South America is a rapidly developing economy with many industries and a prospering trade and import-export market. South America is comprised of about 382 million people living in twelve nations and three territories, contributing 6% of the world’s population.
A region once dependent on an Import Substitution economy is now a strong member of the global economy with a US $3.99 trillion GDP in 2010. The biggest individual economies in South America ranked by nominal GDP are Brazil, Argentina, Columbia, Peru, Chile, Venezuela, Ecuador, Bolivia, and Uruguay. Currently, the economies of Brazil, Argentina, Columbia, and Chile are experiencing the greatest economic growth. As South America’s economy is rapidly growing and changing, it will be worthwhile to keep up with the market trends of the region.
From the 1930s to the 1980s, the region used Import Substitution, an economic policy that replaces all foreign business and imports with purely domestic production. The goal of Import Substitution was to increase local business and help grow domestic business while not competing with other international industries. The policy backfired as a debt crisis arose in South America. In the 1990s countries in South America switched to Free-Market economy, opening up international market trade. This switch pulled South America out of the debt crisis to where it is today.
According to the World Economic Forum Global Competitiveness Report, South America will need to apply further structural reforms and strengthen investment in skills development, infrastructure, and innovation in order to maintain the current positive economic movement. Although the report finds that productivity in South America remains relatively low, there are several country-specific high points that help maintain a positive outlook on the respective region’s marketplace.
Chile is the most competitive economy in South America per capita, with low levels of corruption and an efficient government. Chile remains relatively stable due to its solid macroeconomic stability and low public debt. Chile’s economy is flourishing due to its natural resource industries. However, the decline in the price of minerals has the potential to negatively affect the economy, increasing the need for Chile to diversify its economy. All in all, Chile’s economy accelerated in the first quarter of 2015, keeping consumer confidence intact.
Although Brazil and Venezuela have been areas of large economic growth, the trends seem to be reversing. Current 2015 reports show an increase in Brazil’s decline, and a drastic economic plunge in Venezuela may contribute to the concerns about South America’s economy. Data showed that Brazil’s GDP decreased by 1.6% in the first quarter of the year, and it is expected (although data has not been released since late 2014) that Venezuela’s GDP has plummeted by 7%.
The decline in these countries hit South America’s growth; however, there was actually a 0.1% increase in the region’s GDP in the first quarter of 2015, mainly due to expansion in Argentina (1.1%).
At this time, South America’s economy will need to be watched closely. Heading into the second half of 2015, many major South American currencies weakened. Many believe the hike in interest rates, coupled with weaker national currencies, will affect on import in the near future. However, weaker currencies will likely boost export, keeping the economy alive. Entering the South American market may be beneficial if investors keep a close eye on market trends in the next few years.
NUTRITIONAL PRODUCT MARKET
The nutritional product industry as a whole continues to expand its reach, dominating markets in Asia, North America, and Europe. However, recent economic trends show significant growth in South America. As the middle class economy increases in South America, driven by agriculture and exports, so does its attention to personal health and wellness.
The market in South America used to be only 1/10th the size of the market in the US and now has grown by a fourth, with US$8.35 billion spent on retail sales. South America has been showing fast growth since 2007 and will likely continue to grow at about 4.3% CAGR, surpassing the global average. In particular, Brazil is dominating the South American nutritional supplement market.
Brazilians have been turning their attention to personal health as their nutritional supplement market is flourishing and still has room to grow. According to a report by NUTRA, in 2007, Brazil’s nutritional product market was at a strong US $306 million dollars. Nonetheless, in 2014, the Brazilian market plummeted to a staggering US$520 million. Other countries in the South American region also contain markets that display healthy growth. In 2012, both Argentina and Colombia contain nutritional product markets, reaching over US$50 million. Venezuela is also one of the top countries in South America but has recently been affected by product shortages. Venezuela’s shortages are primarily the result of players facing severe difficulty accessing foreign currency and import products.
At this time, the growth of the nutritional product market is driven by an increase in disposable income, a growing of the aging population, and an increase in health awareness. Hot products in South America include supplements that involve beauty positioning—such as supplements for skin health, digestive health, bone health, omega (3, 6, and 9) fatty acids, and calcium. The aging population is likely the cause of the push in bone and heart health supplements but will likely cause an increase in categories such as eye and brain health, cognition, and relaxation. South America, like many other regions at this time, is hot about pro-natural products. Any nutritional product that pursues a more natural approach in ingredients and packaging will likely do well.
Of course, there are restrictions and regulations in place in many South American countries. As with many other regional industries, there is constant movement between the regulatory process and the demand for new products. This constant push and pull is a necessary component of cultivating a healthy industry. It is also important that industry standards are at an acceptable level to support the consumer’s interests as the subsequent growth of the industry. The regulatory environment in South America is not congruent at this point but is said to become more heterogeneous. The countries are coming together, pursuing structure for the market and a reduced risk for consumers. Before, every country’s regulations were different, making it difficult for small businesses to enter the industry. Now, the region is slowly moving into better-defined rules with certain common patterns between countries. Most countries involved are currently on legislation review mode, making the future look optimistic. At this time, supplements—including botanicals, herbs, and combinations—will continue to struggle with entering into the industry, even after the new regulations go into effect.
Multinational pharmaceutical companies continue to lead the nutritional products market in South America. Consumers are pursing traditional and well-known brands that are supported by smart publicity. It is thought that the region’s current complicated regulatory puzzle is likely the reason consumers lean toward well-known, multinational brands to ensure the quality and safety of the product. As the regulatory issues become resolved, it is likely that we will see a growth in independent, direct sellers. Trends are already showing that the direct selling and local players in the nutritional product market are beginning to make more of an impact.
According to Euromonitor, the vitamin and nutritional supplement market is projected to grow by 25% in value from 2012-2017. The nutritional products market is projected to grow not only in Brazil, but also Venezuela, Columbia, Peru, and Argentina. Most countries’ markets are hot and will be beneficial sites in which to invest. Independent players looking to invest in the nutritional product industry in South America should continue to watch the resolving of the regulation process, as that has a large role in the success of the industry. The trends within the business seem to be relatively stable. Focusing on the aging population as well as pro-health ingredients will likely be fruitful for investors. With a tough, well-regulated market and economies that continue to see a larger, more health-conscious middle class, the potential for growth in the nutritional supplement industry in Brazil and all of South America is limitless.
Beauty Products Market
The South American beauty products market, Brazil in particular, is bathing in a surge of global importance. According to the Brazilian Association of the Cosmetic, Toiletry and Fragrance Industry (ABIHPEC), the country has observed an annual growth rate of 10% over the last 17 years, with sales rising from US$2.2 billion in 1996 to US$15.4 billion in 2012.
In fact, Brazil became the largest perfume market in the world in 2010, surpassing the US. Columbia and Argentina also enjoyed an increase in beauty sales, prompted by an expanding middle class and cultural fascination with personal beauty. South America is one of the most exciting markets to watch globally for beauty products, with annual sales of approximately $80 billion in 2012.
In particular, the cosmetic industry seems to be booming in South America. Jamie Concha Prada, president of the Council of Associations of Latin American Cosmetics Industry (CASIC) told EFE that, “Emerging nations are showing some of the highest figures for growth, and Latin America is the region with the second highest.” Jamie also pointed out that the cosmetics industry in South America had grown an astounding 314% in the last decade, only being outnumbered in growth by Eastern Europe. According to Associacao Brasileira dos Distribuidores de Laboratorios Nacionais, cosmetic products sales were expected to increase by 11% to 20% in Brazil in 2014. Brazil isn’t the only nation with a growing cosmetics industry. The cosmetics market grew by 31% between 2011 and 2013 in Columbia, and annual growth in the cosmetics market is up 10% in Ecuador and Uruguay and 3% in Columbia. Regardless of the country, the cosmetics industry is flourishing in South America and is a hot-spot for investors.
Surprisingly, according to Euromonitor, the Americas are a highly divided beauty market, as mass products are thriving in South America while prestige beauty products are fueling most of the growth in North America. Recent research reports that over 90% of sales in every country in South America are represented by mass cosmetics while they only account for 35% of sales in the US and Canada. It seems that South America is more focused on direct sales and expanding modern store-based retailers while North America leads product innovation and customer shopping experiences. A staggering quarter of all beauty products sales in South America are made by direct sale, the highest out of any global region. It must be recognized, however, that premium products sales are growing in Chile and are actually a priority for individuals in Venezuela, despite poor economic conditions.
South America’s top three beauty categories are cosmetics, hair care, fragrances, and skincare. Hair care product sales are expected to rise from US$11.3 billion to US$15.8 billion in 2015. Fragrances and skincare are also said to grow dramatically in the next few years all over South America. Market research shows that product innovation is rapidly growing in Bolivia, primarily in skincare. In addition, products containing natural ingredients are showing growth in Columbia. Finally, the male grooming sector of the beauty products market is booming in Bolivia, Brazil, and Chile. However, Euromonitor warns that men’s grooming might struggle in Colombia.
The forecast for beauty and personal care remains optimistic in the upcoming years, but economic slowdown, inflation, and market saturation in South America may strongly impact the industry in the near future. Still, the passion for beauty and personal care products, combined with launches in innovation expected from manufacturers almost guarantees continual growth until 2018. Focusing on particular trends in independent countries in South America will likely help investors hone in on the most booming marketplace for their specific category.
Food & Beverage Market
Despite the economic slowdown in 2014, according to Euromonitor, the functional foods and drink market in South America is attracting business from all over the world. Brazil is the clear dominator of the functional foods and drink market in South America, contributing an US$8.7 billion industry at 14% value growth in 2014.
For the next five years, it is expected that the functional foods and drink market will grow. Consumers in South America have an increased awareness of the importance of a healthier lifestyle and a greater understanding of the relationship between diet and health, driving growth in the industry. Also, the increased purchase-power reached by the middle class in recent years helps drive growth.
Although there is steady growth in the forecast, the region is relatively split in terms of the popularity of functional foods and drinks. The countries that see the most promise in the market include: Brazil, Chile, and Peru. Most other countries in the region—including Argentina, Venezuela, and the lower economic population in Columbia—see purchasing more costly foods as an expense that they are not willing or able to make.
Brazil recently received new dietary guidelines from the Ministry of Heath, which are having major impact on processed foods and beverages. The new guidelines place emphasis on fresh foods, discrediting processed foods and beverages of all kinds. The new guidelines are also impacting the sales of health&wellness-positioned products, representing a new challenge for functional foods and beverage manufacturers.
Despite the new regulations, the market is still growing, and multinational companies are dominating health and wellness sales in Brazil. Most companies are investing in the hottest trends in the market, such as fortified/ functional dairy products and energy drinks. Supermarkets in Brazil remain the biggest retail channels for health and wellness products; however, specialist stores tend to offer a broader range of functional products—including gluten-free—and will likely gain popularity, as Brazilians continue to purchase value for money when it comes to food. The market for functional foods and beverages is expanding rapidly in Peru and Chile with an increased awareness of poor feeding habits. Products, such as bottled mineral and flavored water, and the switch from coffee to healthy teas has boosted functional drink sales in these countries.
The double-digit inflation proved to be a key downside in the functional foods and beverages market’s performance in many South American countries. The high inflation decreased consumer purchasing power, making naturally healthy products too expensive compared to traditional foods and beverages. The trend toward functional products remains strong with the growing consciousness of healthy eating habits, but value for money is a major hurdle impinging stronger sales growth. Fortified products—such as fortified rice, cereals and breads, and beverages (such as almond milk or rice drinks)—seem to be doing well in countries with lower economic status, as they typically are less costly and more practical than other products, such as gluten-free foods.
Functional foods and beverage products sales tend to follow economic trends in most countries in South America. Supermarkets continue to dominate the health and wellness market, primarily supplying products from mass multinational companies. Due to the increased awareness of health and wellness in South America, coupled with an increase in middle class, the market is definitely worth observing. As long as manufacturers focus on specified trends in particular countries, the functional foods and beverage products market is a worthy investment.
Regulating BodiesANVISA / Brazil
Trade AssociationsABIHPEC / Brazil
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