Latin America - Latin Spirit

Euromonitor International analyses the Latin American region's C&T market and reports on the major market drivers

Latin America is on the brink of a demographic shift away from its current very sizeable young population to seeing the share of the working age population increase as the region's birth rates continue their decline. This is offering up an attractive window of opportunity in the region for manufacturers eyeing its newly stabilised key economies. Whilst poverty remains a defining issue in the region, national income levels across Latin America and the Caribbean have been climbing in tandem with economic growth achieved largely on the back of trade, and the region's cosmetics and toiletries sales have been one of the main beneficiaries of this, with sales up 11.3% last year compared to packaged foods for example where sales rose 7.7%.

With per capita spending below that of the more developed markets of North America, Western Europe and Australasia and economic growth finally on the upswing, the region has many exciting prospects for the cosmetics, toiletries and perfumery industry, which helped render it the fastest growing region in the global cosmetics and toiletries market last year.

Being characterised by low levels of disposable income has meant that Latin America's cosmetics and toiletries markets have traditionally been dominated by products which consumers perceive to be essential. Whilst hair care still accounts for by far the largest portion of the region's C&T sales (US$7bn), the past five years have seen skin care march ahead of oral hygiene products in terms of value sales, whilst sun care is the fastest growing product sector.

Brazil - Improved stability

Brazil's C&T sales registered an impressive positive performance in 2005 with sales up 15%. The good performance is explained in part by prices being kept stable or rising below the rate of inflation. An appreciated Real vis-à-vis the US dollar, has not only kept the cost of imported raw materials in check but also brought stability to prices of premium imported products, underpinning a price led increase in demand.

The most important products in Brazil's C&T industry are those in personal care. The leading sector is hair care products, with a share of 26.2% of C&T sales in 2005. Consumption of hair care products is stimulated not only by the change in female habits concerning hair care, but also by widening product offerings. Constant product innovation and increased use of product segmentation were chief factors in new hair care launches last year, with intensive care offers factoring highly due to increasing demand for hair products containing synthetic chemicals, such as relaxants and colourants. Unilever completed Dove's summer line-up late last year with seven products including an intensive treatment hair mask, Dove Mascara de Tratamento Intensivo. The company also added three leave-in UV protection creams to its Suave range in September. L'Oréal turned to nature with the revamp of Garnier Colorama Ultra Natural, promising to extract the best of nature to treat specific needs.

Consumers in the country's lower income brackets should not be ignored and whilst manufacturers are likely to generate strong value and volume sales in the masstige category, cheaper product ranges for the discount market should also be lucrative. Discount stores currently take a negligible share of cosmetics and toiletries sales in Brazil, but with 16% of the population earning less than BRL2800 (US$1000) in 2005, this particular distribution channel and price segment could show considerable potential for growth. Volume sales will be impressive for those manufacturers that can successfully win over this demographic.

Mexico - Wave of growth

Mexican C&T sales grew a healthy 6.5% last year, quashing rumours of a lack of dynamism. While depilatories, sun care, hair care and oral hygiene presented high growth rates, other sectors such as bath and shower products and colour cosmetics saw slow growth.

Product innovation dictates sales trends as Mexicans, now exposed to global trends, demand new products suited to particular needs. For example, styling agents have gained popularity as both young men and women are exposed to international fashion through mass media. Also, the recent international concerns over skin cancer contributed to an increased awareness and consumption of sun care products, as well as leading to the importance of SPFs in facial skin care formulas.

Demographics indicate that the birth rate in Mexico is decreasing every year. The country has a large population of children who are growing up to become teenagers and young adults with purchasing power. Also, the consumer base of 30 to 45 year old people is increasing, spelling great potential in skin care products such as nourishers, anti-agers and moisturisers as well as hair colourants.

The Mexican consumer is becoming more knowledgeable about products available in the market and extensive product lines are par for the course, ensuring that all needs are met. The metrosexual trend now figures in Mexican parlance and though still small, this trend has inspired the launch of male-specific hair care and skin care lines such as Neutrogena Men from Johnson & Johnson. Growth of these more cosmetic products is expected to be very slow however as many Mexican men still consider most specialised cosmetics and toiletries as non-essential.

Argentina -Pampering potential

Argentina's C&T sales grew an impressive 19% during 2005, mostly as a result of an increasing trend towards self indulgence, as rising disposable incomes allowed consumers to devote more resources to products that provided greater satisfaction. Many companies focused on developing added value characteristics to their products to satisfy this demand, including anti-ageing benefits.

Reflecting global trends, last year saw a surge of new products that address specific consumer concerns. In hair care for example, manufacturers extended their product lines and now offer special formulas for different colours and types of hair (such as curly, frizzy, dry, damaged and coloured), as well as products enriched with vitamins and Q10.

Although multiple grocers lost share in the overall industry, the supermarkets/hypermarkets channel gained share in colour cosmetics, skin care and sun care. Colour cosmetics was an area of growth for supermarkets/hypermarkets as a result of L'Oréal's introduction of dedicated aisles with knowledgeable personnel in these outlets. Supermarkets/hypermarkets lost share in the overall industry because consumers generally prefer direct sales and traditional

convenience stores for these items, incorrectly perceiving them as having lower prices.

Growth prospects for the Argentine C&T industry are very optimistic as the trend towards self indulgence is likely to continue as a result of historically restricted consumption and higher disposable income.

Colombia - Growth opportunities

Macroeconomic factors such as improved economic conditions and consumer confidence were responsible for the sustained growth registered by Colombia for 2005. In addition, women who entered the workforce in large numbers since the early 1990s also increased their expenditure in personal care products. This dramatically expanded the consumer base for developing sectors such as skin care and even for more mature sectors such as bath and shower products.

Brazilian direct seller Natura has announced plans to enter the Colombian market in 2007. It is expected that it will leverage its position as a purveyor of premium quality, natural products to carve a niche among direct sellers. None of the leading direct sellers presently in the country has a strong, unique positioning in the minds of consumers, with perhaps the exception of Belstar's Ebel Paris brand. Natura is likely to exploit that weakness as it builds awareness for its products.

Avon Colombia acquired ProNova, Prebel and Colcosméticos in a transaction surpassing US$150m in late 2005. Before 2005, Avon's products were manufactured exclusively by Prebel under a joint venture called ProNova. With the dissolution of this joint venture and the acquisition of these companies, Avon Colombia will likely become one of the largest C&T companies in Colombia in 2006. There are several advantages in addition to size: Avon will have absolute control over its promotional and sales activities; it will have access to regionally planned campaigns that will allow it to have a consistent brand image across the region; the company will have a launch pad to increase its penetration in other Andean markets; and it will diversify its risk since it will be operating in multiple channels with separate brands for each channel.

Of particular note in Colombia's C&T market is the increased importance of distribution through supermarkets/hypermarkets. This was largely a result of the many promotional offerings available through supermarkets/hypermarkets, which are uncommon in pharmacies/drugstores. Colombian consumers are highly price sensitive and tend to make purchases of basic toiletries such as bar soap and toothpaste based solely on price.

Looking forward, the maturity and saturation of key C&T sectors will continue to force leading manufacturers to offer products that fulfil unique needs and wants, beyond just functional ones. Industry sources expect the health and wellness trend to gain force in the forecast period. This will likely translate into the incorporation of natural ingredients in most, if not all, C&T sectors.

Venezuela - The price is right

Social plans launched by the Venezuelan government to improve the quality of life of low income consumers translated into significant improvements in the purchasing power of the largest segment of the population last year. Accounting for 81% of the population, low income consumers took advantage of plans such as that of MERCAL (Mercado de Alimentos CA), where they purchased subsidised food and basic personal care products. Prices at MERCAL are on average 30% lower than prices at supermarkets/hypermarkets. These savings coupled with cash payments disbursed to participants of social programmes have significantly increased the disposable income of these consumers and allowed them to make aspirational purchases, particularly in hair care, colour cosmetics and skin care.

In search of the fountain of youth Venezuelan consumers are notorious for demanding the latest developments in C&T. Consequently, multinationals continued to launch products that reflected the latest global trends including health and wellness and delaying the ageing process. The sectors that saw the greatest dynamism in terms of new launches in 2005 were hair care, fragrances, skin care, sun care and oral care. On the health and wellness side, botanical extracts, vitamins, proteins, fruits and seeds permeated through most cosmetics and toiletries. Anti-ageing solutions ranging from sun protection through wrinkle reduction became common among mass brands. Leading manufacturers such as Beiersdorf SA with its Nivea brand capitalised on this trend by expanding the reach of its umbrella brand into sectors other than skin care, especially sun care. Benefits such as improved firmness, smoothness, natural radiance and protection against free radicals became more common in the parlance of skin care, sun care and hair care products.

More so than other firms, direct sellers are expected to benefit most from improvements in the purchasing power of lower income consumers. This stems from the strong relationship that direct sellers built in the review period during tougher economic times and their close proximity to consumers, literally being neighbours, family and friends.

It is expected that mass direct sellers will segment their products to have a premium line that can satisfy the aspirational purchase needs of lower income consumers. In this sense, Corporación Belcorp de Venezuela is better positioned to increase its share of the market than Avon Cosmetics or Alticor given that its leading umbrella brand, Ebel, is already positioned as a premium brand and is clearly differentiated from its other brands.

Optimistic outlook

Notwithstanding further economic upheaval, Euromonitor anticipates average annual growth of 5.2% for Latin America to 2010, with growth attributable to rises in disposable incomes, as well as the development of more sophisticated and advanced distribution systems. Brazil will remain key to growth here, accounting for almost half the region's sales, and domestic manufacturers in this beauty giant are showing themselves quick to learn from their multinational counterparts regarding distribution and added value products.

With the development of better distribution systems comes greater accessibility to luxury or non-essential products for many consumers. Awareness of new product sectors will rise, and it is crucial that the all-important direct sellers do not take their eye off the ball. Multinationals such as L'Oréal or Procter & Gamble will be anticipating share increases off the back of the growth in supermarket and hypermarket infrastructures.