AmBev bet in returnable packaging for dribbling weak semester

The Brazilian beer market, which shrank 2 percent last year, will still have a difficult scenario in the first half of 2017, due to the still high level of unemployment and the wettest summer, that discourage consumption.
Still, Ambev can perform above the industry average, thanks to the strategy of selling returnable bottles of 300 ml, said consultant Douglas Costa. "It''s a more complex to produce, but expanding production, the cost is viable for the company, and more difficult for the competitors follow in volume produced," said the expert.

He noted that the main competitors-Grupo Petrópolis, Heineken and Kirin Brazil-have not been able to compete with Ambev in that category, which is sold mainly in supermarkets, atacarejos and other self-service networks. "The Petrópolis managed to differentiate in the market in recent years with the can and the" long neck "of Itaipava, very sold mainly to the class C, but as the returnable bottle of Ambev provides a lower price to the consumer, the strategy affects these two lines from your main competitor", said Mr. Costa. "The Petrópolis and the Kirin Brazil would have to change the entire production line to go with it and would have a high cost," added the consultant.
The analyst Carlos Laboy, of HSBC, noted in a recent report that the strategy of returnable bottles still faces challenges to that Ambev could accelerate the sales of category. He cited among the problems the disorganization in the places where they are left the empty hulls in retail, lack of staff to make the exchange of empty containers and the lack of differentiation of popular brands such as Brahma, Skol and Antarctica (the crate only takes the Ambev brand).
Luca Cipiccia and John Barrieu, analysts at Goldman Sachs, in a report that Ambev still face challenges in the short term, but the year 2017 will be best for the company, due to the returnable strategy and other initiatives to expand sales. The experts consider that the basis of comparison weaker than last year should help the results this year. They also expect the company to suffer less in this year with the impact of the dollar, which increased significantly its spending with currency protection ('' hedge '') in 2016. The Bank has the recommendation of buy for Ambev, with a target price of $19.
In the evaluation of Peter analyst Leduc, J.P. Morgan, Ambev faced your worst phase in 2016 and to retrieve results this year. He considers that the actions of Ambev have weakened enough last year (fall of 5% compared to almost 39% appreciation of Ibovespa), reaching a value that already makes the purchase of the paper profitable year. The Bank''s recommendation to purchase the asset, with a target price of 20.50 R$.
Leduc considers that the acquisition of Brazil by Heineken, Kirin will favour the Ambev in the short term, considering that the rivals will take some months to make the integration of its operations in Brazil.