Food and beverage company Sara Lee (NYSE:SLE), the top coffee roaster in Brazil, expects the domestic market to grow at 3-5% annually and sees significant potential to organically expand the market share of its popular brands like Pilao, Café do Ponto and Damasco. It recently acquired Brazil’s out-of-home player Express.Coffee and launched Senseo coffee machines to expand the reach of its coffee brands. Sara Lee’s international beverage division sells coffee and tea products in various markets of Europe, Brazil, Australia and Asia.
Next month, the company will split into two separate, pure-play companies: International Beverage business, renamed D.E Master Blenders 1753, and North American Meats business. The split is expected to improve the profitability of the company’s core businesses, which have been under-performing and trailing peers like Kraft Foods (NYSE:KFT) and Nestle (NYSE:NESN) despite an envious portfolio of market leading brands because of supply chain and other inefficiencies.
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Strong Coffee Demand Brewing In Brazil
Sara Lee expects domestic coffee demand in Brazil, the biggest grower of coffee beans, to continue to grow at 3%-5% annually, much faster than in Europe and the U.S., as the economy grows and incomes rise and more Brazilian consumers drink coffee away from home – in restaurants and cafes. Also, the highest quality or premium segment of coffee has been growing faster than the cheapest brands as consumers now seek better quality.
Sara Lee currently occupies 22% market share in Brazilian coffee market with top-selling brands including Pilao, Café do Ponto and Damasco, and it plans to expand its market share in the country through organic growth.
Last month, Sara Lee acquired Brazil’s Expresso.Coffee that specializes in selling espresso coffee in the out-of-home small business, vending and bakeries segments, and currently operates more than 1,000 selling points in Brazil. Expresso.Coffee is now growing rapidly fueled in part by a license to sell coffee under Sara Lee’s Pilao brand, particularly in the Sao Paulo and Rio de Janerio markets with close to 20 million consumers.
The company has also substantially expanded the branding and consumer connection platform for the Pilao brand. In November 2010, Sara Lee acquired Café Damasco coffee business based in Brazil and has recently launched Senseo single-dose coffee machines in partnership with Philips in Brazil to expand its brands’ reach to more consumers.
We have a $22.69 Trefis price estimate for Sara Lee, at 10% premium to the current market price.