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World Wide Watch: Brazil

Thanks to an increase in middle class earnings and a decrease in inflation, Brazil’s beauty market is hot, hot, hot.

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Appeared In
Special Issue
Beauty Inc issue 02/08/2008

Look at the global standings in cosmetics, fragrances and hygiene products and you might be in for a jolt: Brazil, a South American country with a per capita annual income of under $9,000, ranks as the world’s third largest market. And it is nowhere near saturated. “No doubt about it, we expect continued growth,” says João Carlos Basilio da Silva, president of the Brazilian Toiletry, Perfumery and Cosmetic Association, or ABIHPEC.

Total estimated sales in Brazil for 2007 stood at over $11 billion, a 13 percent increase over 2006, topping the average 11 percent annual growth over the previous 11 years, according to ABIHPEC. Wall Street investment bank Goldman Sachs offers a more conservative number for growth in what it labels the “core market,” but even then the average increase of 8.4 percent per year from 2002 to 2006 amounts to over three times the 2.5 percent average annual growth in the Brazilian gross domestic product for the same period. Annual spending per capita in Brazil stands at $100, behind the $174 in the U.S., but ahead of Russia’s $60, an emerging country at a comparable stage of economic development, says Goldman Sachs analyst Daniela M. Bretthauer.

Renato Prado, an analyst with the Brazilian investment bank Banco Fator, traces the sustained market growth to a series of causes. They include more women in the workforce, lower prices engendered by better productivity, an increase in niche products to address specific consumer demands and an increase in life expectancy and the desire of older people to look their best.

Geographically, wealth distribution programs in the historically poor regions of north and northeast Brazil, as well as the expansion and consolidation of the pharmacy/drugstore channel, have also resulted in increased beauty sales, according to a 2006 report by Euromonitor International.

While historically the Brazilian masses were considered too poor to consume anything but the most basic necessities, that is no longer the case. Ever since the country quelled hyperinflation in 1994, the poor majority in this country of 180 million have enjoyed a gradual increase in their real earnings. “Purchasing power has increased since inflation came under control,” says Prado. “People are spending more on products that used to be considered superfluous.” At the same time, prices are coming down.

Every market has its idiosyncrasies, and those of Brazil clearly favor strong sales of beauty and personal hygiene products. If you accept one stereotype, the one about beauty and sensuality in the tropics, you’ll understand why Brazil ranks just behind the United States and Japan in overall sales. Consumer choices of shampoos, for example, “are related to sensuality,” says Yuriko Terada, president and director of Tampopo, a leading hair salon in São Paulo. “In Brazil there’s more physical contact and hugging.” Adds Basilio da Silva: “In a tropical climate, with the heat, you sometimes feel the need to take more than one bath a day to feel your best. When you take another bath, you use your entire kit again.”

Brand-wise, the São Paulo-based Natura took over the number-one position in terms of sales from Unilever in 2006, according to a report issued last year by Euromonitor International. Other market leaders are Procter & Gamble, Colgate-Palmolive, L’Oréal, Avon and São Paulo-based O Boticário. Investments by these companies “have boosted the presence and appeal of mass products,” according to Euromonitor, while the high-end luxury market continues to be dominated by imports such as Dior, Lancôme and, most recently,  MAC.

By category, hair care is number one in terms of sales. Brazilian women prefer their hair long, and that translates into robust sales for the right products. “Hair care continues to produce the highest retail value sales within cosmetics and toiletries; many sales are stimulated by product segmentation, with manufacturers offering tailored formulations to meet specific demands,” according to a 2007 report by Euromonitor.

“Sales of skin care products are growing at a faster pace, but in Brazil hair care products are still bigger,” says Basilio da Silva. “Brazilian women let their hair grow long. They use it as an element of seduction.” One style currently in favor with fashion-forward women is a ponytail that appears slightly out of whack, as if “customized by the wind.”

Unilever,  L’Oréal,  Procter & Gamble and Colgate-Palmolive lead the pack in the hair care segment, but “small and medium-size companies have gradually increased their shares,” according to Euromonitor International. Smaller brands on the rise include Sparklii, Seven, Granado and Dermage.

Large or small, the scent of a product is always important, says Tampopo’s Tereda, noting that floral scents that aren’t too sweet are the most popular.

Many if not most international trends make their presence felt in Brazil. The senior market, for instance, looks increasingly promising as life expectancy in the country increases along with that of the rest of the world—up to 72 years now compared to 67 in 1995.

Men’s products represent an important and growing part of the skin care market, accounting for 9 percent of sales, according to an ABIHPEC study. Ten years ago, one in 100 men used such products; today the number is one in 15. “There’s a cultural transformation,” says Prado. “Services account for a growing part of the economy, and men too have to look good on the job.”

The teen and preteen market is also on fire. Euromonitor estimates Brazil had 16 million preteens (eight to 12 years old) and 23 million teenagers in 2006. Collectively, they are said to have accounted for $1.1 billion in sales in 2006. According to the report, “Unlike other countries in which parents try to restrain cosmetics consumption until a more mature age, in Brazil, the consumption pattern of eight- to 12-year-old children is close to that of adults.”

Another international trend observed in Brazil is “the holistic/wellness/natural focus of many consumers,” says Camila Toledo, trend and research specialist at Worth Global Style Network Inc., a research firm. The fragrance market favors scents “that appear to elevate natural or organic ingredients above such things as marketing plans.” In that, it seems Brazil—a major resource for natural ingredients—isn’t so very unlike the rest of the world after all.

Natura’s Ups and Downs

In a study of the most valuable Brazilian brands, Natura was the only consumer goods company to make a list headed by banks and heavyweights in the energy and steel industries compiled by Interbrand, a branding consultancy. Natura is one of just 32 firms included as part of the São Paulo Stock Market’s Sustainability Index, or ISE, in which companies must demonstrate environmental and social responsibility along with financial success. And Natura’s sales grew again in 2007, continuing a long-term trend. But all that good news isn’t enough to get investors to buy Natura’s shares. The firm’s initial public offering in 2004 was oversubscribed, but by 2007 the stock had tanked, its price having dropped by 35 percent. As of press time, the price was $9.58 (16.99 Brazilian real). So what happened? “There was a loss of market share to Avon and imports,” says Banco Fator’s Prado. Natura and Avon both use a direct-sell distribution network and many analysts believe Avon is beating Natura at this game. Meanwhile, imports benefited from the weak dollar, making many foreign products more affordable to Brazilians.

2006 Beauty Sales
1. Hair Care: $5.8 billion 4. Color Cosmetics: $1.8 billion
2. Frangrance: $3.7 billion 5. Premium Cosmetics: $294 million
3. Skin Care: $2.8 billion Source: Euromonitor  

2006 Top Channels for Cosmetics and Toiletries
1. Supermarkets/Hypermarkets: 37 percent
2. Direct Sales: 30 percent
3. Specialists: 15 percent
4. Pharmacies/Drugstores: 10 percent
5. Department Stores: 4.5 percent
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