At the end of 2011, Brazil’s beauty market grew 7.3% in volume terms, the largest recorded in the past five years by the Brazilian Association of the Cosmetic, Toiletry & Fragrance Industry (ABIHPEC). In value terms, however, the increase (9.3%) was the lowest in the period.
“With the relatively low growth in value terms, we conclude that the industry had to do many promotions to boost sales,” said João Carlos Basilio, president, ABIHPEC, who also noted government concern about inflation led Banco Central do Brasil (Brazil’s central bank) to raise benchmark rates from January to July, which hampered the growth of the industry.
A survey by the Brazilian Association of Shopping Center Stores (Alshop) shows cosmetics and fragrances were at the top of the list of products sold over the Christmas holiday. Beauty sales rose 18% compared to 2010 while total shopping mall sales increased only 5.5%.
While it is difficult to make predictions due to international economic uncertainties, Basilio believes 2012 will be a positive year for the industry, and sales are expected to keep growing approximately 5% per year through 2015. “By analyzing previous financial downturns, we note that the Brazilian cosmetic industry hasn’t suffered much, whether because consumers believe the products are essential or because they are indulgent in a moment when large expenditures are not allowed,” said Basilio.
Brazil Key Source of L’Oréal Growth; Green Efforts
French beauty giant L’Oréal has 38 plants and 78 distribution centers around the world. In terms of production, its largest industrial plant is located in São Paulo, manufacturing around 370 million units per year, and its current 46,000 square meters of floor space won’t be enough by 2020, when the company plans to reach 100 million Brazilian consumers, double its current reach. At the same time—with a global goal of reducing 50% of carbon emissions, waste and water usage by 2020—L’Oréal has chosen Brazil as ground zero for its energy-saving efforts. Beginning in April 2012, the factory in São Paulo will become the company’s first flex plant worldwide, according to L’Oréal’s director of sustainable development Francis Quinn.
The boiler house will utilize sugarcane ethanol as fuel, but it will allow natural gas to be used in case of increased ethanol prices or fuel shortages. “Sugarcane ethanol is a clean, efficient energy source, which has a great growth potential in Brazil,” said Quinn. “L’Oréal’s growth is closely linked to sustainability matters, which is not only important from the socio-environmental point of view but also from an economic standpoint.”
Competition Increases Toothpaste Sales
Toothpaste sales in Brazil grew 2.9% in volume terms and 1.7% in value terms, according to data from Nielsen (January–October 2011). Brazil is the world’s third largest toothpaste market, with a share of 7.4% compared to 12.1% in the U.S. and 10% in China. Toothpaste is the product with the highest penetration rate in Brazilian households (94%), and its average price fell 1.2% in 2011 (discounted for inflation).
In 2010, Colgate-Palmolive was the absolute market leader, with a 69% share, followed by Unilever (19%) and P&G (5%). Two years after its launch, P&G’s Oral-B toothpaste sparked the market and intensified competition for customers. “Before the entry of P&G in the segment, promotions were less common,” said Nielsen market analyst Arthur Oliveira. “Today, they are virtually mandatory for any player in the oral care market.”
Before October 2011, 17% of toothpastes purchased in Brazil were part of a promotional package according to Nielsen data. Market share data for 2011 hasn’t been released yet, but P&G claims to have grown 195% in value terms January–November 2011, compared to the same period of 2010.
Unilever Invests R$500 Million; Launches Hair Care Products
Aiming to attract more clients in the hair care market, Unilever Brasil announced the launch of 80 new products at an investment of R$500 million, the largest in the history of the company toward the hair care segment.
The crux of the effort is the introduction of two brands new to the Brazilian market: TRESemmé (the second best-selling brand in the U.S.) and Keratinology by Seda (Sunsilk brand in Brazil). According to Marcela Mariana, marketing director for hair care at Unilever Brasil, the company intends to gain 5–8% of market share over the next two years through the launches.
Brazil has the world’s third largest hair care market, with annual sales valued at R$6.5 billion. Hair care products represent 38% of Brazilian women’s average expenditure. According to data from Kantar Worldpanel, lower middle class expenditures on hair care products doubled in the past six years. In 2011, around 7.2 million households spent more than R$150 per year on hair care.
Franchised Bricks-and-Mortars Post Higher Growth Rate Than Direct Sales
Beauty sales by direct selling companies grew only 4.3% in January–August 2011 over the like period in 2010. However, franchised brick-and-mortars posted a striking performance, with sales increasing 31.7% over the same period, according to ABIHPEC.
In 2011, Avon and Natura had missteps trying to modernize their operational logistics. Drops in sales and supply problems in Brazil had a strong negative effect on Avon’s yearly results, leading the company’s growth in Latin America to slow to below double digits for the first time in more than ten quarters.
“Some companies have been through many structural changes, which has led to a more modest growth than we anticipated,” said Rodolfo Guttilla, vice president, Brazilian Association of Direct Selling Companies (ABVED). Despite the tepid performance in 2011, Guttilla still considers the direct selling channel as a winner. Brazil is the world’s fourth largest country in direct sales, having ended 2011 with more than three million consultants.
Perfumery Chains Join to Seek Price Reductions
Luxury perfumeries in Brazil have been reviewing their business model. Research shows that, in 2010, fragrances were present in 54% of Brazilian households, while in 2011, the index increased to 60% with a gain of 2.5 million households.
Even with continued growth, strong competition puts pressure on price margins of local shops, which jostle for space with large chains and e-commerce retailers such as Sack’s. The impact is also felt by the increase of Brazilians traveling abroad, as perfumes are common items on tourists’ shopping lists.
Willing to increase their market share, 16 perfumery chains joined forces and created the Brazilian Association of Selective Perfumery Multibrands (ABPS). The group, which includes companies from various Brazilian states, has elected a representative to negotiate lower prices with the suppliers based on higher volume purchases. “We achieved an average discount of 22%,” said Jessica Souza, owner of four stores from the Universo chain. Prices are tabulated for all participating companies and the new model aims to make local stores more competitive in the market.
Fernanda Bonifacio is a Brazilian journalist who focuses on the beauty industry, and has been published in the U.S. and Europe. During 2002–2008, she represented ABIHPEC and its member companies globally.