BMI's Executive Summary

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The Sector At A Glance

Key Insights On The Food & Drink Sector Of Argentina

As the Argentine economy moves into the final quarter of 2006, we have both good and not-so-good news to report. The good is that the biggest mass grocery retailers (MGRs) have not lost faith in the country and continue to plan and invest for the future: each has been telling us since September 2006 of how many new outlets it will build and open during 2007 and 2008.

The not-so-good news is that inflation has yet to be tamed and that we are not convinced that the government’s measures to deal with it, most of which revolve around price controls, will do the trick either. Up to now, more producers than not have held off their investment plans during 2006, and in an increasing number of product categories, efforts to control the price are having the opposite effect of higher prices.

For the end of 2006 we are forecasting a GDP growth rate of 7% and an inflation rate of between 12% and 13%. With formal private sector wages still rising, amid further signs of a tightening labour market, inflation may go even higher in the early part of 2007. Net private capital flows, though, have remained positive in the first nine months of 2006 (although they were not as great as in 2005) which should serve to increase productive capacity in 2007, and so take some of the inflationary steam out of the economy.

This, coupled with our forecast GDP growth rate for 2007 of around 4.5%, reflects an economy that should begin to settle down over coming months, with more positive consequences for inflation. For such a manageable growth rate to be sustainable, however, and to benefit both MGRs and consumers in the long run, we believe the government urgently needs to extend and deepen structural reform processes and solve the country’s debt issues. Under the circumstances, BMI forecasts a conservative 11.9% growth in the sales value of MGRs to US$6.36bn by 2010.

As we reported in Q306, commodity prices are still on the rise, which, coming at a time when new export destinations (South-East Asia, China, India) are being discovered, can only be heartening news for producers. Primary and agricultural exports, especially edible oils, cereals and feed, have been the best export performers throughout 2006. Meat producers, though, have not been so lucky, as an outbreak of foot-and-mouth disease in February 2006 was followed up by a governmental ban on meat exports, lasting at least 180 days. Breeders have been forced to cut the size of their herds grazing on the Pampas grasslands

Within the reality of the Argentine market, where one-in-three of the population lives in poverty, unable to participate in the consumer economy, and an additional one-in-two falls within either the lower-income or lower-middle-income band, we expect to see more MGRs and producers work to position themselves in the burgeoning lower-income end of the market, both on the periphery of Buenos Aires and in other cities. In 2006 some smaller retailers began, for the first time, to open sizeable supermarket-format stores in lower-income neighbourhoods. The biggest MGRs have not been blind to this, and most have plans to do the same – in many cases both the store fascia and range of product lines on offer will be different.

Segments worth noting in Q406 are, perhaps appropriately for the season, mostly beverage related. We forecast strong Q4 performances for wine, beer, soft drinks and orange juice producers. We do not to say this merely banking on consumers’ holiday spirit to lift all beverage boats; these sectors have witnessed rising sales throughout 2006, each for different reasons: wine producers are benefiting from the high peso exchange rate in Chile; beer producers from the overall increase in spending in the economy; soft drinks producers from strong demand in the Southern Cone countries; and orange juice producers from the significant cost advantages they enjoy over their Floridian counterparts.

Contents

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Chapter 1 – Business Environment

Retail Business Environment Rankings

Table: Latin America Business Environment Rankings

SWOTs

Argentina Food & Drink Industry SWOT

Macroeconomic Outlook

Table: Argentina – Economic Activity

Chapter 2 – Retail

Regional Overview

Trending Towards Hypermarkets in Latin America

Rise of Hypermarkets

Table: Number Of Supermarkets/Hypermarkets, 2005

Table: Top Five Mergers & Acquisitions In The Latin American Retail Sector, 2005

Share of MGR Sales in Total Sales

Industry Forecast Scenario

Table: Argentina MGR Value Sales by Format – Historical Data & Forecasts

Industry Developments

Market Overview

Table: Structure Of Argentina’s MGR Sector By Number Of Outlets

Chapter 3 – Food & Drink

Regional Overview

Table: Per-Capita Consumption Of Wine (litres)

Table: Wine Production Estimates By Country 2005

Industry Forecast Scenario

Table: Argentina Food And Drink Indicators

Industry Developments

Company Developments

Market Overview

Table: Argentina Agricultural Sub-Sector Production Volume – Historical Data

Chapter 4 – Tobacco

Industry Forecast Scenario

Table: Cigarette Value/Volume Sales – Historical Data & Forecasts

Market Overview

Chapter 5 – Competitive Landscape

Key Players

Table: Key Players in Argentina’s MGR Sector

Table: Key Players in Argentina’s Food & Drink Sector

Regional Company Case Studies

Company Case Study – Organization Soriana

Table: Organizacion Soriana: Stores By Format, June 2006

Table: Organizacion Soriana, S.A. – Income Statement, January-June 2005 & 2006

Table: Organizacion Soriana: New Store Openings, April-June 2006

Table: Market Shares Of The Four Largest Mass Grocery Retailers In Mexico, 2005

Company Case Study – SABMiller

Table: Top Five M&As In Latin America In 2005

Table: SABMiller In Colombia, As At June 2006

SABMiller in Peru, as at June 2006

Wal-Mart in Latin America

Table: Wal-Mart Latin America Regional Operations

Table: Wal-Mart de Mexico (Walmex)

Table: Wal-Mart Brazil

Nestlé in Latin America

Table: Nestlé Operations in Latin America

Company Analysis

Quickfood S.A.

Molinos Rio de La Plata

Quilmes Industrial S.A.

Molfino Hermanos (Saputo Group)

Carrefour

Cencosud

Nestlé Argentina SA

Arcor Group

BMI Forecast Modelling

How We Generate Our Industry Forecasts

Retail Industry

Sources

Competitive Landscape for Latin America Food & Drink Reports: Sample of  
Companies Ranked

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At-a-glance perspective on the strengths, weaknesses, opportunities and threats facing each market’s food & drink industry. BMI also provides similar economic and business environment studies. Company SWOTs (Strengths, Weaknesses, Opportunities, Threats) covering all leading food and drink companies operating in each market, including competitive intelligence on geographic presence and competitive positioning of multinationals against local companies; leading products, services and brands; sales and local market share; foreign direct investment, projects, partners and acquisition strategy. Illustration of the industry via rankings tables comparing revenues, number of outlets, number of employees and registration dates. BMI analyses each company’s performance, market position, strategy and investment potential.

Network of Latin American Food Sources

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BMI's Latin American Food Reports are based on an extensive network of multilateral organisations, government departments, food industry associations, chambers of commerce and company reports. Information sources include: