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Cosmetic powerhouses turn to Brazil as Western European growth falters
Approximately 40 million Brazilians have joined the middle class in the past decade, rapidly turning Brazil into a beauty industry powerhouse. As an unsaturated market, with high demand; there is huge potential for growth.
In contrast, the European market is suffering from weak consumer spending. The European debt crisis added more downward pressure to the growth prospects within this industry. The European economy grew by 1.6% in 2011 and estimates show that it grew by just 0.6% in 2012. In addition, the European market has witnessed high rates of unemployment, particularly in Italy and Spain.
Consumer confidence measures how willing people are to spend, and consumer confidence has been low in recent times in Europe. According to Eurostat, the consumer confidence indicator in the Euro area was -19.9 in April 2012 compared with -19.1 in March 2012.
L’Oreal is a French company engaged in the production and marketing of a range of beauty products sold under well-known brands such as L’Oreal Paris, Garnier, Maybelline, and Softsheen-Carson. L’Oreal recorded a sales increase of only 2.3% in Western Europe in the first quarter of FY2012 as compared to 14.1% in emerging markets. The sluggish growth in Western Europe was due to Europe’s debt crisis and global economic slowdown. Therefore, any further deterioration in Europe’s economic condition could be detrimental for the company.
According to the ‘lipstick effect theory’; when facing an economic crisis consumers will be more willing to buy less costly luxury goods. This is particularly problematic for companies that solely sell luxury products. Moreover, growth in disposable income generates incremental increases in per capita consumption of beauty and personal care items.
Furthermore, door to door sales distribution channel is a longstanding custom in Brazil and allows companies to reach a consumer base; which may not necessarily be attainable in European markets.
It is therefore no wonder that many beauty powerhouses are looking for growth in countries such as Brazil.
Read more in our case study titled Brazil’s booming beauty industry: a growing success