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Markets & trends

Companies focus on exports and new technologies to tackle the economic crisis

Although Brazil’s cosmetics, toiletries and fragrance (CT&F) industry accounts for 1.8% of GDP and has been expanding at an average annual rate of 10%, it is facing a series of challenges. In this interview with Brazil Beauty News, João Carlos Basilio, president of ABIHPEC (acronym for the Brazilian Association of Cosmetics, Toiletry and Fragrance Industry) discusses the rising tax burden, the strength of the dollar and the strategies the industry is adopting to overcome the current troubles affecting the Brazilian economy.

João Carlos Basilio, president of ABIHPEC

João Carlos Basilio, president of ABIHPEC

Brazil Beauty News - The Manufactured Products Tax started to be applied to the wholesale cosmetics sector in May. What impact will this increase in the tax burden have on the sector?

João Carlos Basilio - The increased tax burden means Brazilian companies will lose competiveness and attractiveness on the domestic market. There will be a fall in job opportunities and companies will revise their expansion and investment projects. Our association has commissioned studies which estimate that the prices of products affected by the tax measure could rise by up to 12.5% above inflation. The researches also foresee an average fall of 7% in sales volume, although this could go as high as 17% in some cases. It is worth noting that consumers are increasingly regarding the products targeted by the government as essential items in their lives, mainly because of the growing number of women on the job market. This means that not only will there be a fall in sales but customers will start looking for products with lower added value. This scenario may lead to a vicious cycle, where companies will no longer have any incentive to invest in innovation and the consumer will have less access to products with important added benefits.

Brazil Beauty News - What effect does the volatility of the dollar have on the industry?

João Carlos Basilio - Once the period in which the real was appreciating at an artificial level was over, we have seen it lose value against the dollar from 2011 until today. The impact of the exchange rate variation – which has jumped from R$1.70 to R$3.20 – has hit the business face on, as 80% of the industry’s raw materials are imported. However, I do not believe the rise of the dollar will push consumer prices higher. Every company will adopt its own strategy but, as keeping the market share is very important, we should see a cutback in sales and promotions until prices even out. There are likely to be changes in the profit margins, as companies will need to offset the rise of the dollar, the heavier tax burden and the contraction of the Brazilian economy itself.

Brazil Beauty News - The higher share of the middle class (C class) and the access the lower class (D and E classes) have to CT&F products is a relatively recent development in Brazil. How important is this slice of the market for the sector’s performance?

João Carlos Basilio - CT&F products are essential in everyone’s lives, regardless of their social class. The greater popular purchasing power of the C, D and E classes has given them access to products they had previously only dreamed about. The social mobility these classes have experienced in recent years has allowed them to buy products with higher added value. The retraction of the economy and the heavier tax burden does not mean the consumer will stop using these products, but will look for items of lower added value instead.

Brazil Beauty News - ABIHPEC has just renewed its agreement with the Brazilian Trade and Investment Promotion Agency (APEX-Brasil). What scope does the Beautycare Brazil project for exports offer the cosmetics industry?

João Carlos Basilio - The aim of the Beautycare Brazil project is to support and promote CT&F exports, going right from the companies’ training and preparation to international expansion. Fifty-eight companies that had joined the program exported US$183.2 million in 2014, an amount 16% higher than in the previous year. The new situation in terms of the exchange rate has already attracted 20 new companies and this should give exports a fresh boost in 2016. Brazilian products have a strong appeal to consumers in other countries and exporting could become an important channel to ease the impacts of this negative economic outlook we are facing. The industry’s total exports have risen from US$387 million in 2004 to US$798 million last year. The companies taking part in the Beautycare Brazil project account for around 21% of this amount.

Brazil Beauty News - Investments in R&D are essential to ensure the growth of the cosmetics sector. What contribution will the nanocapsule project make to research in this field?

João Carlos Basilio - The development of the nanocapsule project was coordinated by the Institute of Technology and Studies of Personal Hygiene, Perfumery and Cosmetics (ITEHPEC) in partnership with the Institute for Technological Research (IPT). It was developed within the Brazilian Company for Research and Industrial Innovation (EMBRAPII) and four companies from the CT&F industry joined it. The nanocapsule technology involves encapsulating active ingredients to develop more stable cosmetic formulations that offer a unique sensorial experience and add higher value to the product. The aim of the ITEHPEC is to present innovation opportunities like this to the cosmetics industry.

Fernanda Bonifacio

© 2015 - Brazil Beauty News - www.brazilbeautynews.com

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