Orange juice on the Brazilian market: A viable alternative in the face of declining demand

in Europe and the United States

PhD Marcos Fava Neves USP / FEARP / MARKESTRAT – favaneves@gmail.com

Vinícius Gustavo Trombin

USP / FEARP / MARKESTRAT - vinicius.trombin@gmail.com

Rafael Bordonal Kalaki USP / FEARP / MARKESTRAT - rkalaki@markestrat.org

AGENDA:

Introduction

Research Questions and Objectives

Method Used

Literature Review

Results

Conclusions and Managerial Implications

Major References

Introduction In nearly 50 years: US$ 60 billion to Brazil; Brazil is responsible for 53% of world production and exporting roughly 98% of this production; Exports from the Brazilian citrus complex in 2011:

2.4 million tonnes of product US$ 2.7 billion in revenue Representing about 3% of Brazilian agribusiness exports

Europe - absorbs roughly 70% of Brazil’s export volume – reduce 5% in 8 years USA - absorbs roughly 70% of Brazil’s export volume - reduce 21% in 8 years

Research Questions and Objectives

Research question:

• Which business model and go-to-market strategies could be used to

increase the consumption of orange juice on the Brazilian domestic

market?

Objectives of the study:

• To present information clearly and objectively about the current situation of

the Brazilian citrus-growing sector

• To analyze an alternative to the current crisis of international

consumption of orange juice faced by this sector

Literature Review

AUTHOR YEAR CONTRIBUTIONS Frezza 1998 Concept of Business model Hax & Majluf 1991 Segmentation Kotler 1996 Segmentation, differentiation

and positioning CZINKOTA et al. 2001 Mix marketing Stern et al. 1996 Distribution channels

Saes 2000 Collective actions

Sheth 2011 characteristics of emerging markets

Method Used

2 in-depth

interviews

1 Literature Review

3 compiling the

results

marketing strategy theories of Porter and Kotller, theory of the four P's of marketing and collective actions in agribusiness

Interviews and workshop: grower, Ministry of Agriculture, Ministry of Finance, Administrative Council for Economic Defense (CADE), industry and retailers.

systematize the information and draw up a business plan for the new product to be created

Results: 2003 – 2010: Global consumption of orange juice fell 5.3% The most significant drop was in Germany, at 22.8% U.S. with a decrease of roughly 20% US and Germany corresponded to a decrease of 363,000 tonnes of FCOJ equivalent in annual sales = 90 million boxes of orange per year In just one year, emerging markets consumed 42,000 tonnes more FCOJ

Analysis of Consumption

The consumption in the next year? - Europe is again facing a severe crisis - The stable price of concentrated juice at levels above the previous year

Continent 2003 2010 Variation

(2003/2010) North America 1,117 930 -15.3% Europe 910 903 -1.4% Western Europe 797 746 -7.0% Eastern Europe 113 157 38.2% Asia 232 268 15.4% Central & South

America 88 108 16.0%

Oceania 45 47 5.6% Africa 23 33 40.3%

Consumption of orange juice in the 40 top markets,

grouped by continent

Source: Prepared by Markestrat based on data from Tetrapak and

Euromonitor.

Results: Current situation of supply, demand and carry-over stock of Brazilian orange juice

979

915 886 904

820 863

246 259

158 183

123

156

155

118

127 143

176 148

38

27

34 33

30 17

23

30

30

32

30 32

1.418

1.320

1.205 1.263

1.150 1.183

1.440 1.463

1.234

1.130 1.102

1.606

-

200

400

600

800

1.000

1.200

1.400

1.600

-

150

300

450

600

750

900

1.050

1.200

1.350

1.500

1.650

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Tho

usan

ds o

f Ton

ne

s of 6

6°B

rix FCO

J Tho

usa

nd

s o

f To

nn

es

of 6

6°B

rix

FCO

J

Exports to Europe Exports to North America

Exports to Asia Exports to Other Destinations

Brazilian Consumption of Industrialized Orange Juice Brazilian Production of Orange Juice

327,000 ton.3.1 monthsR$ 1.1 bi

456 000 ton.4.6 monthsR$ 1.0 bi

440,000 ton.4.6 monthsR$ 996.9 mi

249,000ton.2.6 monthsR$ 876,. mi

214,000 ton.2 monthsR$ 785.2 mi

662,000ton.7.9 monthsR$ 3.1 bi

Processing of oranges by the juice industry - Millions of 40.8-kg boxes of oranges

335.6 344.5 314.3 291.5 260.0 426.6

(São Paulo, Triângulo Mineiro, Bahia, Sergipe, Paraná, R. G. do Sul & Santa Carina)

Results: Product

100% orange juice

Not from concentrate (NFC) or

reconstituted (FCOJ)

The juice will be packaged in 1-

liter, 330 ml and 200 ml Tetra

Paks

The brand to be created,

"Consortium-Consecitrus,

Results: Price

Breakdown of the recommended price of 100% reconstituted orange juice

Unit Cost – 1 liter R$ per Liter – Orange juice reconstituted to 11.8º Brix

Final price of frozen concentrated orange juice delivered to the packaging plant FCOJ 66° Brix - including INSS (Social Security contributions) Agribusiness

R$ 0.7588

Final Price of frozen pulp - U$ 800/ton - 11.8º Brix - 6% Dosage - including INSS (social security contributions) of agribusiness

R$ 0.0951

Aroma – U$ 151/pound to 2 pound per 20,000 liters R$ 0.0320 Loss of 1.5% of Orange Juice during the packaging process and industrial CIP R$ 0.0114 Cost of packaging the juice - Co-packing - Full service R$ 0.2900 Cost of packaging materials: Tetra Pak cartons, tray, shrink wrap, and cardboard boxes R$ 0.4072 Total Operating Cost of packaged orange juice delivered to the CD of the retailer R$ 1.7968 Overhead R$ 0.0250 Investments on promotional marketing of orange juice R$ 0.1914 Final Cost of packaged Orange Juice delivered to the CD of the retailer R$ 2.0132 Agreed funds "Big Chains" - 15% R$ 0.5060 Recommended Retail Price of packaged orange juice, free of taxes - "Big Chains" R$ 2.5192 ICMS on retail sales R$ 0.3023 Tax Substitution Cost R$ 0.1300 PIS / COFINS on final operation R$ 0.2610 Mark-up of the Business - Break Even Point - 5% R$ 0.1606 Recommended Retail Price of packaged orange juice with taxes - " Big Chains" R$ 3.3731 Mark-up "Big Chains" - 30% R$ 1.0119

Recommended Retail Price of packaged orange juice on the shelf "Big Chains"

R$ 4.3850

Results: Market

END CONSUMER

HYPERMARKETS (Large Chains)

SUPERMARKETS (Large Chains)

DISTRIBUTORS

WHOLESALE

GOVERNMENT

TOLL PROCESSING (RENTAL OF CAPACITY)

LOGISTICS OPERATOR

(transportation)

ORGANIZATION "M.I.S"

CONSECITRUS

Figure 2. Network of Sales and Distribution channels Source: Prepared by the authors.

Results: Promotion

Target publics Objectives Communication mix Budget Measuring Management

End consumer - Parents - Children and teenagers - Singles - The elderly - Athletes - Classes: A, B, C Opinion leaders -Health: doctors and nutritionists - Government - Union - NGOs - Production chain - Retail self-service - Producers - Facilitators - Associations

- Try the product and understand the difference (compared to other beverages) - Try it - Expansion of existing demand Recommendation and endorsement by healthcare professionals

Message: placement Advertising - TV concept - Digital media (gaming sites, Concecitrus with new concept) - Interviews - AM and FM radios: functional and economic arguments Sales promotion and point-of-sale promotion - text explaining the concept - tasting and sampling - sporting events - push Marketing at points-of-sale Public relations and advertising (press office) - News in newspapers and magazines - Government announcements - TV explaining the concept: Globonews, Globe reporter, Youtube and digital media.

R$ 20 million in 2013 (R$ 0.19 per liter) R$ 25 million/year, from 2014 to 2020

- Recall research - Access site Buzz marketing - Degree of knowledge - Acceptance of the idea - Sales

Arrange the steps in order Thinking of and strengthening the document

Conclusions and Managerial Implications

ORANGE GROWERS

Sells

SMALL, MEDIUM AND LARGE INDUSTRIES OF

THE SECTOR

ORANGE JUICE

Sells

“CONSECITRUS CONSORTIUM ”

“CO-PACKER” FOR BOTTLING/LOGISTICS

BRAND CREATION FOR RETAIL

CONSUMER RETAIL

Contracts service of bottling

and logistics

DistributesSells Fills

Offers juice and

packaging materials

PACKAGING MATERIALS

Orange juice Processors

Citrus Growers

Brazilian Governement

Figure 2: Representation of the business model for the development of the domestic market. Source: Developed by the authors.

Conclusions and Managerial Implications

• Can see that the Brazilian citrus chain has a viable alternative

to reduce the effects of the consumption crisis in the main

consumer markets

• The solution to the current crisis in the Brazilian citrus sector

necessarily depends on aggressive public-private policies

• In this paper, with the strategies operationalized, we estimate a

market of 984 million liters of 100% orange juice in 2020,

which will require 50 million boxes of oranges.

• This initiative will help ensure that this production chain can

remain competitive, providing better quality of life for society

and further development for Brazil.

Major References:

CZINKOTA, Michael R… [et al.]. (2001). Marketing: as melhores práticas. Porto Alegre: Bookman. 559 p.

Farina, E. M. M. Q. (2002). Consolidation, multinationalisation, and competition in Brazil: impacts on horticulture and dairy products systems. Development Policy Review, v. 4, n. 20, p. 441-457.

Frezza, B. Itís Time to examine Your Companyís E-Businees Model. Internetweek. Manhasset: jun 22, 1998.

Hax, Arnold C. e Majluf, Nicolas S. (1991). The Strategy Concepts & Process – a Pragmatic Approach. New Jersey. Prentice Hall.

Kotler, Philip (1996). Administração de Marketing: análise, planejamento, implementação e controle. 4ªed. São Paulo: Atlas.

Neves, M. F. et alii. (2010). O Retrato da citricultura brasileira. São Paulo: CItrusBR.

Neves, M. F. et alii. (2011). The orange juice business. Wageningen: Wageningen Academic Publishers.

Sheth, Jagdish N., Mittal, Banwari (1996). “A Framewaork for Managing customer expectations”, Jounal of Market-Focused Management, 1 (2), 137-58.

Thank You

favaneves@gmail.com