrepreneurs may struggle to tackle complex foreign markets, but with localisation and the right market strategy, penetrating Latin America is easier than it may appear at first glance.
The future of Australian and Latin American trade looks set to be bright, too, with free trade agreements and partnerships in place to stimulate growth between the two nations. Craft beer firms can capitalise on the Peru-Australia Free Trade (PAFTA) agreement, unlocking open and fair trade between the two countries.
PAFTA means that Peru will eliminate 99.4 percent of its tariffs on both imported and exported goods, forging the way for transpacific ties that bring the two countries together. When you consider that Peru is one of the world’s fastest-growing economies with a GDP of US$211.4 billion and that the country’s middle class is formed by 60% of the population, significant opportunities await for businesses with the right market proposition.
Add that to Peru’s thriving beer market. Flanders Investment & Trade Peru reports that the Peruvian craft beer industry grew an estimated 50% in 2016, mostly because of increased interest, demand in global craft beer varieties, and cultural heritage beer has for the Peruvians. Significant opportunities await for businesses looking to enter into the market, and the importation of foreign craft beers in Peru is at an all-time high.
Of course, breweries and investors expanding into foreign markets must be aware of the potential challenges. The craft beer industry in Peru, for example, is pushing the government to change an excise tax scheme. Breweries are campaigning for a reduction in excise tax if they produce less than 34,000 barrels of beer per year, something that would cut costs on local craft beer – something to bear in mind if you’re looking to manufacture beer in Peru.
Latin America offers craft beer expertise
An incredible two-thirds of all imported beers in the United States comes from Mexico, with the Latin American country a powerhouse when it comes to alcohol production. Indeed, the country is the world’s largest beer producer in the world, exporting traditional and craft beers around the globe, and responsible for 55,000 direct jobs, and another 2.5 million indirectly.
In today’s globalised times, businesses and investors are turning to the country’s beverage industry not only to take advantage of its manufacturing expertise and low labour costs (the average salary in Mexico is US$15,000, but often much lower in manual labour roles), but also because Mexico is a high beverage consumption population, has a young population (more than half of citizens are under 35) and microbreweries and liquor stores are available in abundance, offering endless potential to sell foreign craft beers at a premium price point.
What’s more, Mexico offers access to more than 50 free trade agreements with various countries, including the United States, The European Union, Asian countries like Singapore and Vietnam, and Latin American nations such as Chile, Uruguay, Peru, Panama, and Colombia, making it the number one spot for exports and trade.
Importing craft beer into Mexico makes sound sense, and will no doubt be the most popular entry path in the coming years for startup and growing craft beer brands and microbreweries, and indeed investors wanting to grab a slice of the highly lucrative (and ever so tasty!) global craft beer market.
Craig is a seasoned business professional in Latin America. He is the Managing Director and Co-Founder of the Biz Latin Hub Group that specializes in the provision market entry and back office services in Latin America. Craig holds a degree in Mechanical Engineering, with honors and a Masters Degree in Project Management from the University of New South Wales. Craig is also a military veteran, having served in the Australian military on numerous overseas missions and also a former mining executive with experience in various overseas jurisdictions, including, Canada, Australia, Peru and Colombia. Craig lives and manages the Biz Latin Hub Group from Bogota, Colombia.