Over the past 10 years, first- and second-tier emerging markets have been at the forefront of growth in the global bath and body care category, offsetting lackluster performances in the traditionally higher value markets of North America, Japan and Western Europe. And Brazil has stood out among the crowd, driving the biggest absolute growth rates year-on-year in the world. In 2010, Brazil’s bath and body care category posted real growth of 11%. This was the equivalent of more than US$900 million of incremental retail business.
Lower-middle Income Brazilians Drive First-class Growth
Globally, retail sales of bath and body care products grew by 2% in 2010, at constant U.S. dollar prices. However, when Brazil is excluded, the growth rate shrinks to less than 0.5%, according to new data from Euromonitor International. Brazil, in short, is propping up the global market. To put the performance into context, Brazil’s sales of bath and body care products were less than a third the size of the U.S. market at the turn of the millennium, yet fast forward to 2011 and sales in the U.S. have grown a mere 10% since 2000, and Brazil is on course to dethrone the U.S. as the biggest bath and body care market in the world by 2013. The Brazilian currency (real) has surged against the U.S. dollar over the past two years, which impacts the comparative value picture. But, that does not detract from what has been, in effect, a fundamental revitalization of Brazilian domestic demand.
Brazil’s new era of domestic demand pivots around a massive expansion of the lower-middle income base, especially in the northeast region, and no other fast-moving consumer goods industry illustrates more clearly its retail value upside than personal care. Millions of households that were on the margins of formal retailing have now come into the mainstream, fueling a hunger for commodity toiletries. This so-called “C-class,” comprised of consumers who earn approximately US$350–600 a month, bulged from approximately 65 million in 2005 to upwards of 93 million in 2010. Its rejuvenation has been little short of a socioeconomic revolution.
It is worth recalling that when Goldman Sachs first came up with the BRIC acronym in 2003, there were economists who were dubious about Brazil’s credentials to be singled out over Mexico, the region’s only other trillion dollar economy. The proof is in the pudding—between 2003 and 2010, the value of retailing in Brazil grew by 59% at constant U.S. dollar prices, which was more than six times the growth rate in Mexico, according to the latest data from Euromonitor International. Over the corresponding period, the retail value of bath and body care products grew by 99% in Brazil (at constant prices) compared, for example, with 41% in China, 4% in Mexico and a contraction of 5% in the U.S.
Demand at the Top and Bottom of the Price Pyramid
General purpose body care was a key driver of Brazilian growth in 2010, fueled by local player Natura, which grew its category share from 30% to 33%. Brand loyalty, however, remains something of a nascent concept among Brazil’s newest generation of lower-middle income shoppers, which means there is everything to play for going forward. What seems clear is that innovation in packaging and product ingredients will become increasingly important as companies look to build stronger positions. For example, competitively priced small-size presentations have proved a hit in deodorant sprays. And there is evidence of upbeat demand for products made from natural ingredients, such as fruit-based body lotions and milk-based hydration creams.
What is most striking about Brazil’s new era of consumption culture is that demand for beauty and personal care is climbing at both ends of the price spectrum. While the so-called C-class explosion is driving sales of commodity toiletries, such as deodorants and soaps, there is also a burgeoning premium goods market being fueled by a new generation of high net worth individuals, particularly in São Paulo. In 2010, for example, sales of super-premium beauty and personal care products in Brazil grew by 9% at constant U.S. dollar prices, which was one of the highest growth rates in the world according to data from Euromonitor International.
Brazil’s appetite for premium goods reflects, on the one hand, the expansion of an aspirational middle-class and, on the other, a deep-rooted predisposition to spending rather than saving (this is a throwback to the days of hyperinflation). It is significant, for example, that the high-end jeweler Tiffany & Co operates more stores in São Paulo than in any other city in the world. São Paulo is also where LVMH generates some of its most attractive profits per square foot. Indeed, last year, in a bid to strengthen its Brazilian footprint, LVMH entered into a majority (70%) acquisition of online beauty retailer Sack’s [additional information on this acquisition is available through a keyword search on www.GCImagazine.com]. It is a deal that should act as a value-enhancing springboard for the company’s Sephora beauty chain.
At the discount end of retail distribution, the country’s leading personal care retail specialist O Boticário moved into direct selling in 2010, with operations rolling out in the northeast region. The focus of direct selling is on lower-income consumers, and it is where Avon has built a formidable business platform in Brazil—though Avon lost some momentum in Brazil in 2010 due to logistical problems related to a new distribution center in Cabreúva. As competition intensifies to win over Brazil’s lower-income consumers, Avon can ill afford any further hiccups this year. Indeed, as so much of the world’s consumption culture becomes defined by its e-commerce potential, Brazil is a reminder that old-school distribution techniques should not be overlooked in the emerging markets.
Global Scales of Consumption Tip From North to South America
Over the next five years, global retail sales of bath and body care products are forecast to generate more than US$8 billion of new business, of which Brazil is projected to fuel around one third. India, Russia and China are tipped to be the next three biggest growth stories in absolute terms, but their combined incremental retail value is still forecast to be around US$1 billion less than in Brazil, according to new forecast data from Euromonitor International. What is striking is that in the emerging world order of fast-moving consumer goods, it is rare for China to be held so firmly off the top growth position. That alone is a measure of the dynamism of Brazil’s bath and body care market.
Of the world’s developed markets, Germany is forecast to put in the strongest performance to 2015, with compound annual growth of 1.4%, fueled by commodity toiletries, especially deodorants. Spray formats, notably, ought to continue picking up down trade activity from fragrances. In the U.S. and the U.K., the prognosis looks much bleaker. Both are projected to leak value (in real terms), reflecting the likelihood of an entrenched period of down trading and discounting. The industry’s growth table, in short, continues to be cluttered with first- and second-tier emerging markets, consolidating a tipping point in the scales of global bath and body care consumption.
It is Brazil that is weighting those scales most forcefully. And with the country already signed up to host the football World Cup and the Olympic Games, the two biggest sporting events on the planet, there will be opportunity aplenty for high-profile marketing and advertising activity in bath and body care going forward. The challenge for the industry is how best to attract a demanding but potentially fickle new consumer base of lower-middle income consumers in the rapidly developing northeast region, and how to balance a portfolio so that it leverages to an aspirational middle-class in the key urban centers of the southeast. Getting the strategic planning right will have huge upside implications, not least in canceling out the sluggishness of Western markets.
Rob Walker, senior fast-moving consumer goods analyst, Euromonitor International, can be contacted at email@example.com.