In a special report on the illegal alcohol market for six Latin American countries, we reveal volume and value of illegal alcohol by country and the types of illegal alcohol and potential drivers for purchase and consumption in Colombia, Ecuador, El Salvador, Honduras, Panama and Peru.
According to the research, the illegal market accounted for 25.5% of the total market in terms of volume by litres of alcohol equivalent (LAE) and 14.1% in terms of value (illegal retail sales price or RSP). On average, the retail prices of illegal products were 30.3% lower than their legal counterparts in 2012.
In 2012, the market represented a total fiscal loss of US $736 million dollars, with counterfeit and contraband the main categories responsible for the loss. As counterfeit refills have very similar pricing to legal brands, many consumers do not realize that the product they are purchasing is not original. Some formal channels such as wholesalers, retailers and on premise outlets sell illegal alcoholic beverages alongside legal products, further misleading consumers. However, there has been increased consumer awareness thanks to campaign efforts and local news about illegal alcohol.
The key drivers of the illegal market include uncontrolled residual ethanol volumes, price gaps and weak law enforcement. The government regulations concerning legal alcohol sales and consumption also indirectly created more opportunities for the market.
Key Takeaways by Country:
Colombia: Illegal alcoholic beverages account for 23.6% of the total market in volume LAE terms and 12.1% in value terms; the legal market represents the other 76.4% and 87.9%. It is noted that the majority of consumers in the middle-/low-income segments make purchasing decisions based solely on price, driving the sales of some counterfeit and smuggled spirits.
Peru: The illegal market has a 30.8% share of the total market in volume LAE terms and 15.9% in value terms. Both the legal and illegal markets are growing as a result of increasing disposable incomes, leading to higher consumption. Counterfeit and illegal brands continue to be the most important illegal category, with volumes growing as a result of increased residual ethanol from the sugar industry and a lack of control over the trading and final use of ethanol.
Ecuador: Illegal products have a 28.6% share of the total market in volume terms and 22.2% in value terms. Price is one of the main drivers of the illegal market. Consumers generally consider only the price of the product and not the legality. Tax increases on imported alcoholic beverages have caused legal imports to fall significantly and have driven contraband of premium alcohol brands.
Honduras: Illegal products have a 13.1% share of the total market in volume terms and 3.6% in value terms. The government has no clear plan to reduce or control the size of the illegal market and made very little effort to do so in 2012. Increasing demand for cheap alcoholic beverages makes contraband a profitable market since price is the main driver of consumption of illegal alcohol.
El Salvador: Illegal products account for 23.5% of the total market in volume terms and 15.5% in value terms. Counterfeit consumption keeps growing despite the government’s efforts to control ethanol supply and the main sources of contraband finished products are free zones in Panama and Belize.
Panama: Illegal products account for 2.4% of the total market in volume terms and 2.8% in value terms. Programs implemented by customs have helped increase the seizure of contraband and the illegal market is small enough for the authorities not to consider it a problem. In fact, the government is taking preventative measures and focusing on regulating the sale of ethanol in order to prevent the fabrication of illegal artisanal brands in the country.
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