ALCOHOLIC DRINKS IN PERU - ANALYSIS

Country Report | Jul 2019

EXECUTIVE SUMMARY Market Sizes

A slowdown in consumption compromises growth in alcoholic drinks
After a difficult 2017, expectations were higher for 2018, as it was expected to be a year
of stability. However, it was a turbulent year, as political uncertainty worsened, with
the final resignation of the president after a strong campaign from opposing parties in
Congress. Corruption cases in the government and Congress were discovered
afterwards, with political leaders being investigated and imprisoned. Although this
may certainly improve Peru’s image and prospects for the future, it took its toll on
consumption. Investments at company and individual level were frozen, waiting for
better and clearer times, slowing down consumption at all levels, as employment rates
and incomes lowered. In this context, consumers limited their purchases, focusing on
costs and benefits, which strengthened the position of lower-priced alcoholic drinks
brands such as Russkaya Vodka and Whisky Old Times. This, together with lower
temperatures during the summer and a negative impact from the Football World Cup,
which stimulated sales in other categories, but not alcoholic drinks, generated adverse
conditions for growth.

ISC tax increase impacts alcoholic drinks

In May 2018, the government announced an unexpected increase to the ISC tax, which
affects products with negative impacts on the country, such as sugary drinks, tobacco
and alcoholic drinks, amongst others. The increase varied depending on the alcohol
level of the beverage, having stronger impact on spirits; for alcoholic drinks with an
alcohol level of more than 20% ABV, the tax rate increased by 15 percentage points,
from 25% to 40% of msp. In Peru, ISC tax is applied by choosing the highest tax between Competitive Landscape
the 40% rate (now) of the msp value or PEN3.4 per litre. Aside from beer, which
suffered a five percentage point increase, other local products benefited, as neither
pisco nor local sweet wine brands were impacted by the increase, as the latter fell into
the 6% to 12% ABV range, which experienced no increase. In the context of a slowdown
in consumption and with customers accustomed to discounts, this increase had more
impact on companies than on consumers. Most companies tried to absorb part of the
tax or transfer it slowly to avoid compromising their already moderate sales, impacting
their revenues. Also, it is highly likely that this increase stimulated informality and
smuggling, especially in categories such as spirits and beer, in which these are already a Brand Shares of Alcoholic Drinks
threat to growth. % Share (LBN) - Total Volume - 2018

Cristal 39.2%
The intensity of the price war diminishes, but prices are not yet stable
Pilsen Callao 27.2%
Price competition between the key players in whiskies, Pernod Ricard and Diageo, Cusqueña 12.8%
started more than three years ago, having a strong effect on almost all alcoholic drinks.
Discounts and promotions were intense, in some cases reaching more than 50%, with Pilsen Trujillo 7.7%
premium brands available in special offer packs and buy-one-get-one-free promotions. Arequipeña 3.7%
The aspirational nature of whisky and the long-term preference for this beverage
amongst Peruvians made consumers and distributors prioritise its purchase, as they Santiago Queirolo 1.0%
could find it at a similar price to rum or pisco. In this context, rum and pisco companies Corona Extra 0.9%
had to launch promotions to try to reduce the gap with the price of whisky. Although it
Brahma 0.8%
meant an increase in volume sales for Pernod Ricard and Diageo, it also implied a
negative effect in value terms – not only in absolute terms but in terms of brand value. Tacama 0.7%
In 2018, both companies tried to revert this situation and started reducing their San Juan 0.6%
promotions and implementing other strategies aside from price. However, the
economic slowdown and ISC tax increase made this a difficult path to follow, as pricing Malta Cusqueña 0.5%
pressure increased. In fact, many companies had to go back from the price increases Tabernero 0.4%
they implemented after changes in the ISC tax, appealing once again with discounts
Cartavio 0.4%
and promotions in order to fuel sales.
Cusqueña de Trigo 0.3%
Traditional grocery retailers remains the most relevant channel for Backus Ice 0.3%
alcoholic drinks Cusqueña Red Lager 0.2%
Despite the growing relevance of modern grocery channels such as supermarkets, Queirolo 0.2%
hypermarkets, convenience stores and forecourt retailers, which are widening their
Johnnie Walker Red Label 0.1%
offer and locations, traditional channels – especially independent small grocers – still
accounted for more than half of sales of alcoholic drinks in 2018. Peru remains a Fiesta Real 0.1%
traditional market, with consumers valuing personal contact with vendors, which is Others 2.8%
reinforced with benefits such as extra products free or taking products and paying for
them later. Traditional grocery retailers also offer convenience, as they are located in
each neighbourhood, which increases purchasing occasions during the week, and some Increasing share Decreasing share No change
offer delivery nearby at no extra cost. All these conditions are usually difficult for

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modern grocery retailers to match; however, this started to change in 2018. The rapid
growth of local convenience stores such as Tambo, and recent purchases between main
players, such as Listo! from Romero Group or Mi Market by InRetail, and the entrance of
Mexican player Oxxo, may have a negative impact on traditional channels. These new
stores have appealing features for consumers, such as convenience, the use of
credit/debit cards, and extended opening hours, aside from a product offering that
includes special products. 2018 also saw innovation in supermarkets and hypermarkets,
with constant discounts and promotions, especially in their online stores, and the
launch of new value proposals such as Plaza Vea Express. In this new model, the
hypermarket Plaza Vea offers delivery of a maximum of 10 units within one or two
hours at half the price of a regular delivery, which is direct competition to independent
small grocers.

Alcoholic drinks is expected to see a positive performance over the

forecast period
Despite a difficult 2018, marked by a slowdown in investment and consumption, the
end of the year showed signs of recovery. With no new political or corruption scandals
expected in the short-term, the forecast period is expected to be positive for alcoholic
drinks consumption in Peru. Although small compared with other categories, growth is
expected to be led by aspirational products such as gin, craft beer and single malt
Scotch whisky. Expansion of the on-trade channel is also expected to trigger the
development of cocktails, and therefore the growth of new categories such as bitters,
as new consumption trends are usually developed from the on-trade channel, which is
where consumers try new products.

MARKET BACKGROUND
Legislation
Legal purchasing age and legal drinking age

Law No. 28681 bans the sale of alcoholic drinks to individuals under 18 years old in
Peru. The country’s legal drinking age continues to be 18; when individuals, by law,
reach adulthood.
In 2014, the media company RPP, in association with the organisation DEVIDA, the
National Commission for Development and Life without Drugs, launched the
campaign “Do not give minors, adults’ problems”, with the aim of preventing the
sale of alcohol to minors. DEVIDA and the National Police also launched a campaign
called “Red Card”, used at soccer matches, to avoid the sale and consumption of
alcohol to/by minors. Constant campaigns are carried out by municipalities and the
police to remind stores to avoid selling alcohol to minors and the penalties
associated with doing so. According to studies by DEVIDA, almost half of children
aged between 11 and 13 start drinking accompanied by their own parents or relatives
at home, or at traditional parties in cities outside of Lima.
No changes in legislation were introduced in 2018.

Drink-driving

In 2014, the traffic law was revised, and the regulation decreased the permitted
blood alcohol level to 0.25g/litre for individuals who are providing a public
transportation service for people or cargo, and the driver is also incarcerated for 24
hours. For drivers of other vehicles, the blood alcohol level should not exceed
0.5g/litre. The fine for driving under the influence of alcohol is 50% of the UIT (tax
unit), which in 2018 was 2018 PEN4,150 (paying a total of PEN2,075) and the
suspension of the driver’s license for three years.
With the increase in the fine and the suspension of their licence, drivers are more
aware of the consequences of drinking and driving.
No changes in legislation were introduced regarding drink-driving in 2018.

Advertising

Law 28681, approved in 2006, regulates not only the sale and consumption of
alcoholic drinks, but also publicity. In 2016, this law was modified in articles 4, 7, 8
and 10.
Article 4 now includes a regulation about the time restrictions on the sale of alcohol,
which is given by the Municipality. Article 7 states that the phrase “Drinking alcohol
in excess is harmful and driving under the influence is a crime” should be included in
a space no smaller than 20% of the label or packaging. Article 8 states that the phrase
“Drinking alcohol in excess is harmful and driving under the influence is a crime”
should be included in a space no smaller than 20% of the publicity banner and is
forbidden to use arguments that induce the consumption of alcohol. Article 10 states
that prevention campaigns are obligatory twice a year, and should be carried out by
the three levels of the government.
Both on-trade and off-trade outlets have to get authorisation to sell alcoholic drinks.
The law requires a visible sign stating, “The sale of alcoholic drinks to minors is
forbidden” and “If you have drunk alcoholic drinks, do not drive”. In addition, outlets

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 whose principal business is the sale of alcoholic drinks must deny access to minors.
According to the law, vending machines can only be placed in outlets where minors
are forbidden to enter, or in places where someone can supervise the machine to
ensure it is used only by adults.
Prevention campaigns are managed by the Health Ministry in the country, supported
by central or regional governments. Schools, academies and universities are the
priority, as a way to prevent underage drinking and educate young adults about
drinking. Other organisations, such as DEVIDA and CEDRO, also promote the
responsible consumption of alcohol.
During 2017, manufacturers and distributors of alcoholic drinks that are part of Lima’s
Chamber of Commerce, which include the biggest players in the market, subscribed
to the Code of Ethics and Self-Regulation in matters of Advertising and Selling. By
doing so, they agreed to avoid using public figures who appeal to children or
teenagers in their advertisements. Also, they are forbidden to include
advertisements in shows, publications or events that are aimed at minors. Finally,
they must include in their digital advertisements the phrase “Drinking alcohol to
excess is harmful”, and state that access is restricted to people over 18 years, asking
the person to enter their birth date – denying access if they are a minor. This last
restriction is not required by law. Internal sanctions can be applied if the Ethics
Committee determines that there has been a breach of the agreement.

Smoking ban

In July 2008, law 28705 was approved in Peru. It is called the Prevention and Control
of the Risks of Tobacco Consumption Law, and establishes rules for the
commercialisation, consumption and publicity of tobacco products. In April 2010, law
29517 was approved, modifying some parts of the original law and making it stricter.
A new law in 2010, modifying the previous law of 2008, established areas to be 100%
free from tobacco smoke, including all health institutions, educational institutions,
government offices, workplaces, covered public places and public transportation. In
areas described as 100% free from tobacco smoke, there must be a sign indicating “It
is forbidden to smoke in public places because it is harmful” and/or “100% free from
tobacco smoke area”.
The 2010 law establishes the obligation to display different health and graphic
warnings on tobacco packaging, in a space bigger than 50% of the package. The
graphics and phrases are shocking, as people affected by tobacco consumption or
tobacco-related diseases are featured on the packaging. The phrases are very crude
and warn about the health implications of smoking; also, the graphics and phrases
must be changed every six months. The law has established several graphics and
phrases which must be alternated. In addition, every outlet selling tobacco must
place a sign stating, “Tobacco consumption is harmful; sale to minors is forbidden”.
Publicity for tobacco products is also highly restricted; it cannot be placed within
500m of health institutions, educational institutions and sports centres. In addition,
publicity is not allowed through mass media such as radio or television.

Opening hours

In March 2011, a new regulation was approved which set the limit at 03.00hrs for
selling alcoholic drinks in any on-trade or off-trade outlet. However, the
modification to law 28681 indicates that the municipality in which the outlet is
located will establish the time of closure of alcohol sale.

On-trade establishments

On-trade outlets continued to expand in Peru over the review period, with
consumer foodservice outlets such as restaurants and bars being the most
important. Rising purchasing power and disposable incomes, together with easier
access to credit and the higher penetration of the media through mobile devices
encourage individuals to eat out more. The gastronomic boom in Peruvian cuisine is
still a phenomenon for consumers, developing the population’s interest in dining
out or going out to socialise even more. It is expected that this growth trend will
continue over the forecast period. The increasing variety of products available in the
on-trade channel and their aspirational nature motivates consumers to try new
brands and cocktails, leading to growth for higher-value products.

Table 1 Number of On-trade Establishments by Type 2013-2018

2013 2014 2015 2016 2017 2018

Cafés/Bars 6,298 6,641 7,192 7,748 8,280 8,845
Full-Service Restaurants 41,407 44,161 47,494 51,190 55,027 59,039
Limited-Service Restaurants 37,423 40,272 43,273 46,353 49,519 52,269
Self-Service Cafeterias 64 64 66 68 68 68
Street Stalls/Kiosks 90,861 98,133 103,320 107,565 110,892 114,716
TOTAL 176,053 189,271 201,345 212,924 223,786 234,937

Source: Euromonitor Interna tiona l

TAXATION AND DUTY LEVIES

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After five years, changes were introduced in the ISC tax, separating products according
to their alcohol level as follows:
Alcoholic drinks with an alcohol level between 0% and 6% ABV need to pay PEN1.25
per litre sold, or 35% of the msp value, whichever is the greater amount of taxes to
be paid. The previous regulations considered 30% of the msp value only.
Alcoholic drinks with an alcohol level between 6% and 12% ABV need to pay PEN2.50
per litre sold, or 25% of the msp value, whichever is the greater amount of taxes to
be paid. This range is new, as previously it was included in the 6% to 20% ABV range.
Alcoholic drinks with an alcohol level between 12% and 20% ABV need to pay
PEN2.70 per litre sold, or 30% of the msp value, whichever is the greater amount of
taxes to be paid. The previous regulations considered 25% of the msp value only,
and PEN2.5 per litre sold.
Alcoholic drinks with an alcohol level above 20% ABV need to pay PEN3.40 per litre
sold, or 40% of the msp value, whichever is the greater amount of taxes to be paid.
The previous regulations considered 25% of the msp value only.

Summary 1 Taxation Levies on Alcoholic Drinks 2018

Value Volume/Value Unit

Excise tax
Beer PEN1.25 per litre s old or
35% ms p va lue
RTDs PEN2.50 per litre s old or
25% ms p va lue
Still wine PEN2.50- PEN 2.70 per litre s old or
Sparkling wine 25%-30% ms p va lue
Spirits PEN3.40 per litre s old or
40% ms p va lue
Cider/perry - -

Source: Euromonitor Interna tiona l

Summary 2 Duty Levies on Alcoholic Drinks 2018

Import tax
Beer 12%
Still wine 12%
Sparkling wine 12%
Spirits 12%
RTDs 12%
Cider/perry 12%
Sales tax 18%

Source: Euromonitor Interna tiona l

OPERATING ENVIRONMENT

Contraband/parallel trade
As happened in 2013, the ISC tax increase is expected to have a negative effect on
sales of alcoholic drinks in Peru, as strong price increases are associated with growth
in informal alcoholic drinks, especially counterfeit and contraband products, making
them more widely available. This situation not only impacts the government, as it
does not collect taxes on informal drinks, but mainly companies, as their sales
decrease and their brands are susceptible to a poor image. However, the main group
affected is final consumers, who are exposed to poor-quality products – counterfeits
which are sometimes not even suitable for human consumption. According to trade
sources, there are no definite numbers on the informal market in Peru; but the main
players confirmed the worsening of the problem after the tax increase in 2013, and
the intervention of the government was necessary in order to fight against informal
alcohol producers.

Duty free
The main duty free shop is at Jorge Chavez airport in Lima, another is in Rodriguez
Ballón airport in Cuzco. Given the small number of duty free shops across the
country, sales of alcoholic drinks through this channel are minimal.
The Tacna free-zone is important for alcoholic drinks in Peru, as it receives a high
proportion of imports that enter the country or that are re-exported to other
countries. Products that enter the country do so formally, paying the respective
taxes, or no taxes if sold only in the free-zone. However, most of what enters the
country to be sold in Tacna goes illegally to other cities in Peru, representing the
main source of contraband.

Cross-border/private imports

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 Cross-border/private imports do not play an important role in alcoholic drinks in
Peru.

KEY NEW PRODUCT LAUNCHES

Key new product launches in Peru during 2018 mostly centred on market
polarisation, reflecting growth in both premium products and products at affordable
prices. With these new products, companies intend to boost their sales in the
context of a consumption slowdown, whilst continuing to attract high-end young
adults, who are usually looking for new and special experiences and are willing to
pay a higher price for this. Premiumisation is not only seen in products with higher
prices, but also in products with special features, such as reduced calorie beer
Michelob, as it reflects a higher disposition to spend on a product that satisfies a
particular need. As in previous years, spirits and RTDs were dynamic in terms of new
launches, with new developments in gin, whisky, spirit-based and wine-based RTDs,
both local and imported. On the economy side, private label showed rapid growth in
2018. Tottus developed a series of products under its own line, such as sparkling
wine and an Irish cream, aside from complementary products such as jelly syrup and
grenadine syrup. The other major hypermarket, Plaza Vea, also launched its own
whisky through an agreement with Diageo, which granted it the exclusive
distribution of the whisky Bells. This recognised UK brand has the same name as
Plaza Vea’s private label.

Outlook
It is expected that the polarisation trend will continue in the coming years, as
consumption is expected to recover. At both extremes, premium and economy,
consumers have become used to consuming the brands that give them certain
benefits, such as high quality, a special experience or good cost-benefit. Even
though consumption will eventually recover, it may not do so at a fast pace, giving
more room for the development of affordable brands. Needless to say, the
consumption of these brands may also mean for some consumers trading up from
lower-quality or illegal brands. On the premium side, as alcoholic drinks are usually
taken to gatherings and have an aspirational nature for Peruvian consumers,
premium products are expected to maintain positive results over the forecast
period.

DEFINITIONS
Explanations of words and/or terminology used in this report are as follows:
GBO refers to Global Brand Owner, which is the ultimate owner of a brand.
NBO refers to National Brand Owner, which is the company licensed to distribute a
brand on behalf of a GBO. The NBO may be a subsidiary of a GBO or it may be a
completely separate company. Share tables at both GBO and at NBO level are
provided in the report. Reference to shares in the report analysis is at NBO level.

SOURCES
Sources used during the research included the following:

Summary 3 Research Sources

Official Sources Dirección General de Salud Ambiental (DIGESA)

INEI
Ins tituto Na ciona l de Defens a de la Propieda d Intelectua l (Indecopi)
Ins tituto Na ciona l de Es ta dís tica e Informá tica
Minis terio de la Produccion (PRODUCE)
SNI Comité de Bebida s Alcohólica s
Socieda d Na ciona l de Indus tria (SNI)
Superintendencia de Merca do de Va lores (SMV)
Superintendencia Na ciona l Tributa ria (SUNAT)
Trade Associations As ocia ción de Productores de Pis co de Ica
As ocia ción La tinoa merica na de Fa brica ntes de Cerveza (ALAFACE)
As ocia ción Na ciona l de Anuncia ntes del Perú (ANDA)
As ocia ción Perua na de Cons umidores y Us ua rios (ASPEC)
Burea u Na tiona l Interprofes s ionnel du Cogna c (BNIC)
Cá ma ra de Comercio de Lima
Cá ma ra de Comercio de Trujillo
Cá ma ra Na ciona l de la Indus tria Tequilera
Comis ion Na ciona l del Pis co (Cona pis co)
Comité de Indus tria Vitivinicola
Comité Interprofes s ionnel du Vin de Cha mpa gne (CIVC)
Office Interna tiona l de la Vigne et du Vin
Scotch Whis ky As s ocia tion

© Euromonitor Interna onal 2020 Page 5 of 6

 Official Sources Dirección General de Salud Ambiental (DIGESA)
Trade Press Agencia Andina de Noticia s
Agencia Orbita
Agencia Peru Com
America Economía
Be Strong Bus ines s Cons ulting
Club Da rwin
Dia 1 El Comercio
Dia rio Correo
Dia rio Expres o
Dia rio Ges tión
Dia rio La República
Drinks Interna tiona l
El Comercio
El Perua no
Emerging Ma rkets Informa tion Service
Ges tion
Noticia s Terra
Peru 21
Peru.com
Ra dio Progra ma s del Peru
Report Peru
Revis ta Bus ines s
Sema na Economica
Univers ia
Wine & Spirits Interna tiona l
World Drink Trends

Source: Euromonitor Interna tiona l

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