It's an exciting time for cosmetic and toiletries in Latin America with the region's countries seeking to work more closely together
Latin America is gaining ground as a regional bloc in the world’s economy, and its cosmetics industry is a reflection of this fact. The gross domestic product (GDP) of Latin America is around US$3,000m, representing 8% of world GDP. In order to reinforce the region’s importance in multinational trade, last May 12 countries created UNASUR, the Union of South American Regions, as a regional bloc that aspires to becoming a common market similar to the European Union (EU). UNASUR is made up of Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Surinam, Uruguay and Venezuela. This new bloc has a GDP of $1,229m and is growing at an average rate of 5%.
The trade between UNASUR members has become a significant and growing portion of their external trade. More importantly, their dependence on their traditional markets, mainly the US and EU, has reduced and member countries have successfully diversified their foreign trade. For this reason, one of the initiatives that this union proposed was the elimination of tariffs for non-sensitive products by 2014 and sensitive products by 2019. All the UNASUR countries are democracies with sustained economic growth and have become less vulnerable to external economic shock. UNASUR as well as the MERCOSUR – comprising Brazil, Argentina, Paraguay and Uruguay – seek to strengthen the region and improve its position in the world.
In this scenario, Brazil has turned into the star of the region. It is the only South American nation that is part of the BRIC, a group of countries comprising Brazil, Russia, India and China, which are the primary countries in terms of population and the nations that are developing rapidly and by the year 2050 will eclipse most of the current richest countries of the world. For example, Brazil’s nominal GDP will almost treble in the period 2006-2012 to $15.4 trillion.
The Latin American cosmetics and toiletries market’s turnover increased by 15% last year, compared to global growth of less than 6%. Once again, the growth in the region was supported by some of the larger local markets, such as Brazil with an improvement of 13% in sales and Argentina and Venezuela with 29% of growth in 2007, according to a report from market analyst Euromonitor. The report also points out that one of the main characteristics of the C&T market in Latin America is its exceptional diversity. The differences between countries are extreme. For example, Brazil presents a consumer base of 192 million and a rising economy, while Bolivia has 9 million consumers and a rural-based economy.
REGIONAL TRENDS
Brazil holds third position in the global market in total value terms, lying behind only the US and Japan. Several factors have contributed to Brazil’s leading position in the region: a population of 195 million, the growing consumer trend to spend money on C&T products, supported by a recent sustained economic growth and rising purchasing power for consumers.
There are 1,596 beauty companies in Brazil, according to the Brazilian Personal Hygiene, Perfumery and Cosmetics Industries Association (ABIHPEC). Of these, 15 are big companies with sales of over $63m, which represents 70% of total turnover. Most, 1,027, are located in the southeast of the region. In the south there are 318, in the northeast 132, in the west centre 98 and in the north 21, according to ABIHPEC.
South America is still the main market for Brazilian exports in the C&T business. And one of the primary long-term challenges of the sector in Latin America is to strengthen the presence of its products in Europe.
Meanwhile, in Argentina the C&T market’s turnover grew by 20% in 2007, compared to 2006, according to the Argentine Chamber of the C&T Industry (CAPA). As CAPA director, Miguel Angel González Abella explains these figures demonstrate growth above the general average of the complete Argentinian industry. He adds that the external markets are essential for some of the cosmetic companies in Argentina which sell most of their products on the international market. Sales to external markets increased 25% between 2006 and 2007. And the cosmetics industry in Argentina is constanly looking to enter new markets such as Africa or Asia.
According to a report by the Nielsen Company, the biggest increase in Argentina’s C&T market in 2007 came from personal care products, up 7.8%, while growth in cosmetics was 5.1% up on 2006. Nielsen’s research was based on 15 categories of cosmetic and personal care products available in supermarkets, pharmacies and beauty shops all over the country. In relation to this increase, in 2007 there was a significant growth of 21% in the consumption of facial and body creams in the supermarket channel of the whole country.
LOCAL RETAIL
The development of the C&T industry in the region varies from one market to another. “In Chile, the retail is highly concentrated with three pharmacy chains practically handling the business,” says Álvaro Márquez, executive vp, Chamber of Cosmetic Industry of Chile.
On the department store front, Falabella is one of the region’s largest retailers. It operates in Chile, Argentina, Colombia and Peru, and plans to invest some $2.86bn over the next four years. Falabella’s goal is to continue to be a major regional player, which means it will continue with this investment plan but it has not ruled out acquisitions either.
In the pharmacy channel, Chilean Farmacias Ahumada is the number one retailer in Latin America with sales of around $1,717m from 1,176 pharmacies. The firm owns 53% of Mexican company Farmacias Benavidez. In Argentina, pharmacy retail channel Farmacity also has a great prominence. Established ten years ago, it currently owns 102 points of sales and its beauty division represents 60% of turnover.
The region is also attractive to international selective brands. For example, L’Oréal’s Kiehl’s hit Argentina last February. “Buenos Aires is the first city of South America where the boutique opens its doors to the public,” says Myrna Polotnianka from the press luxury division of the L’Oréal Group. Last year the brand consolidated its presence in Mexico and in 2009 it will be available in Chile and Brazil.
NATURAL RESOURCES
The region’s natural resources offer an excellent opportunity to create regional cosmetic lines and products based on local plants and extracts. This is the case with the Amazonia line by Colgate-Palmolive. The company launched Palmolive Amazonia last November in Brazil, following in the steps of other firms who take the qualities of specific plants of different regions to distinguish brands and strengthen relationships with the local communities. The line is composed of bar and liquid soaps that are sold in pharmacies and supermarkets.
Also in Brazil Avon launched Liiv, a line of botanical beauty treatments. “This new line will be launched next October in other Latin American countries, including Argentina, Chile, Uruguay and Bolivia,” Evangelina Escribano, communication manager of Avon South American cluster, tells SPC. The initiative involves creating a variety of products, such as liquid soap, lotions and creams, which are formulated with plant extracts to revitalise skin.
To the riches of the region, innovation is added. Naturaloe, set up in 2002 by the Argentine Christian Estrada and now having a presence in Spain, Peru and the Czech Republic, has presented hair care and skin care lines based on aloe vera. The firm cultivates its own aloe vera in the San Miguel del Monte province of Buenos Aires.
South America has a major production centre for jojoba located in Argentina, the largest jojoba producer in the world, according to the Argentinian Secretary of Agriculture, Livestock, Fishing and Food (SAGPyA). At the same time, in Chile Deloremax works in a specific area of the Chilean Atacama Desert developing different varieties of the jojoba plantations. “The brand is traded in Europe through the Sol de Atacama enterprise located in Switzerland,” says Maximiliano Santelices, general manager of the company. Meanwhile, Argentine company Eco Oil is the top Argentine jojoba producer and exporter. Since 1995, Eco Oil Argentina has been involved in this market and today boasts major clients including Germany’s Beiersdorf.
Direct seller Natura is one of the companies taking advantage to the fullest of the region’s resources. Not only with active principles from Brazil’s Amazonia, but it has also looked for differential raw materials, such as palo santo from The Andes in Chile and paramela essence from Patagonia in Argentina, to create its recently launched fragrance line Amor America.
The variety of raw materials in the region is vast. Argentine manufacturer Tierras del Volcán, which develops its beauty products based on the mud from a volcano, is a great example of that. “The mud used for the products is obtained from El Chillante, situated in Tunuyán province of Mendoza,” says general manager Blanca Carrieres. The company exports 60% of its products to Italy, France, Greece, the US, Spain and Brazil.
The riches of the region have also been discovered by European companies. From the North West of Argentina comes the thermal mud that is used as a raw material for natural exfoliation by Swiss company Weleda for its product Weleda Barro Termal. “This product is rich in mineral nutrients and trace elements, which gives elasticity and tonicity to the skin,” says a Weleda spokesperson.
DIRECT CONTROL
Direct sellers lead the way in Latin America as the format has been so successful among the lower middle class. In fact for Avon Latin America is the most important region in the world. Latin America represented 32% of Avon’s revenue for the first quarter of 2008 with $8,643m. On continued strong performances in all markets, Latin America’s first quarter 2008 revenue rose 32% on the previous year. In Brazil, Avon increased revenue nearly 60% and the markets of Colombia and Venezuela each posted revenue growth of over 20%. Mexico continued to progress on its turnaround, with revenue growth of 9%. In January 2008, the company announced plans to realign Latin America distribution and manufacturing operations.
Natura opened its Casa Natura in Argentina last year as part of its expansion strategy. “The inauguration of new doors in Chile and Peru during 2008 are included in the same strategy,” Pedro Villares, director of operations, Natura Latin America tells SPC.
Peruvian company Ebel Paris – which was renamed L’Bel Paris last February – is another strong direct seller in the region. It takes part of the international corporation Belcorp and has a prominent presence in Latin American countries including Bolivia, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Mexico, Peru, Puerto Rico, Dominican Republic, Venezuela and Argentina. And the company continues to look for regional expansion.
The direct selling channel is also gaining ground in Chile. “The cosmetic market in Chile is highly competitive. Many multinational companies operate in this country, while the national industry is also very strong. In addition, direct selling companies represent about 20% of the market. In 2007, total sales at retail value reached $1,500m,” says Álvaro Márquez, executive vice president of the Chamber of Cosmetic Industry of Chile.
REGULATORY CHALLENGE
The current challenge for the region is to create harmonised cosmetics regulations. The idea is to reach a similar context to the one the European Union handles. The fact that in Latin America there isn’t a free trade agreement among MERCOSUR countries is a great obstacle. “We are very close to reaching harmonisation in all Latin America,” says Joâo Carlos Basílio da Silva, president of ABIHPEC and the Council of Associations of the Cosmetic Industry of Latin America (CASIC). He explains that: “the dispositions for countries of the MERCOSUR have been harmonised since 2005, although in reality the procedures continue to be different. The trouble is that each country interprets this legislation according to its own criteria, and they require completely different dossiers and documents to present to each national regulator organism. We are working on unifying the procedures inside the MERCOSUR and also expanding the harmonisation of the legal framework for other countries in the region.”
The director of CAPA, Miguel Angel González Abella also thinks it is necessary to harmonise every issue related to the sanitary regulation in the region. “The ideal would be that those differences didn’t exist, as currently the contents of cosmetic products are the same in the world,” he says. He also points out that the chambers of the region are struggling to abolish non-tariff barriers to trade, which restricts the exchange trade and remains in the form of a tariff.
On the other hand, in Latin America, there are still countries that have different packaging and labelling conditions. González Abella mentions another urgent issue in the region: “the fact that the formula INCI, the International Nomenclature of Cosmetic Ingredients, is not followed in all countries. And it is important to mention that one of the main markets in the region, Mexico, does not apply that formula.”
However, Basílio da Silva is aiming higher. “In the long-term, the main goal for the Latin American chambers that are associated to CASIC is mutual recognition,” he says. This would mean that if a company obtains the permit to commercialise a product in one of the countries in the region, since the requirements would be the same in all Latin America, it would obtain automatic approval.
The experience in the regulatory field of the cosmetics industry in Latin America is quite new. CASIC was created in 1999 and is made up of nine associated chambers from Latin America. This compares with its European counterpart, Colipa, which was established in 1962. CASIC will participate in the next Summit of Sanitary Authorities of Latin America (Sao Paulo, Brazil, 24-26 September 2008) along with the US Personal Care Products Council (PCPC), formerly the CTFA.
“For this next edition of the Summit of Sanitary Authorities of Latin America the main focus point will be harmonisation procedures,” says Basílio da Silva. “We need to simplify bureaucratic procedures and collaborate with the regulators to become stronger in monitoring beauty products’ safety.” Surely, with over 50 years of experience in the cosmetics business, Colipa will make an important contribution in helping to overcome the obstacles that the Latin American industry is experiencing.