MEXICO CITY — Mexico’s beauty industry, Latin America’s second largest, is expected to continue on a roll by growing 6 percent to just over $10 billion this year, driven by strong consumer demand and exports, according to a leading industry executive.
This story first appeared in the August 30, 2013 issue of WWD. Subscribe Today.
Laura Bonilla, president of top industry lobby Canipec, said the $6.5 billion domestic beauty and personal-care market will expand 3 to 4 percent while exports are set to increase 5 percent from $3.3 billion last year.
In 2012, the market grew around 7 percent to $9.8 billion as Mexico’s gross domestic product expanded 3.9 percent, boosting consumption. In 2013, GDP is expected to grow a slightly lower 3.5 percent. However, the forecasted export growth will offset any potential declines in local purchases that could stem from the weaker economic performance, she noted.
According to Bonilla, exports are becoming a key priority for the industry, which hopes to elevate them 5 to 7 percent annually to become the world’s fifth-largest beauty exporter, up from number 12 now, by 2020. The industry also aims to increase annual sales to the double-digit level by then.
To achieve its export goals, Mexico is looking to boost trade with Brazil, Peru and Chile, which currently purchase some 3 percent the country’s cosmetics exports, to around 9 percent each, she said. One way it hopes to do this will be through the Trans-Pacific Partnership, which is currently in negotiations to create an 11-country free-trade block. In Latin America, those countries include Chile and Peru.
Currently, 43 percent of foreign sales go to the U.S., 9.4 percent to Colombia, 5.6 percent to Guatemala, 5.4 percent to Argentina and 5.2 percent to Venezuela.
To bolster trade with Brazil, Canipec recently struck a partnership with Brazilian counterpart Abihpec — the cosmetics, toiletry and perfumery association — to strip away import duties for 35 key Mexican beauty products, mainly in the skin-care and hair-care categories, which Bonilla noted will save local exporters $14 million a year.
Bonilla said multinational firms with factories in Mexico — including L’Oréal, Unilever and Colgate-Palmolive — will benefit most from the Brazilian accord. Even though they are not Mexican, the fact that they will be able to ramp up exports to Brazil means they will create new jobs for local workers, she noted.
Bonilla said Canipec will aim to strike similar deals with beauty associations in other Latin American countries, as well as lobby Mexico’s government to strengthen and sign strategic bilateral trade agreements with Latin American nations.
Speaking of the domestic market, Bonilla said the skin-care and hair-care segments are growing strongly, with sales expected to climb 8 to 9 percent in 2013, matching a similar performance in 2012. Makeup sales are also buoyant, she added, saying the segment should grow 6 percent this year compared to 4 percent in 2012.
Bonilla echoed views that Sephora has helped develop the market by increasing consumers’ awareness of “new and exciting brands.” However, she noted, Mexican women are increasingly joining the workforce and taking better care of themselves, making makeup a more crucial beauty regime.
Speaking of emerging categories, Bonilla said hair conditioners and deodorants also present strong growth prospects and that Canipec will work to promote these products to boost sales in the domestic market.
In April, Canipec (together with the industry) launched a marketing campaign called “Don’t Leave Your Hair Half Way” which aims to eradicate the mistaken Mexican belief that conditioners cause hair loss and damage. Procter & Gamble, Unilever, Colgate-Palmolive and Mexican beauty brand Grisi are financing the initiative, which will run on TV, print and outdoor formats until June.
Canipec also intends to deploy similar campaigns to increase deodorant sales in the near future, she added.
Though lifting sales to the double-digit level may seem like an overly ambitious target — especially in an increasingly mature and saturated Mexican beauty market — Bonilla said the export strategy, combined with efforts to boost domestic sales, can make the goal possible.
“We are going to create campaigns to inform consumers about the benefits of using cosmetics products and work to create a beauty culture that will hopefully mirror Brazil’s,” Bonilla asserted.
“Brazil is full of hair salons, spas and gyms,” Bonilla added. “We want something similar to happen in Mexico.”
Paula Larroque, senior vice president for Sephora in Latin America, said Canipec’s growth targets are indeed ambitious though they don’t seem completely out of line.
“Many companies, brands and retailers, including the beauty sector, are looking at Mexico very positively for the next few years,” she said. “They think the new government has a good plan to boost economic growth and consumption and new shopping centers are planned that will increase retail sales.”
Some brands are cautious, saying the market could grow 5 to 7 percent while others see it growing more than 10 percent a year,” Larroque continued. “I’m not as euphoric but I think we could see some years of 10 percent growth, depending on how the economy performs.”
Canipec wants to attract more foreign manufacturers to set up factories in Mexico, also to enable the industry to meet its 2020 export targets.
Bonilla said L’Oréal, Gillette and Unilever recently installed dyes, razors and sun-care product factories in Mexico to benefit from the nation’s proximity to the U.S. and to improve commercial ties with other Latin American countries.
To attract more such investment in future, the industry is also working to improve Mexico’s regulatory framework to match international standards. For example, the industry recently convinced the Health Ministry to remove a requirement for all beauty companies to translate unnecessary information in their product’s labels (such as some active ingredients) into Spanish, something Bonilla said cost companies a lot of money and didn’t benefit consumers.
“We want Mexico to become a more strategic export platform for foreign beauty brands targeting Latin America, so we are creating the right conditions to make this happen,” Bonilla said.
But changing regulations to save companies operating expenses is not the only thing needed to boost foreign investment. Mexico’s judicial framework also requires improvement while the country’s drug-related security issues are also likely to keep some investors at bay.
The trade in product fakes is also a big concern.
Mexico’s new government, led by PRI party President Enrique Peña Nieto, has vowed to reduce the country’s contraband and counterfeit rate to 40 percent from 60 percent of most consumer products in the near to medium term future.
In the garment industry, six of 10 garments come from the illegal trade and while the past administration also vowed to sharply reduce the activity before it left office, such promises remain unfulfilled.
Bonilla said Canipec can only do so much to stop the trade (which mostly affects fragrances and makeup in Mexico), and it is up to the authorities to stop contraband and fake merchandise from being sold in the nation’s large network of flea markets or by street peddlers. To combat the activity, which steals some $500 million a year from the beauty industry, the group will step up communication campaigns to inform consumers about the health risks of buying fake cosmetics, which can often contain harmful chemicals.
“We are going to increase our communication efforts, through information campaigns but also through social networks and the press,” Bonilla said.
She added Canipec will also deepen its collaboration with Mexico’s customs and law enforcement officials. “So far we’ve had a good response from the SAT (tax and customs agency), Secretary of the Economy and other government organizations,” Bonilla said. “They are all interested in seeing this problem resolved as soon as possible.”
Despite that effort, however, counterfeit sales have been rising to account for roughly 8 percent of the market from 5 percent in 2009.
“If we get to 10 percent, then this will become a bit more alarming,” Bonilla said. “We hope that with the actions we are pursuing it won’t reach that level.”