The Beauty Market in Brazil by Fung Global Retail Tech August 10

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DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

• Brazilisthefourth-largestbeautymarketintheworld,aftertheUS,JapanandChina.Thecountryaccountsfor9.4%oftheglobalmarket,accordingtoAssociaçãoBrasileiradaIndústriadeHigienePessoal,PerfumariaeCosméticos(BrazilianAssociationforthePersonalHygiene,Perfume,andCosmeticsIndustry–ABIHPEC),andthebeautymarketaccountsfor1.8%ofBrazil’sGDP.In2015,categorysalesinthecountrytotaledmorethanUS$31billion,accordingtoEuromonitorInternational.

• Culturally,beautyandpersonalcareareveryimportantinBrazil.Brazilianstake,onaverage,12showersaweekaccordingtoTheAtlantic,leadingtohighconsumptionofhygiene-relatedproductsandfragrances.

• InBrazil,themostcommonwaytopurchasemakeupisthroughdirect-sellingretailers.

• AccordingtoABIHPEC,in2015,theBrazilianbeautyindustryexportedUS$98millionworthofproductsto134countries;importsamountedtoUS$1.71billion.ArgentinaisBrazil’sbiggesttradingpartner,followedbytheUSandFrance.

The Beauty Market in

Brazil

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OVERVIEW Brazil is thefourth-largestbeautymarket intheworld,aftertheUS, JapanandChina.Thecountryaccountsfor9.4%oftheglobalmarket,accordingtoABIHPEC, and the beauty industry accounts for 1.8% of Brazil’s GDP.According toEuromonitor International, theBrazilianbeautyandpersonalcareindustrygrewata9.5%CAGRbetween2010and2015,andwasworthmorethanUS$31billionlastyear.

Brazil is the number one consumer of deodorant, fragrances and sunprotectionintheworld.Itrankssecondinconsumptionofbabycare,men’shygiene,hair,bathanddepilatoryproducts,andthirdfororalhygieneandmakeup products according to ABIHPEC. According to Stylist magazine,Brazilian women spend 11 times more of their annual income as apercentageoftheirtotalincomeonbeautyproductsthanwomenintheUK.

The health and beautymarket hasmaintained strong growth despite theeconomicdownturn inBrazil.Knownas the“lipstickeffect,”manywomeninthecountryhavecutbackonself-indulgentpurchases,suchasexpensivehigh heels, during the recession, but have continued to sporadically buycheaper lipsticks as small but rewarding purchases, keeping the beautymarket afloat. According tomarket research firmMintel, 24%of Brazilianwomen say buying new thingsmakes themhappy,while 81% of Brazilianwomenfindgettingabargainthrilling.

Source:ABCNewsPoint

Brazilhasalsorecentlyadoptedthehealthandwellnesstrend,asmuchofthepopulationhasemerged into themiddleclassafteryearsofeconomicgrowth.AlongwithBrazilians’ strongpenchant forpersonalgrooming, thehealthandwellnesstrendhasdrivenmarketgrowth.Despitetheeconomicslowdown, Brazil’s beauty and personal care market grew by 57.6%between2010and2015according to Euromonitor. Euromonitor forecaststhat it will grow by 14.3% between 2015 and 2020, at a CAGR of 2.7%,althoughthefirmexpectsthepremiumbeautyandpersonalcaremarkettogrowevenfaster,by29.1%overthesameperiod,ataCAGRof5.2%.

According to Euromonitor, Brazilian health and beauty specialist retailerssawa9%increaseincurrentvaluegrowthin2015comparedto2014,partlyduetoan increase intaxesonbeautyproductsandthedevaluationofthereal.Thesectorisexpectedtoseethestrongestgrowthwithinnon-grocery

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retailers,witha2%valueCAGRbetween2015and2016atconstant2015prices,accordingtoEuromonitor.DrugstoresandpharmaciesareexpectedtocontinuetobenefitfromthehealthandwellnesstrendinBrazil,growingatanestimated3%valueCAGRin2016.

Culturally,beautyandpersonalcareareveryimportantinBrazil.AccordingtoTheAtlantic,Brazilianstake,onaverage,12showersaweek, leadingtohighconsumptionofhygiene-relatedproductsandfragrances.

Figure1.Brazil:TotalHealthandBeautySales,2010–2020E(BRLBil.)

Source:EuromonitorInternational

BEAUTYANDPERSONALCARE

Premium beauty and personal care product sales in Brazil have grownalmosttwiceasfastassalesofmass-marketproducts,asseeninthetablebelow.Euromonitordatasuggestthatthepremiumcategorygrewby23%yearoveryearin2015despitetheunfavorablemacroeconomicconditions,reflecting consumers’ preference for products with higher-qualityingredientsandrecognizedbrandnames.

Figure2.Brazil:Premiumvs.Mass-MarketBeautyandPersonalCareSalesGrowth 2010–2015CAGR YoY%Change(2015)

Premium 15.2% 23.0%

Mass-Market 8.7% (2.5)%


Figure3.Brazil:GrowthofTopFiveBeautyandPersonalCareCategories

2010–2015CAGR Forecast2015–2020CAGR

Depilatories 23.4% 5.7%

Men’sGrooming 15.8% 4.7%

Fragrances 12.2% 2.8%

Deodorants 11.8% 3.9%

SunCare 9.8% 2.6%


78.887.8

97.0107.6

118.6128.9 131.3 133.8

136.4 139.2 142.3

0

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40

60

80

100

120

140

160

2010 2011 2012 2013 2014 2015 2016E2017E2018E2019E2020E

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KEYPLAYERS

The key players in Brazil’s beauty market include both domestic andinternational brands, some of which we profile below. Other relevantbrandsincludeUnilever,L’OréalandMaryKay.

NaturaCosméticos

Natura Cosméticos is a Brazil-based manufacturer and direct seller ofbeauty and personal care products. According to Euromonitor, in 2015, itranked16th intheworldintermsofbeautyandpersonalcarevalueshare,and first in Brazil. The company is particularly concerned with its socialmessage, maintaining an environmentally friendly stance with each of itsproducts.

In2015,NaturareportedsalesofUS$2.4billion;98%ofthecompany’ssaleswere generated in Latin America, and 76% in Brazil alone. The companyreported 8.6% growth globally in 2015, though revenue in Brazil fell by3.6%. Natura’s share of the Brazilian market slipped from 15% to 11%between 2010 and 2015. The company opened its first brick-and-mortarlocationin2016,inSãoPaulo,andannouncedplanstoopenmorestoresinthecomingyears.

Source:MITSloan

GrupoBoticário

Grupo Boticário is the owner of theO Boticário beauty specialist retailer,founded in 1977. The company is 100% privately owned and the second-largestbeautyspecialistwithin theBrazilianmarket,generating99%of itssalesdomestically.OBoticárioisthemarketleaderforfragrancesinBrazil.In 2012, the company founded a series of stores called Quem Disse,Berenice? (“Who Said, Berenice?”) that are dedicated to makeup andfragrances. The chain is very popular in Brazil due to its powerful adcampaign that includes women of all ages, colors and sizes. At the sametime, the company launched The Beauty Box, which is a smaller-format,boutique-stylestorethatsellsmultiplebrandsandhasastronge-commercepresence.

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Source:Ninnaseacrets

AvonProducts

Avon Products has been operating in Brazil since 1958. In 2015, Avonrepresentedapproximately8%oftheglobaldirect-sellingsalesforce,with8millionrepresentatives,1.5millionofwhichareinBrazil.Brazilaccountsfor17%ofAvon’sglobalmarket;oneineverytwolipstickssoldinBrazilisAvonbrand,andanAvonmascaraissoldevery1.5secondsinthecountry.

Avoniscurrentlyimplementingaggressiveimprovementsinitse-commerceplatform. InBrazil,AvonoffersfreeshippingonordersoverR$99(US$30).OnordersoverR$60(US$20),thecompanyallowscustomerstopayinuptosixmonthlyinstallments,interest-free,whichiscustomaryinBrazil.

Source:Avon

Figure4.Avon’sTotalRevenue(USDMil.) 2015 2014 2013

Brazil 1,252.6 1,909.3 2,014.0

Allother 4,907.9 5,738.7 6,482.8

Total 6,160.5 7,648.0 8,496.8

Source:AvonProducts

DISTRIBUTIONCHANNELS

In Brazil, the most common way to purchase makeup is through direct-selling retailers. Natura sells its products through its 1.4 million Natura

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Consultants in Brazil, and the company has an additional half millionconsultants throughout Latin America and France. Brazil serves as Avon’slargestmarket,contributingmorethan10%ofthecompany’sconsolidatedrevenues, although the company has noted that declining revenues havebeen affected by the Brazilian market and increased competition fromInternetretailinganddiversifieddistributionchannels.

Currently,noconsiderableInternetsalesaregeneratedfordepilatories,oralcareandproductspackagedassets/kitsinBrazil,whilefragranceshavethestrongest online presence among all categories, generating 7.9% of thebeautycategory’sretailvalue.

Haircareandoralcareproductsaremostlysoldinstores,whichaccountfor93%and99.8%of their respective retailvalues.Directsellingaccounts forthelowestshareofsalesinbothcategories:only6.2%ofhaircaresalesand0.2%oforalcaresalesaremadethroughdirectsalesinBrazil.

Figure5.Brazil:DistributionofColorCosmeticsandFragrances,2015 Store-BasedRetailing DirectSelling

ColorCosmetics 49.4% 49.4%

Fragrances 46.1% 46.0%


Recently, store-based retailing has gained traction in Brazil, particularly inthebeautyspecialistsector, takingawaysomeof thebusiness fromdirectselling.

Figure6.Brazil:DistributionofBeautyandPersonalCarebySubformatasaPercentageofMarketShare,2010–2015


11.2% 11.0% 10.7% 10.5% 10.2% 9.7%

23.6% 23.5% 23.6% 23.7% 23.7% 23.2%

17.4% 17.6% 17.9% 18.0% 18.3% 18.8%

15.0% 15.5% 15.9% 16.6% 16.9% 17.4%

28.1% 27.5% 26.9%26.1% 25.7% 25.2%

1.2% 1.5% 1.5% 1.6% 1.7% 2.0%

2010 2011 2012 2013 2014 2015

Hypermarkets Supermarkets BeautySpecialistRetailers

Drugstores/parapharmacies DirectSelling InternetRetailing

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IMPORTSANDEXPORTS

In2015, theBrazilianbeauty industryexportedproducts to134countries.ArgentinaisBrazil’smaintradingpartner,followedbytheUSandFrance.

Source:Shutterstock

Theeconomicenvironment inBrazil in recentyearshascausedadeficit inthebalanceoftradeduetothedevaluationofthereal,resulting ina7.0%decrease in exports and a 4.6% decrease in imports in 2014 across allmarkets. Inthe lastdecade,theBrazilianbeauty industry’sexportsgrewatanaverageCAGRof7.5%peryearand its importsatanaverageCAGRof19.5%peryear.Thetradedeficitdecreasedbetween2013and2014duetothedevaluationof the real. In2014,exports increasedby1.9% yearoveryear,whileimportsdecreasedby10.4%.

Figure7.Brazil:CommercialBalanceforPersonalHygiene,PerfumeandCosmeticsProducts(USDMil.)

Source:ABIHPEC

171 180236

317409

506 493

744

9421,037

1,195

1,071

295387

473564

617

725662

775

877 843783 798

-600

-400

-200

0

200

400

600

800

1,000

1,200

1,400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Imports Exports BalanceofTrade

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Figure8.Top10ImportersofBrazilianPersonalHygiene,PerfumeandCosmeticsProducts(USDMil.)

Source:ABIHPEC

Figure9.Top10ExportDestinationsforBrazilianPersonalHygiene,PerfumeandCosmeticsProducts(USDMil.)

Source:ABIHPEC

TAXSTRUCTURE

In 2015, the Brazilian government implemented a tax on industrializedproducts,which affected cosmeticsdistributors.ABIHPEC estimates that thenewtaxcostbeautyindustrybusinessesapproximatelyR$900million(US$277million)lastyear.Thetaxparticularlyaffectedproductsthataretaxedatarateabove15%;theseincludefragrances,makeup,shavingcream,nailpolish,hairproducts (excluding shampooandconditioner), lotionsand skincreams.Thetaxwillhaveanaverageimpactof12%onpricesaccordingtoABIHPEC.

BEAUTYTRENDS

Cosmeticsconsumption inBrazil isdrivenbynewbeauty trends,particularlythoserelatedtosocialmedia,andYouTubetutorialsandInstagramstarshaveboostedbeautysalesinrecentyears.AccordingtoABIHPEC,22%ofwomeninBrazilhaveusedsocialmediatutorialsasawaytolearnaboutnewmakeup.

In 2015, onlinemedia company Signature9 ranked the 99most influentialfashionandbeautyblogs,anddeemedBrazilhometothe largestnumberof

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Argenpna US France Mexico China Germany Spain Canada Colombia Italy

2013 2014

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Argenpna Chile Venezuela Mexico Colombia Peru Paraguay Panama Uruguay US

2013 2014

-

6.1%

2.8% 5.6%1.2%

-26.7%

-34.7%

-5.3%

-29.5%-10.7%

-18.7%

-17.5%

-1.8% -13.4%

-11.4%

66.9%10.9%

4.6% 1.5%6.4%

25.4%

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suchblogsworldwide.Beautybloggers including JuliaPetit,CamilaCoutinhoandVictoriaCeridonohaveahugeglobalfollowing.Petitstartedbydoinghairandmakeup tutorialsonYouTube,butnowgarnersnearly9millionmonthlyvisitstoherwebsite,whichisoneofthemostpopularinBrazil.

Source:YouTube

In Brazil, women are becoming increasingly aware about ingredients inmakeup, and 82% of women say they prefer products containing naturalingredientsaccordingtoABIHPEC.

Additionally,74%ofBrazilianwomenprefertotrymakeupbeforetheybuyit,which is why the direct-selling channel is so popular in the country. Newplayersinotherchannelsarepoppinguptocatertothispreference.InJanuary2015, a startup called Veggie Box came onto the scene. Veggie Box sendsorganic, vegan and cruelty-free cosmetics to its subscribers for R$79.90(US$25)permonth.Thecompanyhasincreaseditsclientbaseatarateof30%permonth and is currently expanding intomen’s products, including shavebalms, shaving creams and after-shaves, razors, shampoo and conditioners,lotions,oralhygiene,andaromatherapy.

Source:Veggiebox.com.br

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Some Brazilian trends have made their way into international markets.ParticularlyinfluentialhasbeentheBrazilianblowout,akeratinhairtreatmentthathelpsmanagefrizzandtexture,makinghairsmootherandeasiertostyle.Keratin treatments have become available in salons across the world, andbeauty brands such as Suave and John Frieda have released product linescapitalizingontheBraziliantrend.

Figure10.PercentageofBrazilianWomenWhoUseMakeup,byCategory(2015)

Source:ABIHPEC

Youngerconsumers,particularlyGenZers,havebecomemoreimportantinthe Brazilian beauty market, and many large companies have createdmakeuplinesthataretargetedtowardthisyoungerdemographic.

Source:Pinsterest

FORECASTS

Whilegrowthof theBrazilianbeautymarketslowed in2015,Euromonitorexpects it to pick back up as beauty and personal brands adapt to thechanging retail climate and adoptmulti-channel strategies. In the comingyears,wewill likelyseedirect-sellingbeautyandpersonalcareretailers inBrazil strengthen their brick-and-mortar presence, and see franchisesexpandintodirectselling.

73%

71%

47%

47%

42%

41%

0% 20% 40% 60% 80%

Lipspck,GlossandLipShine

NailPolish

Mascara

Eyeshadow

FacePowder

Foundapon

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Figure11.ForecastBrazilianSalesofTotalBeautyandPersonalCarevs.PremiumBeautyandPersonalCare,byCategory:%Value,2015/2016


Euromonitor forecasts that theBrazilian premium beauty and personal caremarket will grow by 6.1% in 2016, while mass-market product sales willdecline by 0.2%.The total beauty and personal care market in Brazil isexpectedtoincreaseby0.2%.

-1.1%

-0.9%

-0.5%

3.0%

6.7%

1.5%

-0.1%

4.6%

-0.2%

-3.7%

0.0%

-1.5%

0.2%

-1.1%

6.4%

5.4%

8.4%

8.1%

-0.6%

4.4%

6.4%

6.2%

6.1%

-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

BabyandChild-SpecificProducts

BathandShower

ColorCosmepcs

Deodorants

Depilatories

Fragrances

HairCare

Men'sGrooming

OralCare

SkinCare

SunCare

Sets/Kits

PremiumBeautyandPersonalCare

TotalBeautyandPersonalCare

2015/2016Premium 2015/2016Total

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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comRachaelDimitResearchAssociateHONGKONG:10thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223002470LONDON:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NEWYORK:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017FBICGROUP.COM

Documents

The Beauty Market in Brazil by Fung Global Retail Tech August 10