Cosmetics & Toiletries

An Expert's View about Medical, Health and Cosmetics Products in Ecuador

Posted on: 31 Oct 2011

Summary
The total market for cosmetics and toiletries in Ecuador in 2011 is estimated at $234 million. The U.S. is an important and well perceived supplier with 7 percent share of the market in 2010 ($11.54 million). The main suppliers are: Colombia, Peru, and Mexico. The areas with the largest growth in demand and offering U.S. manufacturers the best prospects for increasing their market share include anti-aging facial creams, hand and body lotions, shampoo, and solar protection products. Imports of perfumes are subject to the “luxury” (ICE) tax. Products containing acetone require authorization from the National Drug Council as well as sanitary registration with the Ecuadorian government. This report covers cosmetics under HS Codes 3303, 3304, 3305, 3306, and 3307.

Market Demand
Ecuador is a small- to medium-sized market for U.S. exports. In 2010, U.S. exports to Ecuador increased almost 36 percent to $5.45 billion. The Central Bank’s preliminary estimate for GDP growth in 2011 is 5.06 percent, for a total GDP of $62.04 billion by year-end 2011, and the GDP per capita is $4,675. According to the Ecuadorian Census Bureau (INEC), the basic needs basket for June 2011 was $556.93 while monthly income was $492.80. The minimum salary is $264 per month.

Ecuador’s trade policy has been unpredictable recently, with the government of this dollarized, petroleumbased economy searching for ways to improve its trade balance. In January 2009, the government sought to decrease imports by imposing safeguards, many of which affected the cosmetics industry. Although these measures were removed in July 2010, luxury items, including perfumes, are subject to a 20 percent “luxury” (ICE) tax.

The total market for cosmetics for 2011 is estimated at $234 million. The four categories that make up the cosmetics industry are: care and treatment; hygiene and health; perfumes; and make-up and color. Care and treatment include body and face lotions and facial treatments. Hygiene and health include shampoos, gels, soaps, hair treatments, and deodorants. Perfumes include body sprays, perfumes, eau de toilette, and aftershave. Make-up and color include hair dyes, lipstick, blush, base, eye shadow, and mascara and eye liners.

The cosmetics industry in Ecuador is growing at a rate of 15 percent per year and accounts for 6,000 direct employees. Approximately 400,000 people, 80 percent of which are women and housewives, work selling cosmetics by catalog and door to door. Overall, the greatest demand is for shampoo, followed by facial soap, deodorant, and toothpaste. Facial treatments are in great demand by women ages 25 to 35 years old. The men’s segment is a growing niche, with demand for men’s moisturizers and eye creams increasing by 35 percent in the past two years. Low income consumers spend between $25 to $35 per month in basic personal care items including shampoo, deodorant, soap, and toothpaste. High income consumers spend an average of $150 to $200 per month on the same type of products, as well as hair dye, lipstick, nail polish, perfume, eye shadow, and body lotion.

Imports account for an estimated 80 percent of the market. Given the import restrictions imposed by the government during 2009, Ecuadorian production spiked as some importers undertook joint ventures with local manufacturers. Industry experts were not able to quantify informal imports for cosmetics brought in personal luggage and also larger quantities smuggled from Peru and Colombia. The majority of imports come from the U.S. and Latin American countries. However, perfume, eye, and lip make-up as well as preparations for manicures and pedicures come from Europe, mainly France, Italy, Belgium, Holland, Poland, and Germany. Also, many products manufactured by large U.S. and European multinational firms have their production facilities in Colombia, Brazil, Mexico, or Peru; such is the case with Unilever and Procter & Gamble, which have granted manufacturing licenses under maquila arrangements.

Direct sales, whether through catalog or door-to-door, have increased market share thanks to incentives for the sales force. The sector also constitutes a good work alternative that empowers women with flexible incomes and work schedules. More and more people see direct sales as an alternative to round-up their monthly income and as an additional option to their permanent job. Yanbal is the leader in direct sales with an estimated 30 percent share of the market. It has an average of 130,000 saleswomen nationwide. Approximately 60 percent of the cosmetics market is served through this sales channel.

Laboratories, drug stores, perfume shops, supermarkets, and department stores play a key role in the cosmetics market. Although the majority of cosmetics can be acquired at any large store and also at small neighborhood gift and grocery shops, the vast majority of consumers prefer to purchase through catalogs and door-to-door sales.

Retail sales account for 40 percent of the market. This sales channel is controlled by specialized retailers that obtain their supplies from wholesalers who import the products. The main retailers are: Supermaxi, Mi Comisariato, Fybeca, Santa María, De Prati, Casa Tosi, Almacenes Tia, and Pharmacys. Supermaxi and Mi Comisariato are the two supermarket chains with the largest sales in the country. Supermaxi has a stronger presence in the highlands, while Mi Comisariato is stronger on the coast. Almacenes Tia is the largest supermarket chain with 127 sales outlets nationwide. Fybeca is the largest drugstore chain with sales outlets in every major city. De Prati and Casa Tosi are large department stores with headquarters in Guayaquil and sales outlets in the major cities. There are also chain stores such as Las Fragancias and Burbujas which have sales outlets in the main shopping centers nationwide and sell all types of beauty products and body care.

Las Fragancias, established in Cuenca 30 years ago, is an importer, wholesaler, and retailer with sales outlets in Quito, Guayaquil, Cuenca, Machala, Ambato, and Loja divided in three different types of stores: “Las Fragancias” (18 outlets), “Burbujas” (22 outlets), and “Secretos para el Baño” (7 outlets). Select and high-end products are sold at “Las Fragancias;” mass consumption products including shampoos, body lotions, and hair removal products can be found at “Burbujas;” and specialized bath products including aromatherapy, bath salts, etc. are sold at “Secretos para el Baño.” Las Fragancias imports mainly from the U.S., Europe, Mexico, Colombia, Argentina, and Chile. Their target end users range from babies to senior citizens and they stock products in a variety of price ranges.

The French L’Occitane en Provence franchisee opened two sales outlets in Quito and two in Guayaquil at the main shopping centers as of 2004. The Ecuadorian franchisee recently opened four sales outlets in Peru. L’Occitane’s main customers are men and women of high economic means. Guayaquil, Quito, Cuenca, Manta, and Machala generate an estimated 70 percent of the sales while other cities such as Loja, Ambato, Santo Domingo de los Colorados, and Ibarra account for most of the rest of the 30 percent of sales in the market. Sellers should exercise caution in Esmeraldas, which is gaining a reputation for buyers falling behind on payments.

The cosmetics industry is one of the most active as far as investment in innovation and technology is concerned. Sector trends are dynamic and vary constantly, making obsolete whatever was in style last year. Packing and containers play a key role in a higher price for a product or to give a product an exclusive nature. There is a certain standardization as to the quantity/size of the products, i.e. almost all eye pencils range between 12 and 15 cm long, shampoos between 300 and 400 ml, body milk over 400 ml, etc. There are a myriad of products and brands, the majority of which are imported, these being preferred by the consumer.

Small and medium Ecuadorian firms have invested in maquila operations in Ecuador. Multinational companies have plans to invest approximately $30 million in plants, either new or upgrades, in 2012. One of the firms plans to establish their regional distribution center in Ecuador. However, there is a widespread concern that these projects may not come to fruition if the Ecuadorian tax service (SRI) includes royalties under production costs, which would increase the amount luxury (ICE) tax owed. Such action will hike the cost of locally manufactured products and make Ecuador a less attractive locale for manufacturing. Procosmeticos is the Ecuadorian Association of Producers and Traders of Cosmetics, Perfumes, and Personal Hygiene Products. The Association is made up of 40 members, including importers and domestic and international manufacturers. Procosmeticos voices the industry’s concerns and is actively engaged in a campaign to promote purchases of quality products. It also promotes a campaign against informal imports. Procosmeticos works hand-in-hand with the Asociación de Venta Directa (Direct Sales Association) which groups 22 firms selling by catalog or demonstration, including Yanbal, Avon, Oriflame, Circulo de Lectores, Tupperware, Leonisa, Rainbow, etc.

The regulating authority is the Ministry of Health and is responsible for the issuance of the mandatory sanitary notification (NSO). The Ministry of the Environment controls compliance with contamination prevention standards at manufacturing facilities. The Social Security Institute (IESS) conducts safety risk assessments at production sites. The Ecuadorian Standards Institute (INEN) establishes labeling standards.
 

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Posted: 31 October 2011

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