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Emerging Markets Soft-Soap the Growth Picture of Global Bath and Body Care

By: Rob Walker, Euromonitor International
Posted: November 26, 2012, from the December 2012 issue of GCI Magazine.
  • In 2012, Brazil leapfrogged the U.S. as the largest market in the world for bath and body care products.
  • Even as BRIC markets push expansion, slower economic growth is putting a pinch on these countries’ middle classes, leading to more cautious spending patterns and possible trade downs from middle-market products.
  • In light of Brazil and China’s slowdowns, India and Mexico are picking up steam in the bath and body category.
  • In developed markets such as the U.S. and Western Europe, more consumers are continuing to move away from bar soap and toward body wash.
  • During the next five years, emerging markets—propelled by Brazil, China, India, Russia and Mexico—will continue to dominate the global growth picture of bath and body care, though sales will almost certainly be softer than during the preceding five years, reflecting a squeeze on the middle ground.

In 2012, Brazil leapfrogs the U.S. as the biggest market in the world for bath and body care products. This writing has been on the wall for some time, with demand in Brazil generating growth in absolute terms of $4 billion between 2006 and 2011 (at fixed exchange rates). That is approximately five times more than in the U.S. and three times more than in Western Europe.

Emerging markets as a whole accounted for 85% of the bath and body care segment’s absolute growth in 2011 and for 82% over 2006–2011. This is a gargantuan contribution that has triggered a major re-weighting of strategic focus from beauty companies. For example, Brazil fueled 23% of Unilever’s deodorant sales in 2011, while China fueled 32% of P&G’s bath and shower sales.

Where margins have been squeezed in the U.S. and Western Europe by fierce discount and promotional pressures, pricing has been more flexible in first-tier emerging markets. As a result, the BRICs have not only propped up global growth in bath and body care but also have been critical to the profitability of leading brands, including Dove, Safeguard and Axe.

The big question is whether the growth surge of emerging markets is on the verge of fizzling out. Certainly, there are ominous signs. First, there is evidence that middle class Chinese consumers are applying stronger value-for-money criteria to their purchasing patterns, creating a more aggressive discount culture. And second, consumer confidence in Brazil is getting weaker, especially in the southeast region, which encompasses Rio de Janeiro and São Paulo.

Middle Ground At Risk as Brazil’s Economy Slows

During the past five years, Brazil alone accounted for more than a quarter of global bath and body care growth. And in the specific case of deodorants, Brazil is the biggest consumer in the world, generating retail sales of $4.5 billion last year. That was two-thirds more than in the U.S., which is the world’s second largest deodorant market.

The men’s deodorant segment plays an important role, fueling sales of $1.6 billion in 2011. Brazilian men often use deodorant sprays as a low-price alternative to aftershave or fragrance, and some brands, notably Unilever’s Axe, effectively market themselves as fragrances even though they position as standard deodorants (Axe costs around $3 for a 90 mL spray.)

Last year, retail sales of Axe reached $400 million in Brazil, an increase of 23% over 2010 at fixed U.S. dollar prices. That pushed Brazil above the U.S. as the biggest market in the world for Axe deodorant  (sales in the U.S. were $352 million). Axe is, therefore, indicative of how the scales of consumption have tilted from developed to emerging markets.

What’s more, Axe ought not to be adversely affected by slower economic growth in Brazil. A shift into more cautious spending patterns could even be a catalyst to gains for spray deodorants as growing numbers of consumers trade down from fragrances. Bar soap, which is nearly a $3 billion category in Brazil, is unlikely to be affected either, as it has a fundamentally low-price structure.

The brands most at risk from weaker spending power in Brazil are those positioned in the middle ground. This price tier has performed strongly over recent years, as lower-middle income consumers traded up to more aspirational brands. That trend will reverse if C-class household spending comes under significant downward pressure.