Due to the decline of the Latin American region’s birth rates, the working-age population has seen its income levels rise, hinting at sizeable opportunities for manufacturers who eagerly anticipate stabilized economies. Although poverty remains, income levels across the region have been climbing. In 2005, the average disposable income per capita in Latin America and the Caribbean stood at $2,321—up from only $1,501 in 1990. Growth in Brazil and the stellar performance of Venezuela and Argentina outweighed slightly lackluster sales in Colombia, Mexico and Chile. With forecast growth of almost 30% by 2010, the cosmetics and toiletries industry is set to be one of the beneficiaries of economic development.
The growth of Latin America’s cosmetics and toiletries sales, more than 80% over the last five years, has been driven by a number of factors. Local and multinational direct sellers—including Avon, Natura, O Boticario, Jaffra and Oriflame—have boosted sales through aggressive geographic expansion and marketing efforts. Increasing product segmentation also has played a role, with manufacturers bringing out products for specific age profiles and ethnic groups.
Being characterized by low levels of disposable income has meant that Latin America’s cosmetics and toiletries markets traditionally have been dominated by products that consumers perceive to be essential. Hair care generates the most sales across all countries, except Venezuela. Foreign manufacturers dominate—with Procter & Gamble, L’Oréal and Unilever taking more than 50% market share. Their ascendancy is even more apparent at brand level, with no local players featured in the top 10 hair care brands.
The leading category in Brazil, for example, is hair care—registering 26.2% of cosmetics and toiletries sales in 2005. Constant product innovation and increased use of product segmentation were chief factors in new hair care launches in 2005. Intensive care offerings factored in, due to increasing demand for hair products containing synthetic chemicals such as relaxants and colorants. Unilever completed Dove’s summer lineup late last year with seven products, including an intensive treatment hair mask. L’Oréal turned to nature with the revamp of Garnier Colorama Ultra Natural, promising to extract the best of nature to treat specific hair needs.
While hair care still accounts for the largest portion of the region’s cosmetics and toiletries sales ($7 billion), the past five years have seen skin care march ahead of oral hygiene products in terms of value sales, with sun care as the fastest-growing category.
Skin care, alongside fragrances, is one of the largest and fastest-moving sectors in the region. Key technological advances drove the sector forward, with the growth of antiaging products with added value properties helped lift unit prices. In Brazil, manufacturers developed active formulas, offering results through the combination of natural ingredients with advanced biotechnology. Natura and Avon launches in 2005 illustrate this new generation of antiagers in skin care lines.
Venezuela and Argentina also enjoyed strong growth from a continuing stream of new product launches in 2005. While the key growth drivers in these markets—nourishers/antiagers and firming/anticellulite body care—are relatively new, they quickly are becoming an integral part of beauty regimens.
In 2005, fragrances displayed double-digit growth in Latin America for the fifth consecutive year. Mass fragrances remained the more dynamic category, with five times the sales of premium. Fragrances also benefited from the prevalence of direct-selling companies. Avon, Natura and O Boticario hold the top three places. Their dominance derives from the ability to provide products that are perceived as high quality at affordable prices.
Brazil Boosts the Region
Brazil’s strengthening economy has set the scene for significant growth in per capita spending across all sectors of the cosmetics and toiletries industry. The greatest increases are expected in fragrances, hair care and high-end products as consumers trade-up in line with their growing incomes. With a majority of the population earning between $2,500 and $5,000 per month, manufacturers would do well to target the masstige price category to maximize profitability.
Consumers in lower income brackets should not be ignored. While manufacturers are likely to generate strong value and volume sales in the masstige category, cheaper product ranges for the discount market should be lucrative as well. Discount stores currently take a negligible share of cosmetics and toiletries sales in Brazil, but with 16% of the population earning less than $1,000 in 2005, this particular distribution channel and price segment could show considerable potential for growth. Volume sales will be impressive for manufacturers that can successfully win over this demographic.
Moreover, the strong performance of Brazil, which accounted for some 47% of value sales in Latin America in 2005, assisted the region’s expansion. Brazil’s cosmetics and toiletries sales registered an impressive positive performance in 2005, with sales up 15%. The performance is explained, in part, by stable prices that rose below the rate of inflation. An appreciated Real vis-à-vis the U.S. dollar has brought stability to the prices of premium-imported products, underpinning a price-led increase in demand. It also has kept the cost of imported raw materials in check.
Robust Sales in Mexico
Mexican cosmetics and toiletries sales grew a healthy 6.5% in 2005, quashing initial rumors 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 color cosmetics presented slow growth.
Product innovation dictates sales trends as Mexicans demand new products suited to their 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 about 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.
The country has a large youth population with growing purchasing power. Additionally, the consumer base of 30 to 45-year-old people is increasing, spelling great potential for players in hair color and skin care products that nourish and provide antiaging and moisturizing benefits. Women are the main decision-makers in the purchase of cosmetics and toiletries for the family, thus dictating shopping patterns for skin and hair care regimens to other family members.
Price Relaxation Fuels Venezuela
The Venezuelan market for cosmetics and toiletries is the most dynamic in the world. The Venezuelan government has launched social plans aimed at improving the quality of life for low-income consumers, and this has translated into significant improvements in the purchasing power of the largest segment of the population in 2005. Accounting for 81% of the population, low-income consumers took advantage of plans such as MERCAL (Mercado de Alimentos CA), allowing them to purchase subsidized food and basic personal care products. These savings, coupled with cash payments disbursed to participants of social programs, significantly increased the disposable income of these consumers and allowed them to make aspirational purchases in color cosmetics, hair care and skin care.
More so than other firms, direct sellers are expected to benefit the most from improvements in the purchasing power of lower-income consumers. This stems from the strong relationship direct sellers build during tougher economic times and their close proximity to consumers.
Natura is expected to enter the Venezuelan market with a promise of quality cosmetics made with fine natural ingredients. Alongside homegrown Belcorp, Natura is in position to capitalize from the improved purchasing power of lower-income consumers. Premium products are expected to remain aspirational purchases for the largest segment of the population. This leaves direct sellers ample room to target and reach lower-income consumers by launching products that reflect the same trends and offer similar benefits as premium products.
Venezuelan consumers are notorious for demanding the latest developments in cosmetics and toiletries. Consequently, multinationals continued to launch products reflecting the latest global trends, such as antiaging. The sectors that saw the greatest dynamism in terms of new launches—hair care, fragrances, skin care, sun care and oral care—also experienced the highest growth rates in 2005.
Botanical extracts, vitamins, proteins, fruits and seeds permeated throughout cosmetics and toiletries. This trend is expected to gain greater force in the near future. Antiaging solutions—from sun protection to wrinkle-reduction—are common among mass brands. Among leading manufacturers, Beiersdorf SA capitalized on this trend by expanding the reach of its umbrella Nivea brand into sectors other than skin care, notably 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. Even oral care benefited from aging concerns, and launches of whitening toothpaste and teeth whitening products from Colgate-Palmolive were well-received.
Bright Future
Notwithstanding further economic upheaval, Euromonitor anticipates average annual growth of 5.2% for Latin America through 2010—with growth attributable to rising disposable incomes and the development of distribution systems. As the region enjoys increased disposable incomes, the supermarket provides the perfect platform for consumers to spend, due to the breadth of choice and the availability of higher value Western cosmetics and toiletries brands. Brazil will seize the lion’s share of growth, accounting for almost half the region’s sales.
Ongoing urbanization will continue to play an important part in the development of Latin America, as it erodes traditional purchasing behavior and facilitates the expansion of large-scale retail outlets. However, a deepening penetration of the vast nonurban areas of emerging regions will play an increasingly important part in generating growth over the forecast period. With the development of better distribution systems comes greater accessibility to luxury or non-essential products, allowing multinationals to further increase their market share.
