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Are Latin American beverage companies in tune with their consumers?

Latin America’s huge potential in terms of consumption of food and beverages is well known, thanks to booming economies and a positive upward social mobility trend across the region. However, the assumption of a European/US style of consumer development in these economies could be setting some companies off track.

In terms of beverage consumption, what really explains the huge potential for the industry is simple arithmetic: a human being drinks – give or take – 2.2 liters of liquid per day; this includes hot drinks such as tea and coffee, milk, alcoholic drinks such as beer, home-made juices, soft drinks and of course tap water.

The case is that in Latin America, during 2011, around 240 billion liters of commercial and branded beverages were consumed by a population of almost 600 million. 

This means that only half of this liquid intake comes from these branded beverages. The rest of the daily consumption, around one liter per day, is still driven by unbranded commercial beverages, such as freshly squeezed juice sold on the streets, homemade drinks and tap water. 

Billions of sips will inexorably be replaced by some form of brand-named products, concurrent with the economic progress that implies more time out of home and less time to prepare homemade drinks.

The same calculation for a typical European country tells us that only 30 per cent of the total intake comes from non-branded drinks and that number is even lower for the US. 

Industry forecasts are projecting that the total commercial beverage volumes in Latin America will increase by around 3 per cent yearly until 2016. What categories will drive this volume growth? Well, I believe that the answer is also simple, but somehow could be controversial.

If you conduct a survey across many marketing teams, you will probably hear, erroneously, that most Latin America consumers are willing to pay extra for functional products. Some will refer to the much overused "wellness trend". 

Not many companies have actually understood what Latin Americans are willing to drink and this might be one of the reasons why an industry concentration has become more evident in the region. In order to explain this, allow me to use a basic interpretation of the need states analysis model. 

In the mid-Seventies, marketing gurus came up with the need states theory. This model provided a new approach for analyzing consumers, moving from time specific consumption occasion (breakfast, party, etc.) to segmentation by needs; in the case of beverages, needs could go from plain refreshment to relaxation, hydration, energy boost, need for fun, weight management, heart health, and so on.

A basic application of this model would start allocating all existing commercial beverages categories in four different quadrants limited by two axes with the horizontal axis going from Wellness to Indulgence and the vertical axis going from Functional to Refreshing. Something like this:

Ten years ago typical Latin America consumption was driven by indulgence/refreshing drinks (mainly carbonated soft drinks) with more than 40 per cent of total consumption. Many were betting that in future years the opposed segment, the wellness/functional, would start growing as it did in Europe or the US.

Contrary to that, in 2011 indulgence/refreshing drinks represented more than 45 per cent of total consumption, while wellness/functional have lost share of throat accounting for only one quarter of total consumption.

Does this mean that Latin Americans are turning their back on more functional and “healthy” drinks? No. It means that drinks that fulfill the indulgence and refreshing needs are still outperforming the much-hyped new functional drinks, which in many cases will remain limited to something just larger than a niche.

A couple of months ago, while discussing this with an executive of a global company, I received a clear explanation: “Simple," she said. "For a house-wife in El Salvador, wellness means being able to put on top of the family table at lunch time a cold two liter bottle of cola flavor soft drink”.

Drinker: Getty Images

Pedro Ibañez is Latin America director for consumer market group, Canadean

Photo: Getty Images
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The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.