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State of the Industry: Eco-values Escalate

By: Briony Davies
Posted: November 14, 2007, from the June 2007 issue of GCI Magazine.

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Brazil continued to drive growth in Latin America in 2006 with sales of $18.2 billion, an increase of 13% on the previous year. The good performance is due, in part, to prices remaining stable, rising below inflation rates. An appreciated real compared to the U.S. dollar kept the cost of imported raw materials in check and brought stability to prices of premium imported products, underpinning a price-led increase in demand. The ever-growing youth segment, the increasing number of women in the labor force and an increased life expectancy for Brazilians provided the foundation of the vibrant Brazilian cosmetics and toiletries industry on the demand side. On the supply side, dynamic product segmentation allied with extremely efficient direct sales distribution (with the direct sales channel accounting for 30% of market value) contributed to growth.

Latin America, as a whole, is expected to experience rapid development over the forecast period, with new products expected to emerge that satisfy diverse demands such as convenience and efficacy. Latin American consumers have a different concept of beauty from that held in Western Europe and North America. While Asia-Pacific and Eastern Europe are, to varying extents, influenced by Western fashion and beauty trends, Latin American consumers have their own ideals. For this reason, it is a prime target for ethnic cosmetics and toiletries, with repackaged international brands being less likely to appeal to consumers in this region. Price is a major determinant of success in Latin America, where, for many consumers, the purchase of hygiene essentials is a financial stretch. The split between premium and mass products is remarkable, with 99% of products across all sectors categorized as mass.

Local players—including Natura Cosmeticos, the only regional player in the top five companies in Latin America—provide high-quality products at competitive prices, so trading up is not a strong trend in this region. However, there is some movement to go upmarket with premium or value-added brands. The expected growth in private label cosmetics and toiletries, the result of a more developed distribution network and price consciousness in consumers, is a threat to future dynamism. There also remains a continuing risk of economic and political instability in many of the region’s major markets, most notably Colombia and Venezuela.

China Continues to Climb

Although some of the hype about China, in general, is being transferred to India, Euromonitor International believes that China still holds the key to cosmetics and toiletries growth in Asia-Pacific, at least in the medium term. China is set to become the world’s third largest economy before the end of the decade, overtaking Germany to sit behind only the U.S. and Japan. India, by contrast, still won’t be in the top 10 by that time. This, along with increasing urbanization and improvements in the retailing infrastructure combine to make China an attractive prospect for cosmetics and toiletries manufacturers.

Growing at an average of 11% per year for the past five years to reach 2006 sales of $11.7 billion, China has retained its place in the world’s largest and most dynamic markets. Rising disposable incomes continue to be the basic sales driver—average disposable income has grown almost 60% since 2002—allowing consumers to spend an increasing amount on cosmetics and toiletries. Extra cash has also facilitated trading up to more expensive products/brands. This is most pronounced in premium products such as fragrances, skin care and color cosmetics. In addition, growing product awareness and a stronger retail presence have fueled consumers’ interest in cosmetics and toiletries, and constant product innovation and media advertisements have been instrumental in further boosting the penetration of more established brands, such as Olay and Artistry.