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Harvesting Brazil's Beauty

By: Jeff Falk
Posted: December 3, 2008, from the December 2008 issue of GCI Magazine.

The weighing room at Belém’s Ver-o-Peso (“see the weight”) open air market.

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According to Euromonitor International, Brazil’s cosmetics and toiletries industry was valued at $22 billion in 2007, third in the global market behind the U.S. and Japan. From 2002 to 2007, the country achieved double-digit growth annually, averaging out at 24% a year, three times the global average. Mass products are the key drivers. Premium products account for only 1.3% of total sales, compared to 28% in the U.S. and 41% in Japan. (Editor’s note: For more data on Brazil from Euromonitor International, see “BRIC: Promises and Caveats,” by Irina Barbalova, in the November 2008 issue of GCI magazine.)

According to numbers provided by The National Health Surveillance Agency (Anvisa) and ABIHPEC, there are 1,635 finished beauty product companies registered with the Brazilian government; it’s estimated that there are up to 600 unregistered companies. Of those registered companies, 17 are classified as large companies, with after-tax revenues of more than R$100 million, including multinationals; approximately 180 medium companies with localized distribution; and 1,400 small companies, serving their localized communities. The large companies hold 75% of the market share, and the state of São Paulo accounts for 80% of production of beauty products consumed in Brazil.

Though not the leading segment in the country, in terms of value, deodorant is one of the more interesting categories in Brazil. ABIHPEC predicts that Brazil may be the largest market in value terms for this segment. ABIHPEC, it should be noted, includes body sprays in the deodorant segment (not as part of the fragrance segment), and the organization believes that liquid deodorant delivered via squeezable tubes is unique to Brazil, accounting for some 70% of mass deodorant sales. Aerosols are costly due to the need to import propellants—propellant gases sourced in Brazil have been found to be inappropriate for this use.

Sun care, the smallest segment in Brazil, is also notable—both due to its recent growth spurts and the bureaucratic challenges it faces. The segment, according to ABIHPEC, grew from R$483.4 million in 2006 to R$665.0 in 2007 (see “New Dawn for Sun Care” in this issue for additional data), and growth can be, in part, attributed to the scaling back of federal tax on the products, which had accounted for 22% of the cost. There is, however, a “value added tax” levied on imported sun care, which can account for 60% of the cost, according to Leonardo Diniz Jorge, director, Drogaria Iguatemi, a luxury positioned drugstore. These taxes are reflected in the high prices on shelf.

Despite the cost challenges, use is going up, and actually increases in winter, with health care concerns cited as the catalyst. This is due, in part, to industry advocacy—similar to those undertaken in other global markets. ABIHPEC’s efforts for removal of taxes revolves around the argument that sun care is a necessity; not a vanity. “Today, Brazil is considered ‘king of taxes,’ despite recent reductions,” said João Carlos Basilio da Silva, president, ABIHPEC.