Look at the global standings in cosmetics, fragrances and hygiene products and you might be in for a jolt: Brazil, a South Americancountry with a per capita annual income of under $9,000, ranks as the world’s third largest market. And it is nowhere nearsaturated. “No doubt about it, we expect continued growth,” says João Carlos Basilio da Silva, president of theBrazilian 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 percentannual growth over the previous 11 years, according to ABIHPEC. Wall Street investment bank Goldman Sachs offers a more conservativenumber for growth in what it labels the “core market,” but even then the average increase of 8.4 percent per year from 2002to 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 ata 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.Theyinclude more women in the workforce, lower prices engendered by better productivity, an increase in niche products to addressspecificconsumer 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 expansionand consolidation of the pharmacy/drugstore channel, have also resulted in increased beauty sales, according to a 2006 report byEuromonitor International.
While historically the Brazilian masses were considered too poor to consume anything but the most basic necessities, that is nolongerthe case. Ever since the country quelled hyperinflation in 1994, the poor majority in this country of 180 million have enjoyed agradualincrease 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 youaccept one stereotype, the one about beauty and sensuality in the tropics, you’ll understand why Brazil ranks just behind theUnited States and Japan in overall sales. Consumer choices of shampoos, for example, “are related to sensuality,” says YurikoTerada, president and director of Tampopo, a leading hair salon in São Paulo. “In Brazil there’s more physicalcontactand hugging.” Adds Basilio da Silva: “In a tropical climate, with the heat, you sometimes feel the need to takemore than onebath 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 toareport 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 andappeal of mass products,” according to Euromonitor, while the high-end luxury market continues to be dominated by imports such asDior, 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 salesfor the right products. “Hair care continues to produce the highest retail value sales within cosmetics and toiletries; manysalesare stimulated by product segmentation, with manufacturers offering tailored formulations to meet specific demands,”according to a2007 report by Euromonitor.
“Sales of skin care products are growing at a faster pace, but in Brazil hair care products are still bigger,” saysBasilioda Silva. “Brazilian women let their hair grow long. They use it as an element of seduction.” One style currentlyin favorwith 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. Smallerbrands 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’ttoo sweet are the most popular.
Many if not most international trends make their presence felt in Brazil. The senior market, for instance, looks increasinglypromisingas life expectancy in the country increases along with that of the rest of the world—up to 72 years now compared to 67in 1995.
Men’s products represent an important and growing part of the skin care market, accounting for 9 percent of sales, according toan ABIHPEC study. Ten years ago, one in 100 men used such products; today the number is one in 15. “There’s a culturaltransformation,” says Prado. “Services account for a growing part of the economy, and men too have to look good on thejob.”
The teen and preteen market is also on fire. Euromonitor estimates Brazil had 16 million preteens (eight to 12 years old) and 23million 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 consumptionpattern 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 CamilaToledo, trend and research specialist at Worth Global Style Network Inc., a research firm. The fragrance market favors scents “thatappear to elevate natural or organic ingredients above such things as marketing plans.” In that, it seems Brazil—a majorresource 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 andheavyweights in the energy and steel industries compiled by Interbrand, a branding consultancy. Natura is one of just 32 firms includedas part of the São Paulo Stock Market’s Sustainability Index, or ISE, in which companies must demonstrate environmental andsocial responsibility along with financial success. And Natura’s sales grew again in 2007, continuing a long-term trend. But allthat good news isn’t enough to get investors to buy Natura’s shares. The firm’s initial public offering in 2004 wasoversubscribed, but by 2007 the stock had tanked, its price having dropped by 35 percent. As of press time, the price was $9.58 (16.99Brazilian 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.
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