brazil-wine importation- luis coutinho
TRANSCRIPT
ESCP MADRID CAMPUS
MS INTERNATIONAL PROJECT MANAGER Professional Master Thesis
BRAZIL - WINE IMPORTATION
LUIS PEDRO ESTÊVÃO COUTINHO
NOVEMBER 2014
MS INTERNATIONAL PROJECT MANAGER
Professional Master Thesis
BRAZIL - WINE IMPORTATION
Established by: LUIS PEDRO ESTÊVÃO COUTINHO
Under the Direction of: Professor José Ramón Cobo
This Professional Master Thesis is confidential. NO
STATEMENT OF HONOR
Yo, Luis Pedro Estêvão Coutinho, Alumni of the International Master Project Management, Juro o prometo que no he incurrido en plagio en ninguna parte de este trabajo. Esto significa que yo soy el único autor(a) de todas las frases que forman el texto completo. Toda frase perteneciente a la obra de otro autor, está claramente identificada y referenciada. Soy consciente que el NO cumplimiento de este compromiso puede conllevar sanciones disciplinarias. Certifico también, que este trabajo no ha sido presentado nunca en cursos anteriores de ESCP Europe. Si se tratase de un trabajo realizado en el marco de estudios que se realizan en paralelo, sería necesario precisarlo. El compromiso anterior solo concierne a mi persona. Madrid, 25 de Noviembre de 2014
Executive Summary This dissertation is characterized by the development of a project to implement an import company in Brazil. Our mission is to approach primarily the dimension of Brazil as a country to understand the market dimension that our project want to focus, afterwards is important to understand the culture and behaviours of Fortaleza and the potential of the state. Although the Ceara is not a wine producing area is important to mention the wine market in Brazil and Portugal, understand how the Brazilian customer consume the Portuguese wine and compare with the local wine and most of all the Chilean and Argentinean wine. There are some big conclusions with this study that are important to remember: Regarding the wine exportations the Portuguese wine is the number 4, just behind the Chilean, Argentinean and the French wine, this is very important fact because prove the wine acceptance in the Brazilian market. The wine per capita consumption is very low comparing with the potential of the country and compare with the beer consumption, this is a big opportunity because the previsions are to increase the consumption in the next years. The biggest problems that we faced during the course of the project was related with the Brazilian taxes and some cultural differences, the main differences are the work approach, the speed problem solving, the bureaucracy of the processes which consume to much time, the difficulty of finding people to trust. On the other hand we have a big market that want to consume our product, the purchasing power is high because the number of people that left the low social classes to higher is increasing, and the fact that the wine drinking is linking with high social standards is very positive, because the people that a few years ago can´t buy a bottle of wine with the country development they gain this possibility and they want to consume. Despite all the difficulties that we faced during the course of the project we believe that our investment is profitable in a few years, the competition is high but we believe in the differentiation of our project, we want to find our blue ocean of our market.
Index
1- Introduction ........................................................................................................... 6 2- Brazil - Highlights ................................................................................................. 7
2.1- Brazil: Geography and Demography ................................................................ 7 2.2- The Northeast State: Ceará - City: Fortaleza .................................................. 10 2.3 - Brazil: Wine production and consumption .................................................... 12 2.4 – Brazilian Wine Importation .......................................................................... 14 2.5 – Portuguese Wine ........................................................................................... 15
3- Doing Business in Brazil ..................................................................................... 18 3.1 – First Stage: Investor´s Visa ........................................................................... 18 3.2 - Import License ............................................................................................... 19 3.3 - Goods Customs Clearance ............................................................................. 19 3.4 - Indispensable Import documents ................................................................... 20 3.5 - Bottles labeling and seal ................................................................................ 20 3.6 – Wine Import Taxes ....................................................................................... 21 3.7 – Wine Laboratory Analysis ............................................................................ 23
4- The Company and Concept ................................................................................ 23 4.1 – Truly Details Value Chain ............................................................................ 24
5- The Product .......................................................................................................... 24
6- Market Entry and Growth Strategy .................................................................. 31 7- Marketing Strategy ............................................................................................. 34
7.1 – General Marketing Strategy .......................................................................... 34 7.2- Customer and product Segmentation .............................................................. 35 7.3- Market size and trends ................................................................................... 37 7.4- Competition and competitive barriers ............................................................ 39 7.5 – PESTLE Analysis ......................................................................................... 41 7.6 - SWOT Analysis ............................................................................................. 42 7.7 - Prices ............................................................................................................. 43 7.8 – Sales Team / Distribution ............................................................................. 44 7.9 – Communication Strategy .............................................................................. 44
8 - Time and Cost Operations of the Project ......................................................... 45
9 – Business Finances ............................................................................................... 45 9.1 - Gross and Operating Margins ........................................................................ 45 9.2 – Fixed and Variable costs ............................................................................... 47 9.3 - Wine Importation Total Cost ......................................................................... 48 9.4 – Sales Previsions ............................................................................................ 49 9.5- Accounting Framework .................................................................................. 51 9.6 - Income Statement .......................................................................................... 52
10- Conclusion .......................................................................................................... 53
11- Bibliograpy ......................................................................................................... 55
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1- Introduction This study was prepared as part of the conclusion of the Master in International Project Management in ESCP Europe Madrid campus. This Master thesis is a study of the stages development to implement a import company in Brazil, highlighting the key issues and also the greatest opportunities that the country can offer. The wine sector it has some distinct characteristics of other sectors when you want to import, because the Government consider the wine a luxury good, and it has some specific measures of the sector that you as a company have to respect when you are importing this kind of products. The development of this process was studied for several years, 10 years ago when we arrived Fortaleza the country was completely different regarding all aspects. The time was passing we were understanding better their behaviours and their customs, and in that period the life cost was very low and everything was cheaper than these days. We decided to invest in the country, and after that we sent the amount of money required to request the investor visa, this process takes more or less one year and half. This is where the project starts. These projects as the main goal to describe and explain all processes that are needed to implement a wine importation to Brazil. Importing wine to Brazil is different from other product, because it is a product that contains alcohol the customs processes are different and more restricted. Brazil is probably the most important market for Portuguese wines, from a medium and long-term perspective, the huge growth potential that demonstrates: a middle class growing rapidly, a consumption very far from its potential (currently 2.2 lit / per capita). It is mainly because the fiscal policy and the geographic proximity that justify the dominance of Chile and Argentina wines, which together represent 2/3 of imported wines. The thesis is divided into two separate but complementary parts. The first part will be to focus on aspects of strategic characterization of the sector, and the country. The second part of the thesis presents more quantitative aspects on the implementation of the project itself. The dissertation's main objectives are:
- Measure the ability of acceptance and consumption of new wine references on an embryonic consumer market.
- Determine all procedures and costs associated with wine importation. - Customs clear the products as fast as possible in order to start the
commercialization process.
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- Sales analysis to get the product that is best suited to Brazil market. - Determine the major market challenger during this project. - Analyse the project to determine the profitability.
2- Brazil - Highlights Brazil is a continental country, above we can see this conclusion in numbers. Our approach in this Business plan is only for the Ceará, one of the Northeast states, our first step is to conquer the market in Fortaleza the capital of Ceará. As we are going to see the per capita consumption of wine in Brazil is low and in Ceará is lowest, this fact takes us to believe that this numbers are going to grow and the market will receive more and more wine brands, whether International or National. The Brazilian consumer revealed to have little knowledge about the wine world, but shows a great willingness to learn and explore this territory. Over the years the customers will become more and more addicted and they are going to understand the quality standards and claim for the products that suits better their quality perception, so our purpose is to educate since the beginning for a moderate consumption with the best quality.
2.1- Brazil: Geography and Demography With about 8.5 million square kilometres, Brazil is the fifth largest country in the world: it has about 92 times the size of Portugal and almost twice the area of the entire European Union (4.4 million km2). The country is also a demographic giant, the 2010 Census gives it a population of around 191 million people, which puts him in fifth place worldwide, in terms of territory. The Brazilian population is 18 times the Portuguese, and about 60% of the American population and 38% of the entire European Union. The Brazilian population is young, 51% is under 30 years old, and is growing, the population increased by 12.5% regarding the last decade. By comparison, in Portugal, only 32% of the population is under 30 years and the growth in the same period was only 2%.
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Figure 1 – Size of Brazil face Portugal. Territorial Organization Brazil is divided into 26 states and one federal district, where is located the capital, Brasilia.
Figure 2 - Administrative divisions of Brazil
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These administrative units are usually grouped into five major regions: North: Rondônia, Acre, Amazonas, Roraima, Pará, Amapá, Tocantins; Northeast: Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco, Alagoas, Sergipe, Bahia; Southeast: Minas Gerais, Espírito Santo, Rio de Janeiro, São Paulo; South: Paraná, Santa Catarina, Rio Grande do Sul; Midwest: Mato Grosso do Sul, Mato Grosso, Goiás, the Federal District. The population is not evenly distributed in the territory. The Southeast region, which includes the states of São Paulo and Rio de Janeiro, represents more than 40% of the population. São Paulo alone, has over 40 million people, is home to 22% of the residents in Brazil.
Chart 1 - Regional distribution of population, 2010 census Source: Brazilian Institute of Geography and Statistics
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Brazil has a large number of urban centers of high population. According to the 2010 Census, there are 15 municipalities with more than 1 million population.
Chart 2- Largest cities of Brazil – Census 2010 Source: Brazilian Institute of Geography and Statistics In 2012, Brazil's GDP reached 4.402 billion Reais, equivalent to € 1.755 billion Euro. For comparison, this corresponds to about 10.6 times the Portuguese GDP.
2.2- The Northeast State: Ceará - City: Fortaleza The State of Ceará is located in Northeast region of Brazil, limited to the North by the Atlantic Ocean. Estimates of GDP at market prices for 2010, gets close to 75 billion Reais, representing a nominal increase of more than 10 billion in the previous year. The Ceará's economy is the third strongest in the Northeast of Brazil, for the national GDP, Ceará contributes 1.9%, and the GDP per capita is 6.149 Reais. The Tourism is the fundamental activity to the growth of the state economy. This activity has attracted international hotel chains and service and trade companies. The Ceará receives over 2 million visitors annually.
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Graphic 1 – Social Classes in Fortaleza in 10year period. The significant increase in middle upper classes owes much to the fact that the sharp decrease of the low class. The high number of people who passed to a higher social level, has grow very much the consumption, which is an opportunity for all Industries, because they want to attract new customers that just arrived in the market. For the wine consumption this fact is very important because, wine consumption is associated to high-class society. A large number of new consumers joined the market, so is the responsibility of the Brands and the companies to educate this new consumers for this new range of products they can buy. Alcoholic drinks is expected to show significant growth over the forecast period as disposable incomes will continue to improve among socioeconomic groups C, D and E and unemployment rates will remain steady. Beer will continue to sustain growth of alcoholic drinks in the near future but it is estimated that wine, driven by still light grape wine and sparkling wine, and spirits such as whiskies and vodka will experience strong growth from 2010 to 2015 as Brazilian consumers expand their consumption habits in alcoholic drinks.
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Graphic 2 – Economical segments1 The Brazilian economical classes are segmented according to monthly household income levels as follows: Class A&B: + 4807 R$ Class C: 1116 - 4807 R$ Class D: 804 - 1115 R$ Class E: Under 804 R$ As can be seen, class A & B make up the upper income classes; class C is the "official" middle class; class D constitutes the lower middle class and class E is the lowest income segment.
2.3 - Brazil: Wine production and consumption According to the International Organisation of Wine the acreage of vineyards currently in Brazil will be around 90 thousand hectares. Brazil's annual production will oscillate around 3 million hectoliters, with considerable variation from year to year, representing about 1.2% of world production.
1 Source: http://www.propertybrazil.com/news/the-emerging-middle-class-in-brazil-25
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Graphic 3 - Wine Production in Brazil in the period 1995-2012 Wine production is primarily located in the south and southeast, and represents about 88% of the area of vineyards and more than 98% of the grapes used. In the Northeast there is no wine production, so they import from the south stats and from other countries. Although the situation is somewhat different in some southern states of the country, the wine is not part of regular habits consumption of most Brazilians. However, International Organization of Vine and Wine (OIV) data show that wine consumption in Brazil has increased. According to this organization the consumption grew from 2.4 million hectoliters in 1995 to 3.4 million in 2012 therefore is registering an increase of 41% during the 16 years. Per capita consumption has also increased but is still very low compared to European standards prowling around 2 liters per year. One of the reasons of this lower consumption is because Brazil is a big country with a big population and in the Northeast the consumption of wine is still very low, and the large portion of wine consumption occurs in the states of São Paulo and Rio de Janeiro, where the per capita consumption is certainly much higher than the Brazilian average. By comparison, the per capita consumption of beer is over 50 liters per year.
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Graphic 4 – Wine consumption in Brazil during 1995-2012 The Wine consumption is associated with nightlife, restaurants and cold weather. The months of May to July, when the temperatures are lower, appear to be the largest period of wine consumer, the challenge for us is to educate customers to drink wine with high temperatures, which are the one´s that we have in the Northeast of the country, because the temperature in this part of Brazil is stable in the 30 degrees during all day and night. Other challenge for us is that wine has the image of not being a "young" drink, the propensity to consume tends to increase with age. The growth of wine consumption in Brazil appears to be based on consolidating on the middle and upper-middle class, this is the result of the macroeconomic developments in the country, which seeks to align their consumption behaviour’s that are common to other parts of the world. The major urban centers, including state capitals, where predominantly focuses this segment of the population therefore this are the markets with the greatest appetite for wine.
2.4 – Brazilian Wine Importation Brazil in 2012 reveals to be one of the most important wine importer of the world, imported approximately 9 million boxes, amounting to 228 million euros.
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Graphic 5 – Brazilian Wine Imports, in the period 2002-2012 Source: COMTRADE (United Nations) In the reporting period, Brazilian wine imports increased significantly, tripling in volume (205%) and quintupled in value (402%), giving therefore average annual growth rates of around 12% and 18%, respectively.
Chart 3 – Brazilian Wine Imports by segment for the period 2002-2012 Decomposing this analysis by segment, Sparkling, Bottled and Bulk, we conclude that these follow the same trend as total imports, ie, all grow at very significant rates.
2.5 – Portuguese Wine Portugal is the 4th largest wine supplier of Brazil with a market share of almost 13% in volume and 12% in value. On the other hand Brazil represents 4% of Portuguese exports, while 10 years ago represented only 2%. In total, the Portuguese wine importation in this country more than tripled in volume (220%) and more than quadrupled in value (323%).
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Chart 4 – Importation of Portuguese Wine to Brazil – period 2002 - 2012 It is also the Portuguese bottled wine that has almost the entirety of the wine exports to the Brazilian market, representing about 90%.
Graphic 6 - Matrix of Brazilian wine suppliers, with a market share of over 1% in 2012 Chile is the largest Brazilian wine supplier and it´s France who sells more expensive, with twice price of Spanish wine. The price of the Portuguese wine imported by Brazil had a positive outcome (increased € 0.61), but other countries have had better performances. The Portuguese wines have already an excellent reputation among Brazilian consumers. Apart from being well known and recognized as an important producing country, some regions also have a high reputation, especially the Alentejo and Vinho Verde, which are part of the top 10 best-known regions. In the criteria to select the origin of the wines, the country or region are more important than the caste, which makes it the more sensitive to the Brazilian consumer philosophy of Portuguese wines.
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Chart 5 - Largest providers of Brazil by state The Portuguese wine is already in the first place in the state of Ceará, so the customers know already the value of the product, and the challenge that we face is to get the differentiation according to the others Portuguese wines.
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3- Doing Business in Brazil
3.1 – First Stage: Investor´s Visa An investor's visa is an effective way of getting a permanent visa to Brazil. It is issued to those who wish to establish a business in the country and it is usually valid for three years, and only after the renewal of the first visa it is possible to have permanent one. To grant a permanent visa, the foreign investor has to invest a minimum amount of BRL 150.000,00. After subscribing the BRL 150.000,00 into the firm, the visa application can be submitted to the Ministry of Labor. In our case this process takes more or less one year, since we deposit the amount of money until we receive the visa. When the investor visa was approved we can finally move to Brazil and start working legally in the country. After the approval we had to visit a Brazilian Embassy or Consulate in Lisbon to update the passport before traveling to Brazil. As soon as we arrive in Brazil, we must visit the Federal Police and they will issue the National Registry of Foreigners, known as RNE, that is our Brazilian ID document. Permanent Visa Renovation The foreign RNE of the Private Investor will be valid for three years and must be renewed before its expiration date, otherwise the permanent visa will be canceled. In order to have the RNE renewed, the following documents must be presented: • proof of payment of the RNE renew fee; • Original RNE; • Receipt of the income tax declaration in last fiscal year of the requesting; • Receipt of the income tax declaration in last fiscal year of the requesting company; • Copy of the Relatório Anual de Informações Sociais, known as RAIS, which is the
Annual Report of Social Information of the last two years, demonstrating that the investment plan proposed by the company concerning the creation of employment is being followed
• copy of the last deduction of the Government Severance Indemnity Fund for Employees, known as FGTS, containing the list of all employees.
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3.2 - Import License The imports saw their increasing importance in the last two decades, with the opening of Brazil's economy. In this context, Brazil has been preparing since then, laws, customs procedures and other formalities to meet this growth. Therefore, more and more tools were dedicated to meeting the inflows of goods were created by customs, by implementing the SISCOMEX. SISCOMEX (Integrated Foreign Trade System), established by Decree No. 660 of September 25, 1992, is a computer system responsible for integrating the activities of registration, monitoring and control of foreign trade operations through a single, automated flow of information2. To import wine to Brazil is required an Import License, which is required by the importer through SISCOMEX. It is through this application that federal agencies grant import licenses, carried out the orders through customs and check up receipts and payments relating to foreign trade operations.
3.3 - Goods Customs Clearance It is from the moment in which the goods arrive, the bill of lading is registered into the system MANTRA (Management System Manifest, Transit and Storage). It is the customs agent that initiates the Import Declaration (DI) registration in the SISCOMEX and asks for clearance of cargo. After the Import Declaration registration, the process is conducted for a four-channel light. This mechanism allows the customs authority to proceed with classification and conference of all imported goods through the import declaration. Green Channel – The products are automatically cleared through customs without any verification; Yellow Channel – The Federal Agent is obligated to review the documentation, ie, there is a necessity of checking the Import Declaration and the information presented in the statement. Red Channel – In this channel the customs clearance process is more lengthy. In addition to checking the documents, the Federal Agent is obligated check the goods physically. Gray Channel - When the system detects that the price of the product is below the parameters of the IRS, the difference of the amount of tax that should have been paid is calculated In this situation, the importer may choose to pay the difference or
2 http://www.desenvolvimento.gov.br/portalmdic/siscomex/siscomex.html
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provide assurance that value, removing the goods, having in this case to present a posteriori the supporting documentation that justifies the price charged. In this stage a price lists of the exporter are required at accredited institutions in the country, including industry associations. The selection of the control channels is done through SISCOMEX, according to parameters established by the General Coordination of Customs System that takes into consideration the following aspects: tax regularity of the importer; importer habitualness; nature, volume or value of imports, and origin, source and destination of the goods. After this process The Ministry of Agriculture (MAPA) will make an inspection of the products, through a federal agent, at the place of customs clearance for setting the withdrawal of the wine analysis. More or less 1 liter of wine is sent to the Laboratory to make all the analyzes required, this process takes more or less 2 weeks, and the wine commercialization is depending on these results.
3.4 - Indispensable Import documents Is very important that the Importer have all this documents for when the products arrived the port. The documents are the following:
- Knowledge of marine cargo, it is called the BL, this document works as delivery receipt of goods when the vessel departure; demonstrates the existence of a carriage contract; and represents the credit of the transported goods by seaborne.
- Wines origin certificate, and the analysis in one of the certified Portuguese laboratories. Normally the wine cellars as already this documents for their batches.
- Original commercial invoice. - The packing list of all products, including the batches and the gross and net
weights.
3.5 - Bottles labeling and seal Besides the normal label of the bottle is mandatory additional information to meet the requirements of the country:
- Lot identification. - Name and address of the producer, bottler and importer. - Wine denomination and classification. - Registration number of the import company. - Country of origin
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- Warning the fact that is alcohol (“consume with moderation”) The Normative Instruction 1128, issued by the Brazilian Ministry of Finance, decided to impose a tax stamp on all domestic and imported wines. Due to the strict control of the seals by SRFB and the direct responsibility of the importer for the safekeeping and usage of the stamps provided by customs, it is not recommended to send the stamps to the outside. Usually the bottles are sealed in the customs enclosure, which already have the technical expertise, skilled labor and equipment to seal the bottles.
Figure 3 - tax stamp example.
3.6 – Wine Import Taxes Importing wine to Brazil is met with a significant tax burden. Imported wine is subject to a 27 or 20% percent import duty for wine and liquors respectively. Brazilian Federal authorities view bottled wine as a luxury good imposing a higher duty. In addition, the following taxes are imposed on a cumulative “compounded” basis with the value added tax imposed on the total “tax paid” value. The taxes imposed on the importation are:
• Import Tax – II The importation tax of foreign products relates to the import of foreign goods, and the tax base focus on the customs value. Value A = CIF x II The first tax rate will focus on the CIF (Cost + Insurance + Freight). The tax is the II (import tax), and depending on the type of product, can be 20% for liquors and sparkling or 27% for the bottled wine, and this rate focuses on the CIF. These
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overall rates have no tariff preferences because there are no trade agreement between Brazil and the EU.
• Tax on Industrialized Products – IPI The tax on industrialized products focuses on industrial goods of foreign origin and the base for calculating the IPI is the customs value of the goods plus the amount of import tax. Value B = Value A x IPI This second tax rate is going to focus on the Value A x the IPI (Industrial Products Tax) the wines are classified under the Brazilian classification in different categories and apply the tax based on the capacity of the bottle.
• PIS and COFINS contribution The Brazilian government adopted two social taxes the first is the Contribution for the Social Integration Program and the Public Employee formation based on the import of foreign products or Services (PIS), and the second is the Social Contribution for the Social Security Financing by Importers of Foreign Goods or Services (COFINS). The tax rates associated to these contributions are 1.65% for PIS and 7.6% for COFINS-Import. Value C = Value B + PIS + COFINS
• Utilization Rate Siscomex This fee is due to the act of registration the Import Declaration (DI) on the SISCOMEX system. The SISCOMEX or integrated system of foreign trade is a computer system responsible for integrating the activities of registration, monitoring and control of foreign trade operations through a single flow of computerized information. The tax rates are 185 Reais (BRL) for the Import Declaration and an additional fee of 29,50 Reias (BRL) for each item of goods. Value D = Value C + SISCOMEX user fee
• Tax on Circulation of Goods and Services – ICMS Tax on Circulation of Goods and Services (ICMS) is a tribute to the state jurisdiction that focuses on the movement of goods in the internal market and on interstate transportation or services. This tax is also levied on imports in general, to promote tax treatment similarity for imported and domestic goods. The ICMS between Brazilian states is since 2013 the same rate, more or less 4%, but the ICMS that is charged during the importation depends on the state you are doing the importation. In the Ceará state the tax rate for the ICMS import is 25% of the sum of all taxes. Value E = ICMS(%)* (Value D) / 1-ICMS(%))
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3.7 – Wine Laboratory Analysis Despite the need of the Portuguese wine certifications to prove their quality and their origin, it is necessary to send the same wine to one certified Brazilian Laboratory, to confirm that the wine quality and stability didn´t have any modification. Normally the Laboratory is in São Paulo, and it takes more or less 15 days to have the results. The normal costs for this physico-chemical analysis for wines is 398 Reais per reference and the liqueur is 470 Reais per reference.
4- The Company and Concept A Truly Details is a Brazilian import company with a Portuguese background, the founders are Portuguese and both have a passion for Ceara and Brazil. Our adventure in Brazil started 10 years ago when we bought a vacations house to spend some weeks, during this big crisis in Portugal we start to look to Brazil with different eyes. “Why not start a small investment here?”, we already know the city, we have connections here, and we know the culture and we can now understand what are the needs of this population and what they value. Truly Details is an import export company, our first investment is with Portuguese wines and liquors. After a soon approach to the market we understand that all the wine that is selling in the Ceara region is coming from São Paulo, and it was the current wine. So our concept is to bring not only quality wine to Ceara but also wine that brings some add value to the customers. We try to bring a wide range of differentiated wines, first from the best regions of Portugal, than some premium and prized wine and in the other side some current wine that have a lowest price. Our concern is not only in the commercial part of the business, we want to educate people to drink wine, because this is not only about the quality of the product, each wine has an history, and has a personality, so we and our local partners want to spread the knowledge and educate people to drink the best wine for each situation. We are going to do some wine tastings with the producers so they can explain better than us the essential of the product and the way they can take the best of the product.
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4.1 – Truly Details Value Chain
Graphic 7 – The Value Chain of the company Truly Details is the importer, the company sells directly to the clients, and use the know how distribution of the company A Taberna, that is ate the same time a restaurant and is where the warehouse is located, and they are responsible for the distribution and the sales team.
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5- The Product Portugal is a country with a long winemaking tradition, the history starting with the implementation of winemaking by the Romans many centuries ago. Portugal is the 13th in world production and the 6th in consumption. The main regions are: Douro, Minho, Bairrada, Dão, Alentejo, Setúbal, and Madeira. Some of Portugal's most important red grape varieties are Touriga Nacional, Baga, Castellan, Touriga Franca, Trincadeira (or Tinta Amarela) and Tinta Roriz (or Aragonese). Among the white varieties are: Albariño, Loureiro, Arinto, Encruzado, Fernão Pires and Bical.
Figure 4 – Brand Strategy of the Portuguese Wines3. With this variety of the Portuguese regions we choose different wines from different regions to cover the biggest possible area. We choose 27 references, this strategy was risky because we are going to pay more taxes, but it was our way to understand witch wine is the best to suit the preferences of the Brazilian customers.
3 http://www.viniportugal.pt/Promocao/EstrategiaWinesPortugal
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Figure 5 - Map of Portuguese Wine Regions or D.O.C.’s4 5.1 - Green Wine Region is unique in the world. A naturally, light and fresh wine, produced in the demarcated region of Green Wine in northwestern of Portugal, a coastal region geographically well located to produce excellent white wines. Cradle of charismatic Alvarinho and producer of unique blended wines, the Green Wine Region in 2008 celebrated the centenary of its demarcation. Low alcohol, and therefore less calorie, Green Wine is a fruity wine, easy to drink, great as an aperitif or with light harmonization and balanced meals: salads, fish, seafood, white meats, tapas, sushi, sashimi and other international dishes. The Vercoope association as boosted the development of the culture of green wine, we have 1 bottle of the finest Alvarinho wine, and another of the green wine.
4 http://www.spanishwine.com/portuguese-‐wine/map-‐of-‐portuguese-‐wine-‐regions/
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Figure 6 - Verdegar Alvarinho wine and Verdegar green wine.5 5.2- The Douro Region is a north region of Portugal with more than 26 thousand hectares. Classified by UNESCO as a World Heritage, in the category of cultural landscape. Surrounded by mountains that gives unique geological and climatic characteristics. This region, which is bounded by the River Douro and is part of the Douro Wine Region, produces wine for over 2000 years, including the world-famous Port wine. The Adega Cooperativa de Favaios mission is to further develop the consumer and the image of Muscat Favaios as one of the most important categories of wines nationally and internationally to expand their markets like the Porto wine.
5 http://www.vercoope.pt/index.php
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Figure 7 – Encostas de Favaios white and red wine; Liqueur Moscatel; Porto Wine6 5.3- The Dão Region and Bairrada Region are one of the finest regions of wine. Caves da Montanha were founded in 1943, spent many years with the same purpose, product quality. Gaining many quality awards that have been accumulating over the years, evidencing product quality. Their long underground tunnels are a major attraction with a capacity of 3 million bottles.
Figure 8 - Red Wine “Vinha do Poeta”; Sparkling wines7
6 http://adegadefavaios.pt/pt/inicio 7 http://www.cavesdamontanha.pt
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5.4- The Region of Beira Interior has a past historic wine dating back to the foundation of the Portuguese nation, is located in the center of Portugal, has about 16 000 hectares of vineyards and a variety of castes. Adega da Covilha characterized by a very specific microclimate still suffering Mediterranean influence, has schist soils ideal for producing top quality wines.
Figure 9 – Piornos Reserv red and white wine.8 5.5- The Regional Wine of Tejo River, located in the heart of Portugal, since the Middle Ages, the region has been recognized as one of the main wine regions of Portugal. The quality and distinction of wines from Adega Cooperativa Cartaxo have solid roots. The dedication of Adega Cooperativa do Cartaxo in the wine prodution is continually encouraged by national and international awards that won over the past years.
8 http://www.adegacovilha.pt
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Figure 10 – Plexus Sparkling white and rose wine.9 5.6- Alentejo is one of the largest wine regions of Portugal, where the vast plains are only interrupted by small hills. This region is hot and dry which benefited from numerous investments in the wine sector which resulted in the production of some of the best Portuguese wines recognized with international prizes.
Figure 11 – Adega Pias red and white; Terras de Pias; Vila Alice and da Malta red wine10 9 http://www.adegacartaxo.pt 10 http://herdadedacapela.com/en/
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5.7- Liquors The other types of product that we are providing are the Portuguese liquors. Liquor Beirão is produced in the Quinta do Meiral in Lousã, With more than 12 acres of produced land. Part of the aromatic plants and seeds used in the manufacture are produced here, thereby allowing a greater quality control. Te remaining ingredients are imported from India, Sri Lanka, Brazil and Turkey. The secret Cherry Liqueur d'Óbidos begins in the ginjal, where is produced and harvested the fruit. After carefully selected the cherry is routed to a prolonged alcoholic infusion. After this stage, the fruit is properly treated and than mixed with infusion and sugar syrups. The liquor success is in the essence of manufacture handmade with 100% natural ingredients, kept in prolonged infusions.
Figure 12 – Licor Beirão and Ginja de Óbidos11
11 http://www.licorbeirao.com/pt/ and http://www.frutobidos.pt
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6- Market Entry and Growth Strategy To develop our entry and growth strategy we had to take into account some important factors.
- Our city target is Fortaleza with more or less 3 million people. - We are a small company and we have budget limitations. - We have a container with 27 references, some of them the quantity isn´t so
high, so we have to be careful about the stock breaks. The 27 references are segmented in 4 groups, Sparkling and Liquors, Entry wines, which are the cheapest ones; second level wines with a quality standard superior than the first ones; Reserve wines, with high quality standard and therefore more expensive; and the last segment are the Bag in Box, that is the wine low quality wine in boxes of 3 and 5 liters. Each segment has different prices, and different targets, for this reason we also segment the costumers. Our targets in Fortaleza are segmented in restaurants, bars, gourmet stores and supermarkets. Because we have so many wine references, and in some of them we don´t have a big quantity, therefore our strategy is to choose a benchmark customer inside of each segmentation. Fortaleza is a city with a large number of restaurants, some of them are Portuguese, more or less 12, and this is our first point of entrance. The Portuguese Restaurants are a good market, first because most of them already know the wines quality, and second they want to have good quality wines to follow up with the excellent Portuguese cuisine. First we want to understand which type of wine is best accepted by the consumers, and choosing a few number of costumers we can control the stock and don´t put in risk stock breaks, that give us a very bad image in the market. After a careful market research of the different types of costumers, we have decided our entry strategy:
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Restaurants - We are going to choose 3 Portuguese restaurants that can consume our lower
price wines, and the bag in box. - 1 Portuguese restaurant five stars to sell our top products, our reserve wines
and liquors and sparkling. - 3 Brazilian low and middle class restaurants - 3 Brazilian higher class restaurants.
Bars
- The Bars are segmented by beach bars and city center bars. - The beach Bars, we focus more on our Sparkling wines to consume when
enjoying the beach, and in the sunset parties, and the liquors for the cocktails. - The city bars we can focus on all type of wines, and liquors.
Gourmet and Wine shops
- Because this kind of store is our reference we are going to choose just 2 stores in the city.
- In these costumers we can do our wine tastings including our formations with the wine producers that are able to travel to Brazil to explain the concept and the product. This is very important for us, because when the consumer understand perfectly the product that they have in the glass the satisfaction on consuming the product is going to be higher.
Supermarkets
- This is going to be the segment that we are not going to work very hard in the first step, because as we said we don´t have the product quantity to have sales massification, and the consumers when they are seeing the bottles in the store they don´t have the perception of the quality of the product, and we don´t want to be only one more bottle in the shelf, for us is important to sell to our clients and is also important that they can sell to their costumers, and we want to help in this step.
Our first goal, is to establish a good commercial relationship with our key customers, understand which type of wine works better in this specific market, and the second container we focus on the best sellers, we can focus on some brands improving the prices getting more discount, and we bring some new references to attack the market with more sustainability.
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7- Marketing Strategy
7.1 – General Marketing Strategy The market and product segmentation can give to our company a temporary commercial advantage, with this segmentation we already know what kind of product we are going to sell to our different clients group, with this procedure we can save some resources, because when someone of our sales team approach one client he already know what kind of products they are going to present. To achieve our main objectives we developed two types of Marketing, the off-line and the on-line. Both are important and they can work together to increase the visibility and the credibility of our product and our company. Marketing On-Line The focus of our strategy is to increase our credibility in the Ceará market more specified the city of Fortaleza. The main platforms that we are going to use are the Facebook and the Instagram. Both have a big audience in Fortaleza and even if we don´t have E-commerce website with our products, with this platforms we can grow our segmented audience, and when we have a number of considerable followers we can make events with our local partners in the city, with a higher probability of success. The E-commerce website is the next step for our company, but we have to study all the different factors. Marketing Off-Line In this case we are not going to advertise in the off-line media, our strategy here is more personal, more close to the final costumer. We want to sell knowledge of the product and concept, and sales will be directly linked to our success in this particularly point. When we get a good costumer that understands our concept, together we want to make some wine tastings, explaining the region, the concept of the brand, how to drink a wine, how to harmonize with the food and the ideal temperature to drink wine etc. In this process we are going to have the help of our producers in Portugal that are able to travel to Brazil to explain more about the brand and the influence of the region which they belong on the wine quality and main characteristics. Is very important for us that the final consumer understands what they are drinking, because drinking wine is not only status.
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7.2- Customer and product Segmentation Our Customers are the Restaurants, Bars and gourmet stores that our final clients frequent. We have products to different types of social groups, our final target is between the classes A&B, C and part of D. Social Classes / Wine
Segmentation Class A&B Class C Class D
Bag in Box Entry Wines 2º Level Wines Reserve Wines Sparkling Liquors Chart 6 – Wine Segmentation vs Social Classes Client / Wine Segmentation
Bag in Box
Entry Wines
2º Level Wines
Reserve Wines Sparkling Liquors
Portuguese Restaurants LC
Portuguese Restaurants MC and HC
Brazilian Restaurants MC and HC
Beach Bars
City Center Bars
Gourmet Stores
Restaurant Classification - LC- Low Class MC- Midle Class HC- High Class Chart 7 – Market Entry Structure The Brazilian consumer is considerer fairly young with a relatively infrequent consumption. The Brazilian consumer of imported wine is predominantly male and relatively young. About 70% of consumers are under the age of 44 years.
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Graphic 7 – Brazilian consumer segmentation by gender and sex12. The frequency of consumption is still relatively low compared to other markets, the consumption is associated with a more sporadic and special moments. We see these facts as a big opportunity for our company, because we believe that the act of drinking wine is associated with high social status, and with the increasing number of people in the higher social classes the wine consumption is going to increase to. The Brazilian consumer shows huge interest in wine, but generally assumes that still do not know much about this world. Most consumers consider that the wine has reasonable prices, because they see wine as a luxury product, it is clear that with this current tax rate, not only limits the consumption growth but also reinforces the luxury image of the product.
12 http://www.ivv.min-‐agricultura.pt/np4/371
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Graphic 8 – Wine attitude (% Of consumers who agree)13. This last graphic increases more our strategy to implement a wine consumption with an educational part. We have 43% of possible costumers that don’t know to much about the product, but they want to consume, so we think our strategy is the best one.
7.3- Market size and trends The market size in Fortaleza has a big potential, the city has more or less 2.5 million people, where 1,1 million are men and 1.3 million women.
FORTALEZA Total Population 2.493.665 The area 313 km2
Gender Men 1.166.501 Women 1.327.164
Age Group 0 – 19 912.522 20 – 49 1.221.185 More than 50 > 359.958
Social Classes Urban households Class A 32.173 Class B 171.598 Class C 311.893 Class D 135.147 Class E 13.163 Chart 8 – Fortaleza demographic statistics 13 http://www.ivv.min-‐agricultura.pt/np4/371
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Our main targets are inside the social classes A, B and C, and the population target is more or less people between 30 to 50 years old. These are our big target market in the city. The consumption of red wine is dominant, but the white and rosé have grown more markedly, due to the hot weather that 'pulls' the consumption of fresher wines. Normally the red wine is more associated to lower temperatures, and in the south of Brazil where the wine consumption is higher we have weather temperatures like Europe, so the red wine earns more preponderance than the white and Rosé wines. In Fortaleza, the weather is constant the maximum temperature during the day is more or less 33ºC, and during the night the lowest temperature is more or less 27ºC, this are average temperatures. So we thought that the trend was to drink more white and rosé wine, but it wasn´t like that. The south of the country has a big influence in the culture of the northeast, and the population prefer the red wine because it represents a higher social standard, and it ´s normal to see in the restaurants a bottle of red wine inside of a frappe ice, which is completely impossible in Europe. Normally the red wine has to be drunk between temperatures of 16 to 18ºC, and it´s impossible to get these temperatures in Fortaleza. But the white and rosé wine is right now winning more supporters.
Graphic 10 - Consumption by types of wine14
14 http://www.ivv.min-‐agricultura.pt/np4/371
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7.4- Competition and competitive barriers We can divide competitors in indirect and direct competitors. Indirect Competitors:
- Beer – Is the bestseller product in Fortaleza. - Spirit Drinks – Is usual in Fortaleza people, mostly men drink whisky during
dinner. Direct Competitors:
- All other wines which are present in the Brazilian Market. As we see before, Chile is the biggest wine provider of Brazil with 31% market share, followed by Argentina, France and in 4th position Portugal, but Italy, Spain, Uruguay, South Africa and USA are countries with a lower market share but all these countries have quality wines and they are all direct competitors. One of the big disadvantage of the European wines is the tax rate, that are higher than the South America wines, and this fact can be one of the main barriers when a company want to enter in the Brazilian market. Brazil has a free trade agreement called MERCOSUR. This agreement represents the Southern Cone Common Market. Countries involved in the agreement are Argentina, Brazil, Paraguay and Uruguay with Chile as an associate member. MERCOSUR created a customs union between member countries that provided for the elimination of certain trade barriers at the end of 1995. A common external tariff has been implemented upon all products coming in from outside the region.
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Chart 9 – Porter 5 forces Bargaining power of suppliers: Low Bargaining power of customers: High Threat of new entrants: High Threat of substitute products: Low Competitive rivalry within the industry: High As importers when we analysed the market we don´t have so many competitors with the same quality products. We have two Portuguese importers, which have Portuguese wines, but with a lower quality, they sell more to the Portuguese restaurants with our classification Low Class. We have two big Portuguese importers one based in Fortaleza which has Portuguese wines from almost the same regions as our products, but they have lack of some types of wine, they don´t bet in green wines and Alvarinho. And the other big importer is based in São Paulo and they have a distribution company in Fortaleza that work their products in the city, they have mostly wines from the region of Alentejo, the disadvantage of this process is that the products pay taxes when they cross different states and the product turns more expensive. Our portfolio has wines for different social classes, after we know all our importation tax costs we determine our commercial prices, but before we analysed the prices of our competition, and we analyse the prices that the market was willing to pay for our product.
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7.5 – PESTLE Analysis Political
- Brazil right now have a political instability environment, and we don´t really know what the new import policy.
- The leftist government that protects the importations to prevent new European products to enter in the Brazilian market.
- The employment laws are very protective for the workers. - The importation tax policy is very high so the final price of a bottle of wine is
very high comparing with Europe. Economic
- With the Government instability before and after the elections the markets decreased.
- The Ceará GDP has increased during the last years, because of the growth of Agriculture and Industry.
- The Middle Class has growth in this state, purchasing power increased significantly as well as inflation.
Social Culture - This is one of the big problems of the Northeast states in Brazil, the economic
growth is not accompanied by the Social Culture. - There are more or less 3 million people in Fortaleza, and the city
infrastructures didn´t grow at the same rate. - Real State is very expensive and traffic is terrible for this reasons there are
some people starts leaving the city. - Public Hospitals have lowest quality than the Private hospitals.
Technological - The technology products are very expensive because of the high taxes that are
imputed when they enter in the country. - The internet service is low quality comparing with Europe, which represent
sometimes more time to do some tasks. Legal
- The Legal system is complicated and complex - The bank policy is very restrict. - Instalment payments are very common for all kind of products, which means
that the credit control must be tightened. Chart 10 – PESTL analysis of Ceara and Brazil
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7.6 - SWOT Analysis
Strengths
- The strength of the Portuguese wine label is strong in the market.
- We are a small company with a low cost organization, we focus our goal on the client.
- Experience of 10years in the northeast.
- Product quality is unquestionable.
Weaknesses
- We are new in the market and our wine brands are unknown.
- We don´t have sales volume and we don´t have yet exclusive contracts with our providers.
- Our distribution model can be improved, but right now is not perfect.
Opportunities
- The northeast market is young and as a big way to run.
- The consumption is low, and the tendency is to increase significantly.
- Final costumers want to know more about the wine, and his concept.
- The number of wine stores is growing.
- Import differentiated products
Threats
- Instability in the Government Policy, they can increase the wine taxes.
- Wines from MERCOSUL have less importation taxes and low prices.
- Competitors from the south of the country are entering in the northeast market.
- The Brazilian wine is increasing in quality.
Chart 11 – SWAT Analysis of the company
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7.7 - Prices After one month of research, and consulting the competitors prices we finally have our prices for the products. The products are segmented in five groups: Sparkling and Liquors, entry wines, second level wines, reserve wines and bag in box.
Sparkling and Liquors Quantity Cost Price Retail Price Licor Beirão 696 R$ 31,13 R$ 65,00 Licor Ginja d´Obidos 60 R$ 38,84 R$ 63,00 Espumante Montanha Reserva Bruto 147 R$ 28,75 R$ 55,00 Espumante Montanha Meio Seco 240 R$ 28,75 R$ 52,00 Espumante Montanha Love Pink 69 R$ 29,48 R$ 50,00 Moscatel Douro Favaios 330 R$ 22,93 R$ 45,00 Amendoa Amarga 120 R$ 25,84 R$ 45,00 Porto Ruby Monge 750ml 126 R$ 28,87 R$ 45,00
Entry Wines Da Malta Tinto 750 R$ 18,98 R$ 26,00 Encostas de Favaios Branco 78 R$ 18,14 R$ 25,00 Encostas de Favaios Tinto 60 R$ 18,46 R$ 26,00 Plexus Rose 132 R$ 18,72 R$ 25,00 Plexus Branco 258 R$ 18,80 R$ 25,00
2º Level Wines Adegas de Pias Branco 2013 150 R$ 20,76 R$ 28,00 Vinho Verde Verdegar 474 R$ 19,40 R$ 28,00 Terras de Pias Tinto 2011 300 R$ 20,76 R$ 35,00 Adegas de Pias Tinto 2012 300 R$ 20,76 R$ 35,00 Vinho do Poeta DOC Dão Tinto 444 R$ 20,71 R$ 35,00
Reserve Wines Piornos Reserva 2013 Branco 228 R$ 21,31 R$ 38,00 Verdegar Alvarinho 162 R$ 27,28 R$ 49,00 Terras de Pias Reserva 2011 Tinto 132 R$ 23,90 R$ 45,00 Vila Alice Reserva 2010 Tinto 132 R$ 23,90 R$ 45,00 Piornos Reserva 2011 Tinto 516 R$ 21,52 R$ 45,00
Bag in Box Big Bag Vinho Tinto Mesa Cartaxo 72 R$ 31,75 R$ 70,00 Bag in Box 5l Da Malta Tinto 72 R$ 32,27 R$ 70,00 Bag in Box3l Da Malta Tinto 24 R$ 26,57 R$ 48,00 Bag in Box3l Da Malta Branco 24 R$ 26,57 R$ 45,00
Chart 12 – Cost and Retail price chart
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7.8 – Sales Team / Distribution Our local partner, A Taberna, does the Distribution, this is a restaurant with a small store that is selling basically our products. The sales team consists initially by two salesmen that are going to be separated by areas in the city with the focus on restaurants, bars, gourmet stores and wine stores. After the sale is completed, our partner concludes the process, they are responsible for distributing, receiving money and collects information about the satisfaction of the client. Our main goal and our strategy in the sales is not selling a big quantity of wine for one costumer, because we have to rationalize the product our strategy is that the salesmen with the purchase manager of the restaurant, or other store make a perspective of sales for more or less two or three weeks. It is the responsibility of the seller to pass in the client every two weeks and analyse how it is with our product, if the costumer is having problems, we both have to meet and organize a strategy to increase the sales.
7.9 – Communication Strategy
Graphic 11 – The Communication Strategy The product is not new in the city, there is wine in all restaurants and bars, our brands are new in the market so we need to know what are the first costumers feeling about the product when they are tasting. In this process we think the feedback is fundamental for our success, because only with this feedback we can improve and bring new products to the market.
Opinion Leader
Truly Details
Distribution
Salesforce
Clients
Products
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8 - Time and Cost Operations of the Project Our project begins when the container starts the journey to Pecém port from Lisbon. The vessel leaves Lisbon on 5 August, and is going to stop in Algeciras in Spain to change vessel and finish the journey 25 days after the departure. The estimated days in this chart are based on the theoretical assumptions that our freight company made us, because this is going to be our first importation so is probable that some delays happened. The living costs that were calculated were more or less 100 Reias a day for normal costs. Estimated time Start date End date Fixed Cost Vessel transport 25 days 05/08/14 30/08/14 R$ 55 828,70 Products removal from the container 2 days 01/09/14 03/09/14 R$ -‐ MAPA fiscal 3 days 04/09/14 07/09/14 R$ 31 861,84 Shipping samples analysis 1 day 07/09/14 08/09/14 R$ 10 421,78 Federal fiscal 3days 08/09/14 10/09/14 R$ 40 551,85 Final processes work 2 days 11/09/14 12/09/14 R$ 5 030,00 Port Departure process 1 day 15/09/14 15/09/14 R$ 800,00 Living cost -‐ 2 persons 30days 01/09/14 01/10/14 R$ 7 000,00 37days 05/08/14 15/09/14 R$ 151 494,17
Chart 13 – Time and cost of the project
9 – Business Finances
9.1 - Gross and Operating Margins Our Strategy in this process of developing the prices and margins policy is the simply as possible, because our partners have to be able to calculate their profits very quickly. Our Net margin was calculated by subtract the Retail Price by the Cost Price and than we have the costs of marketing and trading, 10% for the sales team, 10% or 15% on the distribution company, depending on the product because in some groups we are able to give 15% in others only 10%, and finally we have to subtract the last tax rate on the retail price, which is 2,75%.
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Sparkling and Liquors Gross Margin
Net Margin
Licor Beirão 111% 52% Licor Ginja d´Obidos 63% 18% Espumante Montanha Reserva Bruto 93% 39% Espumante Montanha Meio Seco 83% 32% Espumante Montanha Love Pink 71% 24% Moscatel Douro Favaios 98% 43% Amendoa Amarga 76% 27% Porto Ruby Monge 750ml 57% 14%
Entry Wines Da Malta Tinto 39% 7% Encostas de Favaios Branco 40% 8% Encostas de Favaios Tinto 43% 10% Plexus Rose 35% 4% Plexus Branco 35% 4%
2º Level Wines Adegas de Pias Branco 2013 36% 5% Vinho Verde Verdegar 46% 13% Terras de Pias Tinto 2011 70% 32% Adegas de Pias Tinto 2012 70% 32% Vinho do Poeta DOC Dão Tinto 71% 32%
Reserve Wines Piornos Reserva 2013 Branco 80% 30% Verdegar Alvarinho 81% 31% Terras de Pias Reserva 2011 Tinto 90% 37% Vila Alice Reserva 2010 Tinto 90% 37% Piornos Reserva 2011 Tinto 111% 53%
Bag in Box Big Bag Vinho Tinto Mesa Cartaxo 122% 60% Bag in Box 5l Da Malta Tinto 118% 58% Bag in Box3l Da Malta Tinto 82% 32% Bag in Box3l Da Malta Branco 71% 26%
Chart 14- Gross and Net Margins of the products
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9.2 – Fixed and Variable costs The main fixed cost in this project was already known, and having some deviations in the budget will not be very high. Fixed Cost
- CIF (Cost + Insurance + Freight) - R$ 55 828,70 - Taxation – R$ 72413,69 - Other fixed cost imputed to this first importation – R$ 6130,63 - Rent – R$ 500 / month
Variable Cost Because we don´t have a distribution structure we have a local partner that take care of these proceedings and they coordinate the team sales. Our cost with commissions on sales is 15% to our local partner and 10% for the team sales.
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9.3 Wine Importation Total Cost Besides the normal taxes, CIF, II, IPI, PIS, COFINS, ICMS there are another costs to take in account for this importation.
Wine Importation Total Costs Cost
CIF (Cost + Insurance + Freight) R$ 55 828,70 Import Tax – II R$ 13 357,77 Tax on Industrialized Products – IPI R$ 13 087,06 PIS R$ 885,88 COFINS R$ 4 080,63 SISCOMEX R$ 450,50 Penalty R$ 500,00 Merchant Marine R$ 1 126,97 Shipping Company Cost R$ 987,50 Technical Service Customs R$ 1 448,00 ICMS R$ 29 097,96 ICMS ST 7,26% R$ 10 319,96 FECOP 2,5% R$ 1 133,93 Port Operator R$ 1 335,50 Storage R$ 850,00 Internal Shipping Pecem - Fortaleza R$ 1 100,00 Federal Revenue- Bottle Stamp R$ 230,66
Total R$ 135 821,02 Wine Analysis R$ 810,13 Shipping to São Paulo R$ 9 611,65
Total Cost R$ 146 242,80 Chart 15 – Wine importation Total Costs The fixed costs of the Marine, the company shipping, the technical service customs, the port operator, the storage of the products during this inspection process, the internal shipping from Pecém to our storage in Fortaleza and the stamps for the bottles are all fixed costs in this first operation that we already know that we have to back. The first conclusion that we can conclude is that all the costs are more or less 160% of the CIF.
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9.4 – Sales Previsions This sales prevision is for the last quarter of 2014 and the first and second quarter of 2015. After that we have to make a sales analysis to start a new order, as we saw in the first importation this process takes more or less 3 months, to get everything in order, and in this next container we are going to decrease the references, selling only the ones that have more output.
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Chart 16 – Sales prevision for 2014 and the first 2 quarters of 2015
4T 2014 2015 2016 2017 2018
Licor Beirão 80 R$ 5 200 340 R$ 22 100 380 R$ 24 700 440 R$ 28 600 470 R$ 30 550
Licor Ginja d´Obidos 20 R$ 1 260 120 R$ 7 560 170 R$ 10 710 210 R$ 13 230 250 R$ 15 750 Espumante Montanha Reserva Bruto 70 R$ 3 850 240 R$ 13 200 290 R$ 15 950 330 R$ 18 150 390 R$ 21 450
Espumante Montanha Meio Seco 70 R$ 3 640 280 R$ 14 560 300 R$ 15 600 350 R$ 18 200 400 R$ 20 800
Espumante Montanha Love Pink 35 R$ 1 750 32 R$ 1 600 0 R$ - 0 R$ - 0 R$ -
Moscatel Douro Favaios 35 R$ 1 575 160 R$ 7 200 200 R$ 9 000 240 R$ 10 800 290 R$ 13 050
Amendoa Amarga 30 R$ 1 350 35 R$ 1 575 40 R$ 1 800 0 R$ - 0 R$ -
Porto Ruby Monge 750ml 35 R$ 1 575 150 R$ 6 750 180 R$ 8 100 220 R$ 9 900 260 R$ 11 700
Da Malta Tinto 80 R$ 2 080 300 R$ 7 800 360 R$ 9 360 400 R$ 10 400 420 R$ 10 920 Encostas de Favaios Branco 30 R$ 750 100 R$ 2 500 120 R$ 3 000 140 R$ 3 500 170 R$ 4 250
Encostas de Favaios Tinto 35 R$ 910 120 R$ 3 120 160 R$ 4 160 170 R$ 4 420 200 R$ 5 200
Plexus Rose 40 R$ 1 000 120 R$ 3 000 150 R$ 3 750 180 R$ 4 500 200 R$ 5 000
Plexus Branco 55 R$ 1 375 180 R$ 4 500 240 R$ 6 000 280 R$ 7 000 340 R$ 8 500 Adegas de Pias Branco 2013 30 R$ 840 100 R$ 2 800 130 R$ 3 640 160 R$ 4 480 200 R$ 5 600
Vinho Verde Verdegar 60 R$ 1 680 240 R$ 6 720 300 R$ 8 400 350 R$ 9 800 390 R$ 10 920
Terras de Pias Tinto 2011 80 R$ 2 800 220 R$ 7 700 260 R$ 9 100 300 R$ 10 500 360 R$ 12 600 Adegas de Pias Tinto 2012 60 R$ 2 100 75 R$ 2 625 80 R$ 2 800 83 R$ 2 905 0 R$ -
Vinho do Poeta DOC Dão Tinto 50 R$ 1 750 190 R$ 6 650 250 R$ 8 750 290 R$ 10 150 340 R$ 11 900
Piornos Reserva 2013 Branco 40 R$ 1 520 130 R$ 4 940 170 R$ 6 460 210 R$ 7 980 230 R$ 8 740
Verdegar Alvarinho 35 R$ 1 715 150 R$ 7 350 185 R$ 9 065 230 R$ 11 270 250 R$ 12 250 Terras de Pias Reserva 2011 Tinto 40 R$ 1 800 45 R$ 2 025 40 R$ 1 800 0 R$ - 0 R$ -
Vila Alice Reserva 2010 Tinto 40 R$ 1 800 150 R$ 6 750 180 R$ 8 100 230 R$ 10 350 280 R$ 12 600
Piornos Reserva 2011 Tinto 45 R$ 2 025 160 R$ 7 200 230 R$ 10 350 280 R$ 12 600 340 R$ 15 300
Big Bag Vinho Tinto Mesa Cartaxo 20 R$ 1 400 240 R$ 16 800 300 R$ 21 000 360 R$ 25 200 410 R$ 28 700
Bag in Box 5l Da Malta Tinto 20 R$ 1 400 200 R$ 14 000 270 R$ 18 900 330 R$ 23 100 390 R$ 27 300
Bag in Box3l Da Malta Tinto 10 R$ 480 10 R$ 480 0 R$ - 0 R$ - 0 R$ -
Bag in Box3l Da Malta Branco 10 R$ 450 10 R$ 450 0 R$ - 0 R$ - 0 R$ -
1155 R$ 48 075 4097 R$ 181 955 4985 R$ 220 495 5783 R$ 257 035 6580 R$ 293 080
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9.5- Accounting Framework The Accounting framework that was choose for the company is called National Simply, this is the best choose for start-ups because the taxes are lower and are all together in one. It depends on the type of industry the company operates, and a company can be part of this framework only if the annual revenue is less than 3.600.000 Reais. In this simplified regime the focus is on the revenue and not on the net profit. Month after month we are going to be charge 2,75% on the monthly revenue, regardless the profit margin, and at the end of the year the company is always charges depending on the revenue. For example, if the year revenue is 180.000 Reias at the end of the year the payable fee will be 4% of the revenue, regardless of the margin of annual net profit, and if the company has losses at the end of the year, the same 4% has to be charged.
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9.6 - Income Statement
PROFIT & LOSS 2014 2015 2016 2017 2018
Sales 48 075 181 955 220 495 257 035 293 080
TOTAL Revenue 48 075 181 955 220 495 257 035 293 080
Variable Costs
Tax ICMS (2,75%) -1 322 -5 004 -6 064 -7 068 -8 060
10% SalesTeam -4 808 -18 196 -22 050 -25 704 -29 308
Distribution 15% -7 211 -27 293 -33 074 -38 555 -43 962
TOTAL Variable Costs -13 341 -50 493 -61 187 -71 327 -81 330
TOTAL Gross Margin 34 734 131 462 159 308 185 708 211 750
% TOTAL Gross Margin 72% 72% 72% 72% 72%
Fixed Costs
1 Manager -9 000 -36 000 -40 000 42 000 45 000
contract workers -12 000 -26 000 -26 000 -26 000
1 Car 0 0 -12 000 -12 000 CIF (Cost + Insurance + Freight) -55 829 -10 000 -30 000 -40 000 -40 000
Importation Tax cost -82 414 -14 000 -43 000 -69 000 -69 000
Other Importation Costs -7 578 -4 000 -4 000 -2 000 -2 000
Wine Analysis -10 422 0 0 -3 000 0
Wine Losses -1 700 -200 -400 -500 -500
Storage Rent -1 500 -1 500 -1 500 -1 500 -1 500
Marketing expenses -1 500 -2 500 -1 000 -3 000 -3 500
Total Operating Fixed Costs -169 943 -80 200 -145 900 -115 000 -109 500
Result before Taxes -135 209 51 262 13 408 70 708 102 250
Income Tax 4% -1 389 -5 258 -6 372 -7 428 -8 470
Net Result -136 598 46 004 7 035 63 279 93 780
Net Margin 0 25% 3% 25% 32%
CASH FLOW -136 598 46 004 7 035 63 279 93 780
Chart 17 – Truly Details income statement. With 10% Tax, and with an initial investment of R$150 000.
Payback NPV FLUJOS VAN TOTAL IRR IRR 5 R$ 183 819,80 R$ 33 819,80 18% 1,23
- Only at the end of five years the company reached a Payback. - The net present value of the company in this 5 years is R$ 33 819,80 higher
than the initial investment, which means that the company creates value. - The internal rate of return is 18%, not very high, but considering that we are
not having very high net returns, this is not a very bad internal rate.
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10- Conclusion Brazil is a difficult country to work with a European mindset, but it is an exciting challenge starting a business, the barriers are high in all sectors, every main objective has difficult barriers to overcome. It is to get honest and skilled people to work with. The most challenging in Brazil is managing people, at least that’s what I can conclude with this almost two months spent in Fortaleza. One of the greatest strengths of the country is the power of consumption, if just one product is well accepted by the market, the financial returns can be very high. The wine market in the Ceara is growing, wine is a lifestyle symbol and the new rich people love to show to society that they can afford a bottle of wine. So the big challenge in this market is to reach the right costumer in the city, and make that group of people consume our product. The best way to reach their mind is through knowledge, our strategy is to get people involved in a community of wine drinking, people love to drink wine, but normally they don´t know what they are drinking and worst they don´t know what they feel. To understand these feelings, know what kind of wine is better to a specific time, what is the best temperature to consume the product, what kind of gastronomic harmonization we should use with this particularly wine. This kind of questions we want to answer and this is the biggest challenge of our project. In the process of clearance customs for new companies the process is very difficult, everything takes one or two weeks more than it was supposed, the budget is always exceeded. We supposed to stay 15 days to products costume clearance and more 15 to organize the commercial department, and we spend the all month to solve problems related to the products, this delayed our whole commercial process, but it´s a normal thing in this countries, the greatest virtue is patience. The procedures in the wine importation are very slow and bureaucracy and the taxation is very high, but as we saw all this facts become diluted in the final price to consumer, who agrees to pay the price offered. One of the biggest challenges in the marketing strategy is to find a solution to increase the wine consumption instead of beer. The Beer consumption is more or less 10 times the wine market, and the reason is simple, is cheaper, is better to drink with the high temperatures that the city has. The wine market is still a niche, but is growing largely every year, and even though we are a small company we have to position ourselves in different levels of costumer because we have different products and clients segments, which requires different communication skills, that for a small business becomes an interesting challenge. For our surprise one of the best sellers are the bag in box for the restaurants, there is a new product in the market, that only the Portuguese restaurants were aware.
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The reasons are very logic, the market for the glass of wine in the restaurants are growing because the costumers that are not used to drink wine they start with the glasses, is still cheaper than the bottle and it´s a way of start the wine adventure. The other products that best suit to the Brazilian market is the Licor Beirão and Ginja de Óbidos because they are suit, the Porto´s wine sells itself because the brand PORTO is very strong. There are the reserve wines that have a good acceptance in this market for a more sophisticated audience that already knows what it is to drink a good wine. Analysing the project profitability, only at the end of the fifth year the company reached a Payback, this is a normal result because the company has high costs in the distribution, the first importation has very high costs the second and third are going to have low costs that increase the company margins. This fact is fundamental for the results achieved in the following years, the cash flow in the first year after the investment was high and declined further in the second year due to the high investment in products, the third and forth year the cash flow are going to be high because the sales reached an ideal result to offset costs. The net present value of the company in this 5 years is R$ 33 819,80 higher than the initial investment, which means that the company creates value for the investors, with this result we can reach an internal rate of return of 18%. So the big challenge in this market is to sell as much as we can to purchase more containers, because the high costs of the first one is going to be diluted in future containers.
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11- Bibliograpy - Market Research: Brazil, evolution of the competitive position of Portuguese wines 2002-2012. http://www.viniportugal.pt/docs/default-source/estudos-de-mercado/brasil---estudo-de-mercado-2002--2012.pdf?sfvrsn=4 - State Government of Ceara, http://www.ceara.gov.br/ceara-em-numeros# - The Economy in Ceara state and city of Fortaleza, http://www.anuariodefortaleza.com.br/economia/ - The social classes dynamic, in the last decade. http://www.ipece.ce.gov.br/publicacoes/ipece-informe/Ipece_Informe_45_27_novembro_2012.pdf - The International Wine market – Main importer countries. http://www.ivv.min-agricultura.pt/np4/371 - Brand Strategy of the Portuguese Wines - http://www.viniportugal.pt/Promocao/EstrategiaWinesPortugal - http://cidades.ibge.gov.br/painel/painel.php?codmun=230440 - Green Wine Region - http://www.vercoope.pt/index.php; http://www.vinhoverde.com/en/default.asp - The Douro Region and The Adega Cooperativa de Favaios; http://adegadefavaios.pt/pt/inicio; http://www.ivdp.pt/index.asp?idioma=1& - The Dão Region and Bairrada Region; Caves da Montanha. http://www.cavesdamontanha.pt; http://www.cvbairrada.pt; http://www.udaca.pt/en/regiao/caracterizacao/ - SISCOMEX (Integrated Foreign Trade System), http://www.desenvolvimento.gov.br/portalmdic/siscomex/siscomex.html - The Region of Beira Interior and Adega Cooperativa Covilha. http://www.adegacovilha.pt; http://www.cvrbi.pt - The Regional Wine of Tejo River; Adega cooperative do Cartaxo. http://www.adegacartaxo.pt; http://www.cvrtejo.pt/cgi-bin/getfromdb.pl?menu=EkFuFZAykymJvpEUsG&lang=pt - Alentejo Region and Monte da Capela. http://herdadedacapela.com/en/; http://www.vinhosdoalentejo.pt/index.php. - Licor Beirão, http://www.licorbeirao.com - Liqueur Ginja de Óbidos, http://www.frutobidos.pt - Tax Portal, http://www.portaltributario.com.br/