Cosmetics: Inside the Beauty of the Brazilian Market - Camaya ...
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OCTOBER, 2013
Cosmetics: Inside the Beauty of the Brazilian Market
Strong historical growth and high market concentration in few companies
proportionate to the middle and small competitors opportunities in differentiation
and niche strategies, as well contribute to the consolidation of the sector by
Merges and Acquisition activities (M&A).
By The Cosmetics, Fragrances & investment in sustainable initiatives.
Toiletries Sector is increasingly
Vinicius Biagi Basílio Driven by rising per capita income,
consolidating itself as one of the
economically active population
Brazilian economy's most important
growth, increase of women joining
sectors. Its role is essential not only
the labor force and the evolution of
from an economic and financial
the C consumer class, the sector had
perspective, but also from a social
net sales of R$ 34 billion in 2012, and
and sustainability viewpoint, due to
has maintained double-digit growth
the number of workers that compose
for a decade, highlighted by a very
the upstream, middle stream and
high performance vis-à-vis Brazilian
downstream markets, as well as due
GDP growth.
to the strong contribution toward
The use of cutting edge technology helps benefiting major companies in the
to increase productivity and changes in international context.
prices in the industry (which grew less
Optimistic expectations about the future
than inflation in recent years), as well as
of the sector and active history of mergers
the volume of new product launches,
and acquisitions reveal a panorama of
adapting to market needs and the life
transactions involving consolidation of the
expectancy of the population. These
sector in the short and medium term.
characteristics insert Brazil in the global
context as the 3rd largest CF&T market,
Overview of the CF&T Sector
Net Revenue Evolution World Overview
50.000
55,00%
50.000
United States
10,5
45,00%
40.000
12,2 Japan
34.006 12,4 60,7
35,00%
Brazil
29.412 15,6
30.000 27.258 China
24.414 25,00%
19.516 21.340 15,6% 16,1 Germany
14,4%
20.000
11,6% France
11,0% 9,3% 7,9%
15,00%
17,7 United Kingdom
11,6% 43,4
10.000
0,9% 5,00%
Russia
7,9% -0,7% 23,9
3,6% 2,7% Italy
- -5,00% 36,2
Spain
2007 2008 2009 2010 2011 2012 2015
CF&T CF&T - Growth GDP Growth
General Overview (consumer prices), behind only of U.S. and
Japan, with lower growth in the CF&T
In 2012, the CF&T sector achieved sales of
sector.
R$ 34 billion Reais, 15.6% growth
compared to 2011, exceeding the Regarding jobs generation, the sector has
historical average of 13% over the last 15 significant contribution. In 2012, 4.94
years. In volume, the sector reached 1776 million jobs were created.
tons in 2011, an increase of 4.3% over
2010.
Brazil ranks third in the world, according
to 2012 data, with sales of USD 42 billion
Price fluctuations below inflation Competitiveness
registered in the country, pursuant to the
Currently, the industry is composed of
Amplified Consumer Price Index (IPCA),
approximately 2,423 companies, an
reflects strong growth in terms of volume
increase of 70% over 2004, with particular
and value-added products. From 2007 to
note to the concentration in the
2011, the Brazilian general price index
Southeast region, with approximately
accrued a 35.6% increase, while in the
1,492 companies. Among them, only 20
same period, the price index for CF&T
companies dominate 73% of the market,
products determined by Fipe (Fundação
with revenues over R$ 100 million.
Instituto de Pesquisa Econômica da
Universidade de São Paulo) was
An important characteristic of the
17.5%;14.3% for beauty products versus
industry is the intensive capital necessity,
29.4% in the General Consumer Price
with high investments in brand, R&D and
Index.
fixed assets. Maintaining competitiveness
depends on massive cash flow, access to
The relevant performance is a result of
capital and distribution capabilities and
large investments in innovation and
sale points, so that competitiveness in
products technology, along with the
small industries is restricted to niche
modernization of production processes as
performances.
reflected in increased productivity. In
2012, CF&T invested R$ 13.6 billion in
In this environment, growth alternatives
Brand, R&D and Assets, equal to 40% of
for small and medium companies are
industry revenue. R&D alone accounted
restricted to product innovation and
for 1.8%, while Brand obtained the largest
brand differentiation or development of
investment.
partnerships, joint ventures and mergers
and/or acquisitions of smaller
Regarding sustainable development, there
competitors.
are various investments in environmental
policies. Millions of Reais are invested in
Moreover, the presence of a few large
natural resource management, nature
companies becomes conducive to industry
conservation and in research and
consolidation. In an environment where
development of environmentally friendly
few Brazilian companies occupy a
products and processes, such as the use of
prominent position, like Natura and
"green plastic" in the packaging or
Boticário, there are numerous
development of supplier partner
opportunities for mergers and
communities of natural ingredients and
acquisitions, aimed at expanding the
assets.
musculature of some medium sized
Brazilian players for increase of
competitiveness, or the search for access
to niche markets.Revenue Breakdown - 2011 Sector Inflation Evolution
Hair Care 6.709,5 22,8% 185
Fragrances 4.750,2 16,2% 175
165
Disposable 3.486,2 11,9%
155
Bath 3.008,8 10,2%
145
Skin Care 2.678,9 9,1%
135
Deodorant 2.661,1 9,0%
125
Oral Hygiene 2.391,8 8,1%
115
Makeup 2.321,8 7,9%
105
Sunscreen/Sunblock 1.193,9 4,1%
95
Preparation for Shaving 210,10,7% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Price Index CF&T
Trends to a climate that favors hygiene and good
looks and a rich source of active
Despite the uncertainties in the
ingredients and natural resources, have
international market, Brazil has favorable
directed investments of cosmetics
macroeconomic fundamentals for growth
companies.
and the outlook for the retail sector is
positive and will continue on an upward Changes in the pattern of consumption of
trend, fueled by the increase in the the general public as well as the products
minimum wage and low unemployment. that companies offer to their consumers
and their marketing strategies converge
It is worth remembering that Brazil is
toward different trends, which
undergoing a change in its social
themselves are important, and, together,
structure. The rise of classes C and D
are characterized as essential changes in
expands the consumer market and,
the sector.
coupled with the desire from repressed
consumption and the willingness of the More recently, companies in the CF&T
new middle class to use their funds for sector have to deal with audiences of
different and more diversified goods, this different ages, different preferences and
is an important pillar for the advancement interests in products that perform specific
of aggregate demand. functions - due to increased life
expectancy and differentiated physical
Thus, the socio-demographic structure,
characteristics - offering them specific
combined with the increase in per capita
products, such as shampoos that cater to
income and the growing public interest in
different types of hair through unique
the health and beauty habits, in addition
formulations and packaging,creams for dry or too oily skin, and many increased use of natural extracts from
other products. An example is the stores flowers, seeds and fruits and less use of
that are intended for different audiences synthetic ingredients that can harm the
such as those from Grupo Boticário, skin, such as dyes and preservatives.
"Quem disse Berenice" and "The Beauty Furthermore, there is concern about
Box". environmental responsibility, which
implies the use of recyclable or
In terms of business strategies, there is a
biodegradable packaging, the
growing trend toward the incorporation
commitment not to test on animals or use
of new active ingredients, for example,
fruit species or endangered flowers, and
anti-aging, and moisturizing active
also the environmental sustainability of
ingredients aimed at increasing elasticity
production of natural inputs.
and firmness of the skin. In addition to the
development of new proteins, amino However, the growth of plant extracts
acids and amino acid chains with more experience a slower pace of growth in the
specific functions, the form of application face of competition offered by synthetic
has received increased investments. More materials - petroleum products - that have
recently, the development of the lower prices and greater availability.
applications of nanotechnology to
It is also possible to highlight the rise both
cosmetics is gaining momentum as one of
of many small companies operating in
the priority areas in R&D labs of large
niche market as well as more prominent
companies in the sector and its contracts
companies that have managed to link
with universities and research institutions.
their image to natural products and
In addition to the dermocosmetics,
celebrities, such as Weleda, L'Occitane,
nanotechnology is also being used in hair
Jequiti and the Natura market.
preparations.
Among large companies, we can point the
Another important trend, already quite
strategy of M&A, for example, the
consolidated, is the growing concern of
Sannoflora, specializing in organic
companies developing products that use
cosmetics, by L'Oreal, as well as other
natural and organic ingredients,
several transactions involving strategic
stimulated by environmental and
investors and private equity funds. GP
ecological concerns of consumers,
Investments acquired a stake in the
resulting in increased use of raw materials
company Beleza Natural in July 2013,
with ingredients that give increased
Hypermarcas acquired Bitufo in
functionality to products such as natural
November 2010 and more recently, the
fragrances.
Australian company Emeis was purchased
In general, companies seeking to by Natura seeking international expansion
differentiate themselves through the in the premium market.
appeal of organic products highlight theAnother recent example was the sale of Additionally, studies conducted by
51% of the shares of Empório Body Store ABIHPEC estimate some macro trends
from the Brazilian state of Rio Grande do that will guide the sector in coming years,
Sul, to the French company L'Oréal, a case the main ones being:
where the first sought the capital
(a) Digital relationship: the use of social
necessary to compete and sustain its
networks and viral marketing will become
growth and the second sought a
increasingly relevant to the purchase
distribution network for its products.
decision, as well as advertising strategies;
Also noteworthy is the launch of
(b) Personalized customer loyalty: access
"nutricosmetics", as are known oral
to information and database with
ingestion products (food, beverages or
consumer behavior information allows
tablets) with ingredients that promise to
companies to direct their marketing
promote the health and beauty of the
strategies to specific niches;
body, skin and hair. Many companies in
the food industry, such as Danone, have
(c) Smartphone: the use of mobile phones
been seeking to develop functional foods,
in the purchase decision upon comparing
recently beginning to highlight the effects
prices and to receive advertising and as a
of their products on beauty. In the Asian
tool for purchasing goods is a very strong
market, Nissin Foods recently launched
tool in countries like the United States
enriched noodles with collagen. However,
and Japan. As mobile phone usage
perhaps the most important initiative is
spreads in Brazil, this trend can also take
the positioning of L'Oreal, which has
on great strength in the country;
developed a line of nutricosmetics in
partnership with Nestle. The products (d) Sensory Experiences: access to
developed have active ingredients that information and rapid communication
are absorbed by the body and promote becomes much more demanding. It not
antioxidant action. only seeks the acquisition of goods, but
also distinctive experiences at the time of
Another example is L'Oreal's partnership
purchase. The creation of concept stores
with Coca-Cola for the development of
reflects this trend;
tea-based beverages with skin beauty
promotion properties. (e) The consumer market for cosmetics by
the male audience is quite important in
In this sense, though positioned as
other countries. In Brazil, as the prejudice
product of high value added, is the
decreases, more men are becoming
Beauty'In brand created by entrepreneur
concerned with their appearance.
Cristiana Arcangeli, designated
"aliméticos", consisting of foods with
cosmetic properties.In numerical terms, studies by ABIHPEC International companies also see high
together with the consulting firm value in the Brazilian market. One of the
Booz&Co estimate that the sector should largest retailers in the world of cosmetics,
reach R$ 50 billion in net sales by 2015, an Sephora, of the LVMH group, estimated
increase of 47% compared to 2012 and that it would open 40 stores by 2018.
US$ 50 billion in consumption (consumer
These trends and the expectations of
prices). Also according to the study,
investors point to an environment for
business investment shall reach R$ 20
investments in several fields, not only in
billion in the same period.
traditional chemistry, but also in the field
In the stock market, the company Natura of pharmaceuticals, biotechnology and
Cosméticos S.A. is an example of nanotechnology.
optimistic expectations of investors in the
Small and medium enterprises that can
sector.
scope a position within these market
changes will find an opportunity for
development in niche markets, and with a
Natura’s Shares Evolution Since IPO
solid strategic direction, will be able to
assume a prominent position in the
800
industry and participate in consolidation
700
processes, while those who are already
600
consolidated in the market will be able to
500 further develop their competencies, and
400 accelerate their growth through mergers
300 and acquisitions to obtain innovative
200 technologies and access to market niches,
100 especially in Brazil, a country that still has
many opportunities available in the sector.
-
2004 2005 2007 2008 2010 2011 2013
Natura Cosméticos Index Bovespa
Source: ABIHPEC, Sebrae, Booz&Co.,
BMF&Bovespa, ABDI.
Since the company went public in 2004,
with shares listed at R$ 8.00, the company
appreciated 423%, reaching R$ 41.80 on
February 12, 2013, with a peak in January
04, 2013, when the shares reached R$
59.89.
Vinicius Basílio (vinicius.basilio@camaya.com.br) is analyst at Camaya Partners.You can also read
