Brazil - A South American success story

Brazil is a country with a burgeoning C&T industry. While other areas of its economy report far less impressive figures, beauty seems to be an area worth investing in.

According to its national trade body, Abihpec, while Brazil has recorded only modest growth rates in the economy in the last couple of years, the C&T industry is bucking that trend and thriving. The average growth for the C&T sector was 10.9% versus a 2.8% growth for the overall manufacturing industry and between 2003 and 2007, the market value for the cosmetics industry jumped from $3.8m to $10.1m. These figures are all the more impressive given that the country is going through as much economic downturn as everywhere else presently.

A late developer

Brazil, part of the BRIC group of countries with Russia, India and China, is considered one of the fastest growing developing economies in the world. The term BRIC, an acronym that stands for the first letters of these countries, was created in 2001. While it’s not a formal trading association, like the European Union, the BRIC label means that these countries have fast-growing, developing economies and are ones to watch on the world stage.

The BRIC countries account for over 25% of the world’s actual geographical space and include up to 40% of the world’s population – which makes for staggering reading. Their combined GDP is estimated at $15.435 trillion making the four nations the largest entity on the global stage on almost every scale.

Allan Conway, head of global emerging markets at British fund manager Schroders, said Brazil is a definite favourite for investors. “Brazil is fascinating. It has an abundance of major commodities, it has a pool of reasonably-priced labour and is relatively politically stable. On top of this it doesn’t have exposure to the debt problems that are now affecting other countries in that part of the world.”

Alex Patelis, Merrill Lynch’s governing director, thinks that BRIC countries could help stabilise the global economy thanks to what is known as the BRIC wall of consumption. “In the BRIC countries, consumption is just 45% of their GDP, compared to 71% in the US. Courtesy of years of these surpluses, BRIC countries have built up a healthy amount of savings for a rainy day in the form of the central bank reserves. That rainy day has now arrived and they are reaping the rewards.”

This view is shared by Joao Carlos Basili, president of Abihpec, who forecasts a bright future for the Brazilian cosmetics industry: “Despite the problems in the world’s economy, we expect the Brazilian C&T industry to record an increase of over 8.6% in its revenue by the end of 2009. It’s still a bit too early to evaluate, but we haven’t experienced negative consequences in our industry – in fact I believe crisis and opportunity are two sides of the same coin and this will hopefully be borne out by the end of this year.”

Significantly, Brazil holds a privileged position within the BRIC group thanks to its political stability. Since its election in 2002, the left-wing Lula Administration, headed up by President Luiz Inácio Lula da Silva, has managed to ensure certain financial stability in the country. A writer for The Economist summed this up recently saying: “In some ways Brazil is the most stable of all the BRIC countries. Unlike China and Russia it enjoys a good level of democracy and unlike India it has no serious disputes with its neighbours.”

Exceptional beauty

According to data from Euromonitor, Brazil’s C&T industry ranks third in the world value-wise, ahead of France and the UK and only falling behind the US and Japan. Looking at this in more detail, Brazil ranks second worldwide for hair care products, children’s C&T products, men’s C&T products, oral care and deodorants. The country comes third in the sun care category.

Looking at hair care, Brazilian exports of hair care products brought the country an income of $118.9m in 2007 alone, which represented a 115.2% rise on 2003. Brazilian women are big advocates of using hair care products, particularly when it comes to chemical treatments, hair colouring and straightening. Such procedures were previously considered harmful for the hair but with the gentler products now available this is no longer the case.

With regards to the main players in Brazil, Veronika Rezzani, director of Brazilian Fruit Cosmetics says: “Even though there are no official numbers about the main cosmetics companies in Brazil, some important local names are Natura, Avon, O Boticario, Bony Plus, L’Acqua di Fiori and Groupo Bertin (Ox), while Procter & Gamble, Johnson & Johnson, Unilever, Beiersdorf and L’Oréal are among the successful international brands. The market seems to be rather concentrated but local brands have started to challenge the historical dominance of the multinationals.”

To date, there are 1,635 companies operating in the C&T market in Brazil. Fifteen of these are large companies who, with tax revenues of over $100m a year, represent 70% of the total sales. The south eastern part of Brazil is home to the majority of manufacturers, with 1,043 companies located here.

Two of the biggest local success stories, which are also well established on a world stage, are Natura and O Boticario. Natura uses predominantly natural ingredients like andiroba, mate verde and pitanga in its ranges which include shower and bath products, hair care, fragrances, face and body care lines and make-up items.

O Boticario launched in 1977 and concentrates on hair care products for men and women, but also in the fragrance arena. Both companies have a very ethical outlook and pride themselves on having environmental policies and recyclable packaging.

Channel-wise, the main outlets for C&T products in Brazil remain wholesale and retail stores, which in 2006, covered 90.1% of the distribution market. The popularity of direct selling has boosted the concept of home shopping, which has developed steadily in the past few years. And finally, individual franchises represent another noticeable channel in Brazil, taking up a small but growing part of the market.

A woman’s world

Among the reasons for the success and growth of the Brazilian C&T industry is the growing number of Brazilian women that are now in the job market and are experiencing improved conditions in pay. Indeed, the Brazilian beauty industry itself has been a huge source of job opportunities. According to Abihpec, jobs in the C&T sector grew by 5.8% in 2005, which is higher than the growth in employment rates posted for the overall economy.

The rise of the middle classes in Brazil is particularly relevant to the success of the cosmetics industry since demand for high priced and luxury products is growing accordingly.

“In the last couple of years our company has focused on the prestige market addressing mainly middle class customers in Brazil. These consumers have the expenditure power and thus their needs must be attended to. They are a key area for us,” says Mauricio Campos, export manager at Cless Cosmeticos.

Furthermore, according to the Brazilian institute for Geography and Statistics (IBGE), the Brazilian population has practically doubled from the 90m inhabitants recorded in the 1970s and is due to keep growing until approximately 2062. Cosmetics products are appealing to younger and even more beauty conscious consumers, while longer life expectancy is already prompting the desire to preserve youthful looks in the older population.

However, manufacturers maintain a realistic outlook on the current situation of the market. Campos explains: “Because of the volatility of the dollar as well as the uncertainty about this year, the growth rate has slowed down and some workers have been left unemployed. We are definitely expecting a lower economic growth for 2009. However, the Brazilian cosmetic market will certainly develop further in the long run because there are still consumer groups that have not been addressed. Companies who invest in quality products and that are well positioned have nothing to fear.”

Other industry representatives are even more optimistic: “I believe Brazil will soon jump from the third to the second place in the international C&T rankings. Brazil produces top quality cosmetics and the whole category is growing at an impressive rate, maintaining a positive image internationally,” says Rezzani.

The dynamism of the Brazilian market has benefited foreign manufacturers. “In only three years, we have been able to double our foreign export business. The growth in exports in 2006 exceeded the international average, indicating that we are doing particularly well here,” adds Basilio da Silva.

International efforts

The main foreign export market for Brazil has always been South America but the share of exports to this region dropped noticeably between 2001 and 2004. Now the country also exports to the US and to the rest of Europe much more regularly. In the meantime, Brazil is looking more at further penetrating the US and Europe. Brazilian companies started by taking part in international industry shows and Brazilian companies have improved their standing and reputation by regularly attending these types of events.

In 2007, to foster the industry’s international development, Abihpec and Apex Brasil, the Brazilian Trade and Investment Promotion Agency, took 18 companies to the Cosmoprof exhibition in Italy where they exhibited in a specially designated area.

The Brazilian pavilion was located alongside exhibitors specialising in products made with natural ingredients. Among the participating companies featured were Amazon Secrets, Nunaat, Surya Cosmetics and Brazilian Fruit Cosmetic, so there was a big focus on natural C&T at the show, with hair care being a particular focus.

Abihpec and Apex Brasil have also promoted the participation of Brazilian companies in several events held in the US. The Brazilian Association of Cosmetics helped raise the competitiveness of Brazilian products in general by creating new opportunities in several markets and by consolidating foreign exports. One of their strategies was to promote a business forum between Brazilian companies and North American importers. The meetings were organised to best match the profile of the parties and were deemed a big success in business terms.

Star strategy

Brazil has further consolidated its presence overseas by focusing on two main distinctive features – its use of formulations based on natural indigenous ingredients and the fact that it has staunch environmental policies which accompany its production activities.

The Brazilian Fruit Line from Brazilian Fruit Cosmetic is a good example of this natural trend being taken up by most Brazilian cosmetics companies. The products contain typical Brazilian fruit such as cupuaçu and guarana and the range features lotions, gels and glosses. Brazilian Fruit’s signature product is Caipirinha, based on the Brazilian cocktail, with lime and sugar cane said to help skin regeneration.

Created in 2006, Brazilian Fruit is a natural line that was developed with no parabens, artificial colours or animal derivatives. The company is committed to helping Brazilian natives and their land and also supports children and adolescents, funding the Abrinq Foundation of Brazil in its efforts to give something back to the land.

Rezzani adds: “Our products are very well accepted in the international marketplace and our goal is to invest in more premium, lucrative markets, taking into consideration our unique approach, exclusive formulations and high quality cosmetics.” The company plans to negotiate with department stores in parts of Europe, Central America, Holland and Belgium during 2009 to drum up more business. It is already on the shelves in Spain, Portugal, the UK, France and the US.

Valerio Santana, export manager at Kanechom, based in the Brazilian region of Minas Gerais, is also of the opinion that natural ingredients and an ethical approach to business are vital for success in Brazil nowadays. “Our main objective is to use ingredients responsibly, taking into account the Brazilian biodiversity and by respecting our land and its heritage. We work for a sustainable industry and our work at Kanechom shows that a compromise with society and the environment can reap rewards for all involved.”

Another common trend amongst all Brazilian manufacturers has been the effort it has shown in the past few years to satisfy a demanding clientele. Says Campos: “Ours is a very dynamic market and companies are aware they must respond fast to consumers’ needs with innovative solutions and by taking into account their individual requirements. We must understand how to differently address the mass, prestige and semi-prestige segments to create brand

loyalty and to retain business in the long-term.”

“Brazil is a country that puts a great emphasis on beauty,” adds Santana. “Consumers are asking for natural products that don’t damage the skin. We are replying to this by launching products based on Amazonian ingredients and tropical Brazilian fruits. In our hair care line we use these fruits to help damaged and dry hair.” The company also has specific products for blonde hair for which we employ the services of chamomile.”

With so much going on, both in terms of interest and innovation, Brazil is definitely a market to keep a watchful eye on. And with both homegrown consumers and overseas consumers clamoring to get their hands on the country’s wares, there certainly looks to be no slowdown on the horizon.