Peru Country Profile

Market Overview:

According to Euromonitor, over the past decade Peru has been one of the region’s fastest-growing economies. Foreign investment has poured into mining, energy and big infrastructure projects, boosting public revenues and funding public investment. The percentage of those living on less than US$2 per day was halved to 28% during Peru’s period of remarkable growth and the government has cut the poverty rate to 15%. Meanwhile, a thriving middle class has emerged. These consumers are reshaping the country’s national pattern of consumption. The fact that this emerging middle class has been underestimated is mainly due to their sources of income, which tend to be informal.

The pace of growth slowed in 2014 when domestic demand took over as the main driver while the country’s exports fell as commodity prices weakened and demand from China slumped. A modest rebound began in 2015 though the economy continued to perform below trend when real Gross Domestic Product (GDP) rose by 3.3%. GDP growth reached 4% in 2016. Temporary supply disruptions in mining and agriculture led to a drop in investment but higher metals production and a partial recovery in services and commerce provided support.

Euromonitor forecasts that the economy will strengthen in 2017. Growth of private consumption will continue to be an important driver. Using temporary legislative powers, the government intends to introduce several reform programs as well as boosting investment in public infrastructure projects. Exports should see a recovery as external demand improves. Real GDP should rise to about 4.5% per year in the medium term. The real value of private final consumption rose by 3% in 2016 and gains of 3.6% are expected in 2017.  

Rising wages and growing demand for all sorts of products and services drive consumption. Consumer credit is also growing briskly. The potential rate of growth is estimated to be just 3.5% but this should rise if additional reforms are launched. A key project will be the construction of a road between Peru’s Pacific coast and Brazil.  Several large-scale mining projects will begin production in the next 2-3 years while increased private and public investment in infrastructure projects supports aggregate demand.  

USDA’s Office of Agricultural Affairs (OAA) in Lima hereinafter referred to as “Post” reports that The U.S.-Peru Trade Promotion Agreement (PTPA) has been instrumental in boosting bi-lateral trade in food and agricultural products between the United States and Peru. U.S. exports of agricultural products to Peru added up to US$1.1 billion in 2016, an increase of 8% over 2015. Peru is now the 2nd largest market in South America. Of that 2016 total amount US$232.3 million was of the consumer oriented variety with growth of 3% and 20.2% of the agricultural total. Peru was the 4th largest market for exports of U.S. processed foods in 2016, totaling US$218.6 million, a decrease of 21% over the previous year. Top processed food exports to Peru in 2016 included food preparations, fats and oils, processed/prepared dairy products, chocolate and confectionery, processed vegetables and pulses, non-alcoholic beverages, prepared/preserved meats, dog and cat food and snack foods.  

Peru is a member of a number of bilateral and multilateral trade agreements that have opened new markets for its exports and increased demand for imported goods. This openness to international trade and Peru’s growing middle class has transformed domestic food market channels. The number of Commercial Centers in Peru increased from seven in 2000 to 77 in 2016.  Total 2016 sales in this sector are forecast at US$8 billion.

The U.S. enjoys some competitive advantages in the Peruvian food market. The PTPA grants duty-free access to two-thirds of all U.S.-origin food and agricultural products, including high-value food products. There is an active supermarket industry that is promoting increased demand for high-value food products. There is growth of new supermarket outlets in Lima’s suburbs of Lima and other cities. Peruvians have appreciation for U.S. food quality and culture. There is a perception of modern retail outlets as cleaner, convenient and time saving. There is also increased health consciousness among the Peruvian population as its middle class expands.

Peru provides preferential tariff treatment to fellow Andean Community (CAN) members Bolivia, Colombia, and Ecuador, as well as to Mexico, Paraguay, Argentina, Brazil, Uruguay, and Cuba. The U.S. remains as the largest agricultural product supplier to Peru accounting for 30% of market share, followed by Chile with 9.5%.

Challenges for U.S. food exporters include the fact that consumers prefer to buy fresh produce in traditional markets. Although supermarkets, the main source of imported food products, they account for only 30% of the retail food market share in Lima and 12% in the provinces. New local food brands are appearing in the market at very low prices. - Provincial supermarkets are supplied by Lima-based companies and are not that dependent on imports. Traditional markets dominate retail sales in secondary cities. There is lack of brand awareness among some consumers. There is a Government organized food promotion campaign called “Buy Peruvian.” Domestic producers manufacture more affordable product according to local taste preferences.   

Retail Sector:

According to Euromonitor the retail sales in the packaged food industry reached US$8.2 billion in 2016. This represented an increase of 26.2% from 2012, and a total dollar amount of just over US$1.7 billion. They have forecast retail sales of packaged food to increase to US$11 billion, or by 26.1% by 2021, a total dollar amount of US$2.3 billion. High growth categories in the forecast include breakfast cereals, ready meals, processed meat and seafood, sauces dressings and condiments, baby food, savory snacks, rice pasta and noodles and confectionery.

Post forecasts Peru’s demand for imported food and agricultural products to remain strong in the coming years. Improving economic growth during 2017-19 will stimulate continued demand for U.S. origin products.  Post also forecasts that total 2016 retail food sales will reach US$21.9 billion, of which US$3.7 billion or about 17% will be supermarket sales. Domestic consumption will benefit in the medium term from government stimulus measures seeking to boost consumer spending and maintain investor confidence.

Peru’s food retail market is comprised of both conventional supermarkets and traditional channels, such as wet markets and independent grocery stores. While the traditional channel holds approximately 80% of market share, the modern channel has experienced higher growth in recent years. In 2016, conventional supermarket chain growth was projected at 4%. While this is 2% lower than in 2015, conventional supermarkets are still reporting profits as a result of the maturity of outlets open towards the end of 2015 and early 2016 and an aggressive discounting campaign to encourage sales. The market includes 256 conventional supermarkets and superstores, with 167 alone in Lima.

Euromonitor reports that convenience stores were introduced to the Peruvian market in 2015, and slowly begin to spread through Lima, with less than 40 outlets between four players in this year. However, at the beginning of 2016, one player, Tambo+, stated an aggressive strategy to compete directly with independent small grocers. It plans to have 600 outlets by 2021. It is important to mention that in 2016 it had already opened 15% of this total number of outlets. The other players in convenience stores are also expanding their presence, but in a more conservative way, and expect to open around 10 outlets per year, considering that these players come from chained forecourt retailers and are developing a new business model; Tambo+ is the only one focused completely on the convenience stores channel.          

The performance of hypermarkets and supermarkets improved in comparison with 2015; in 2016 supermarkets presented growth of 8% in current value terms, whilst in 2015 a decline was seen. In the case of hypermarkets, 2016 presented growth of 12% in current value terms, compared with 3% in 2015. The better expectations of consumers, the increase in outlets across the country, product promotions and the increase of private label allowed them to grow.

Post also points out some of the specific dynamics of the Peruvian retail food markets. Major supermarket chains are forceful negotiators.  Supermarket suppliers supply a wide range of products. Major food importers/distributors supply all major supermarket chains and provincial retailers. Major supermarket chains will request product exclusivity. Food products are often imported in consolidated containers. Major supermarket chains import high-end products directly to earn higher margins. Distributors and wholesalers conduct frequent in-store promotional activities, assigning their own support personnel in each store.

Best Product Prospects:

The PTPA, supported by favorable market conditions in Peru, creates opportunities to expand U.S. exports of food and agricultural products which include snack foods, fruit and vegetable juices, fresh fruit (i.e., pears, apples, and grapes), and canned fruits and vegetables. Dairy products (especially cheese), beef and poultry meat and their byproducts, and pet food along with wine and liquor also evidence strong possibilities.

Food Service Sector:

Post reports that Peru’s food service sector growth is driven by the international recognition of its gastronomy. In 2016, the World Travel Awards named the country the World’s Leading Culinary Destination for the fifth year in row. Peru’s government and private sector capitalize on this recognition, using it for international advertising.  An increase of the number of restaurants occurred in recent years is the result of this popularity. The forecast is for Peru’s hotel-restaurant-institutional (HRI) sector grossing US$8billion in 2016, a 2.5% increased with respect to last year. This is based on a higher influx of international tourists seeking to taste Peruvian gastronomy. Casual dining restaurants accounts for 30% of total restaurant sales.

Tourism is a strong HRI sector driver. The government is aggressively promoting Peru as a cultural and gastronomic destination to diversify an economy reliant on extractive mining. Tourism is a source of foreign exchange, and a major service sector employer. According to the Ministry of Foreign Trade and Tourism (MINCETUR) some 3.7 million foreigners are expected to visit Peru in 2016, generating nearly US$4.2 billion in revenues; food service soaks up to 18% of total foreign tourist revenues. Peru has over 19,000 hotels with almost a half-million beds. High-value U.S. consumer-oriented products (e.g., wines, beef and pork) are being served in Peru’s more sophisticated restaurants and hotels. Demand for U.S. food products and ingredients has benefitted from the PTPA, which since entering into force in 2006 has increased U.S. food and agricultural product exports 449% to Peru, reaching US$1.1 billion in 2016..

The expansion of shopping centers is allowing fast food chains and restaurants to reach new consumers. Sixteen new projects are projected for the period 2016-2018 with an investment of almost US$700 million. Fast food and casual dining restaurants leverage the popularity of shopping centers to open outlets in Lima and the provinces. Post estimates that 25% of all food service sales occur at shopping centers, catering to younger, time-crunched consumers.

The best prospects for U.S.-origin food products reside in supplying high-end hotels and restaurants. Casual dining and family-style restaurants, along with coffee shops and fast food chains (averaging 8% growth over the past five years), also afford good possibilities. The National Statistics Institute (INEI) reports that 33% of consumer’s food expenditures today are allocated towards restaurant meals. Demand for restaurant meals is forcing the food service category to become more competitive. Roughly 14,000 restaurants open yearly in Peru. MINCETUR estimates that the country has 200,000 full service restaurants.  Lima alone has 66,000 restaurants.

Food service institutions largely source domestic food ingredients; Peruvians prefer locally produced affordably priced fresh food products. Food service importers supply the retail market. Almost 95% of food service businesses purchase through intermediaries. International franchises (e.g., KFC, Pizza Hut, Burger King, McDonalds), along with the local Bembos chain, import some of their food ingredients directly. Local and imported products are distributed directly to food service outlets or through sub-distributors, a practice common in secondary cities.

Best Product Prospects:

Post believes that best product prospects include U.S.-origin fruits, cheeses, processed fruits and vegetables, beef and beef products. Tree nuts, sauces, baked goods and wine are also of high potential. These products benefit from either duty-free treatment or very low duties thanks to the PTPA. They also advise that U.S. exporters can gain access to the Peruvian food service market through large importers, wholesalers/distributors or specialized importers, as most food service companies buy imported goods from local intermediaries.

Food-Processing Sector:

Post reports that the economic slowdown decreased local food consumption as consumers reduced some purchases. In order to maintain consumption levels, consumers are rebalancing their food purchases to include a greater mix of affordable goods. As a result, the food processing sector, which represents about 30% of the national manufacturing sector, will continue to grow despite the recent economic downturn. The key companies are Grupo Gloria, Alicorp, and San Fernando. There are some 3,000 companies in Peru engaged in food processing. The 50 largest food processors are reporting 2016 sales estimations of $23.2 billion. The food processing sector is forecast to grow, despite the current economic slowdown, as domestic consumption benefits from stimulus measures boosting consumer spending and continued investor confidence.

The growth of Peru’s food processing sector is directly associated with the development of the food retail and food service sectors. It is expected that the improving economy will cause these sectors to rebound from recent slowdowns. As supermarket and hypermarket operators continue to expand their networks throughout the country, they will likely also expand their private label ranges into new categories. The two criteria retailers use when looking to launch new products are quick rotation and profit per unit. Retailers have the advantage of being able to give their private label lines a good shelf positioning as well as promoting them through their magazines and catalogues as well as their web pages.

Almost 80% of all food is purchased through small independent grocery stores known as “bodegas”. In low-and-middle-income households, there is a higher presence of daily-purchases at these stores to acquire ingredients needed to prepare the day’s meal. These include meat, rice, vegetables, fruit, seasonings, dairy products and fresh artisanal bread, among others. The proximity result the most valuable feature (convenience). Small-sized packages and credit are other important features.

Local food manufacturers have tapped into consumers’ demand for quality at affordable prices. Food manufacturers source both domestic and imported product ingredients for their food product manufacturers. They are successfully tailoring products to consumers’ demand for healthier food products. Some manufacturers are now producing food products for distribution through vending machines to meet time-starved consumers’ demand for a quick fix. Some larger processors already import directly from the U.S. and many of the small processors still rely on local distributors to import their ingredients.

Peruvians prefer fresh food over packaged food, particularly when it comes to vegetables, fruit, meat, and bread. However, packaged rice, pasta, snacks and biscuits all have a strong presence. Despite their strong preference for fresh ingredients, Peruvians are also looking for convenience as it is becoming more difficult to prepare large and elaborate meals at home. Therefore, some packaged food categories can be expected to see increased demand. The most successful will be those which are perceived as more natural and healthy while also offering traditional Peruvian flavors.

Local processed food products cover 85% of the market demand. Small processors outsource the import of food processing ingredients to local distributors/representatives or subsidiaries. Large processors import directly.  Specialized importers usually provide food ingredients to the Peruvian market.  Some of these are also producers or wholesalers/distributors. International franchises (KFC, Pizza Hut, Burger King, McDonalds) and the local Bembos (burgers) import their food ingredients directly.

Post recommends that as road map for market entry, U.S. exporters should directly contact the local food processing company or indirectly establish connections through brokers, agents, or representatives. Personal visits are highly recommended; the local partner should be known by the exporter before signing contractual agreements. Maintaining close contact is recommendable. Exporters should provide support to food service customers by participating in technical seminars, product demonstrations, and local trade shows whenever possible.

The import partner should be able to provide updated information on consumer trends, current market developments, trade, and business practices. It is recommended that U.S. exporters work with chefs and local importers to conduct marketing activities in the high-end food service sector. Processed food products must be approved by health authorities and receive a registration number before being placed on the market.

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