Estrella Galicia chooses Brazil for first factory abroad

Porta copos Estrella Galicia no Elo7 | ArteMáGika (62F010)

The Spanish beer brand Estrella Galicia, sold in Brazil since 2009, has chosen the city of Araraquara, 300 km north of São Paulo, to build its first factory outside Spain. With an expected investment of R$2 billion, the goal is to have 100% of its portfolio produced in the country as of 2023.

The investment by the Hijos de Rivera group, a centennial family-owned brewery based in La Coruña, is strategic to increase its share not only in the domestic, but also in the global market. Brazil, the third-largest beer consumer in the world, is a market that, after setbacks, is once again witnessing an increase in volumes. In the premium segment, in which the brand operates, the country is proving to be an important avenue of growth for companies in the sector. It already represents about 20% of beer sales in the country. The company sells two brands in Brazil, Estrella Galicia and 1906.

“It is not only the first plant outside Spain. It is the only one,” says Fábio Rodrigues, CEO for Latin America. “We have always seen Brazil as a strategic market, and since we arrived we knew we would have to set up an industrial unit in the country. So, about five years ago we started planning.” The company employs 1,500 people, including the Brazilian operation. With the new plant in Araraquara, the projection is to create another 400 jobs.

Currently, the company produces in Brazil, in a rented factory in the region of Campinas, 100 km away from São Paulo, about 60% of the portfolio sold in Brazil and neighboring countries. The remainder is imported. When the plant is ready, the company estimates to produce 15 million hectoliters per year, a volume that may double in a second stage of expansion of the plant, not yet planned.

From this future plant in the countryside of the state of São Paulo, products will be shipped to the domestic market and to neighboring countries. Hijos de Rivera sells to 60 countries, with most of the production coming from its plant in La Coruña, in the autonomous community of Galicia.

With this production projection, the Spanish company enters the fight for third position among the largest breweries in the country, currently held by Grupo Petrópolis, owner of the Itaipava and Petra brands, with 11.9% of the market. The leader, with a 61.6% share of the volume sold in 2020, is Ambev, followed by the Heineken group, with 18.1%. In 2020, 133 million hectoliters of beer were sold.

“The Brazilian market accepts well the arrival of new alcoholic beverage companies,” says the beverage analyst of the consultancy Euromonitor, Rodrigo Mattos. He highlights, however, that Estrella Galicia will find a market quite concentrated in the big three. “They need to come with very specific positioning.”

For this, the company is betting on continuing in the market of higher value-added beers and consolidating itself among the main names within this segment in the country. “We don’t want to be the most consumed, we want to be the most loved,” says Mr. Rodrigues.

One of the strategies is to create content about the world of premium beers to get even closer to the Brazilian consumer. A team of master brewers, mostly women, was chosen to produce videos and promote actions that teach more about the types of recipes and ingredients.

“We have a project to develop recipes with Brazilian ingredients. The search is for differentiation, not for large scale,” adds the executive, recalling that the company has already produced a limited edition with Brazilian grapes. Besides the potential new labels, the company is even considering producing Brazilian hops in the future, a potential investment that is beginning to be discussed with local governments. “Our whole process is very artisanal, we consider ourselves ‘big craft’. In Brazil, the main beers are very similar. We take 30 days to make a lager”, he says.

In addition, the choice for Araraquara also has to do with the quality of the product. The city is located in the region of the Guarani Aquifer, one of the largest freshwater reserves in the world. Besides, says Mr. Rodrigues, its location allows for easy distribution of the production, including export routes.

Distribution, by the way, is an “imperative” factor for the success of the venture to expand the operation in the domestic market, notes the market research company Euromonitor. In 2020, besides the challenges of the pandemic, Heineken and Grupo Petrópolis had distribution difficulties and saw Ambev increase its share.

Recently, the Spanish company announced a distribution agreement with Coca-Cola, which previously had a partnership with Heineken. Since July, Heineken started distributing its main labels, such as beers Heineken and Amstel, by itself. The Coca-Cola bottlers were left with Kaiser, Bavaria and Sol, and were able to find other beers to distribute.

The operation of Coca-Cola’s distribution network with Estrella Galicia, explains the CEO of the brewery, is in its initial phase and should strengthen the presence of the brand in more regions of Brazil. Today, its participation outside the Southeast is still tiny.

Therefore, the company is also organizing itself for the short-term scenario. For the lack of inputs, such as cans and glass, it was necessary to increase stocks and seek more suppliers. The difficulties with freight also changed the timetables: it is necessary to work with longer deadlines, due to the low offer of containers and even the availability of ships. The executive believes that this scenario will only change in 2023 but says that at least for glass bottles there is confidence that the supply will be even greater when the plant starts operating in 2024. “We have received news that there are more investments planned for this sector.”

Especially in 2020, the pandemic put pressure on volumes, Mr. Rodrigues says, and required adaptations with the migration of all sales to retail, as bars and restaurants were closed. Now, the out-of-home channels are starting to show signs of recovery, which brings better margins. In the year, volumes in Spain exceed 2019, before the pandemic, by 30%, and in Brazil by 15%. The company expects to end 2021 with revenues of 600 million euros, 25% more than a year earlier, says Mr. Rodrigues.

“Next year will also bring many uncertainties, but we believe that the market will remain very heated and with a growth trend in the premium segment. Brazilians are learning to consume new flavors and there is still a lot to develop here.”

Source: Valor international