All of this optimism, however, came to a grinding halt a few years ago when economic crises began impacting consumer spending in many countries.
“One of the lessons learned is that forecasts for growth are only as good as the economic projections for the region,” says Rick Jezzi, a nonwovens industry consultant who recently authored INDA’s South American Industry Outlook 2015-2020. “In 2012, everything was going gangbusters and then disaster struck. Brazil has had a negative economy for three years. Argentina is in the doldrums and Venezuela is seeing 1600% inflation per year.”
While these challenges meant that Jezzi had to completely rework his projections for the region, he is confident that an economic rebound will occur starting at the end of the year. This will result in nonwovens growth of 3.2% per year through 2020, down from 7.2% prior to the crisis.
“Even this level may be optimistic if the economy of Brazil—which has the commanding share of the total in the region—does not meet its projected expectations,” he says. “It may be accurate to say that the South American regional nonwovens industry in total, which makes up 6% of the total production of 9.4 million tons, will more than likely only be half the total growth rate.”
According to Jezzi’s projections, Colombia and Peru are the countries exhibiting the healthiest growth patterns in South America, followed by Panama and Costa Rica in Central America and the Dominican Republic and Cuba in the Caribbean region. Cuba, in particular, with its large island population and (projected) future great appetite for consumer products, becomes a questionable new market under the new administration.
The hygiene market leads consumption of nonwovens in the region with about 36% of nonwovens production, followed by home and furnishings at around 14% of the total. Baby diapers is the largest market and penetration in South America is about 65%. However, incontinence is becoming more important and several multinational companies are looking to expand in this market. Bladder control pads are being marketed in the region but penetration is expected to be slow as most sufferers continue to use sanitary products for that use.
Meanwhile, the wiper category is predominantly dominated by premoistened baby wipes as these are quickly becoming a multiuse application wipe due to its lower pricing over other forms of wet wipes. Colombia and Brazil appear to be the two key markets for this product as they have not obtained greater traction in some other countries.
While growth is certainly happening domestically, diaper manufacturers—and by extension the nonwovens producers that feed them—continue to look North toward the U.S. to grow sales. For Mexico in particular, U.S. exports represent an important percentage of its output, probably between 20-25%, according to diaper industry consultant Carlos Richer. “For example, all diapers made by Procter & Gamble-Mexico, 100% of them, are exported into the U.S. Mabesa-Ontex is probably the largest exporter of diapers into the U.S. And, just one of Valor Brand’s accounts—now owned by Ontex—the Honest Company, could be selling between 40 to 50 million units per month by now, maybe even more if they continued to grow since last year.”
However, if the new U.S. president makes changes in trade policy, diaper manufacturers in Mexico could be hit hard, Richer predicts. “Repercussions will have waves all over Latin America, generating an oversupply in Mexico and California and a reduction in local demand,” he adds.
Ontex is On Board
Despite the region’s challenges, companies continue to look to South America for growth. Leading the way has been Belgian hygiene products manufacturer Ontex who announced in December it would purchase Brazil’s Hypermarcas, the company’s second acquisition in the region since 2015. In announcing the acquisition, Ontex CEO Charles Bouaziz said it checked off all five of Ontex’s acquisition strategy goals including increasing its presence outside of Western Europe, particularly in Brazil, one of the world’s fastest growing hygiene markets.
With annual sales of €343 million, Hypermarcas has a number one position in the Brazilian adult incontinence market with its established Bigfral brand as well as its newer, value-oriented Adult Max line. The inclusion of these lines, which represent about 22-25% of Hypermarcas’ total business, will increase growth in this category from 5.6 to 7% for Ontex.
The acquisition will also boost Ontex’s branded sales, making them larger than its private label offerings for the first time in history. In addition to its adult incontinence business, Hypermarcas has three diaper brands—PomPom, a 50-year-old premium and intermediate brand; Cremex, a Disney-themed intermediate offering and Spaeka, a regional leader in the value segment. Hypermarcas diapers hold the number three position in Brazil, behind Kimberly-Clark and Procter & Gamble.
Svetlana Uduslivaia, hygiene research analyst at Euromonitor, says that the Hypermarcas deal will give Ontex the leading position in adult incontinence in Brazil, a market with still a significant unmet potential for incontinence product, but the company will still hold a small share of the overall hygiene market compared to Procter & Gamble and Kimberly-Clark; however more competition and availability of more affordable products—particularly among conditions of economic downturns and consumer price sensitivity—have left both of these companies struggling to drive growth.
“Hypermarcas holds a comparatively small share of sales, compared to P&G and K-C. However, economic downturn in a way helped Hypermarcas as the company offers products at competitive prices, which appealed to increasingly price-sensitive consumers in Brazil,” she says. “Ontex will have its work cut out to drive this business in Brazil long term.”
Ontex already has a presence in Latin America. It bought Mexico-based Grupo Mabe in 2015. The two businesses will be joined together under Ontex’s America’s division.
“We now literally have two feet on the ground in the Americas with positions in Mexico and Brazil,” Bouaziz says. “We are focused on growth and it is exactly these kinds of markets that have the long term growth to support this strategy.”
Venezuela—A Nation in Crisis
As the rest of the region is facing economic woes, Venezuela is dealing with a full on catastrophe—including limited raw materials and rapidly rising inflation—that has led to a volume drop in nearly all hygiene categories.
“Dealing with shortages in raw materials and inputs, manufacturers are unable to guarantee stable production levels to meet demand, which is reflected in the fall in volume terms registered in basic product categories,” Uduslivaia says. “The skyrocketing high price increases registered drove favorable value growth in overall tissue and hygiene, in spite of declining volume growth rates.”
Due to the subsequent devaluation of the local currency in 2015, manufacturers and importers of tissue and hygiene products were unable to hold price increases, and thus passed on significant cost increases to consumers. Meanwhile, tough restrictions in the access to foreign currency which exacerbated in 2014 and 2015 have affected companies’ ability to maintain a steady product offering, regardless of their size and financial capabilities.
For Kimberly-Clark, the situation got so bad in mid 2016 that the company decided to halt its Venezuelan production in the middle of last year as it became nearly impossible to obtain raw materials or hard currency and has been adversely affected by high inflation.
“I love this country, so it is specially sad for me to see what is currently happening,” Richer says. “On one side there is no USD for the local manufacturers to buy raw materials to produce at full capacity, while at the same time diapers are being imported in mass amounts, an activity that does not generate any jobs but makes only a small group of people rich and the overall economy poorer.”
In late 2016, INDA, the Association of the Nonwovens Fabrics Industry, published the fourth study of the South American region with the “South American Nonwovens Industry Outlook, 2015-2020” for nonwoven producers and suppliers, converters, manufacturers, brand owners, analysts, and raw materials and machinery suppliers.
Written by industry consultant, Rick Jezzi, principal, A.D. Jezzi & Associates, LLC, and Brad Kalil, director of Market Research and Statistics, INDA, the 180-page report offers 96 figures and 51 tables defining where the industry has been (2010-2015) and the forecast of where it is heading (2015-2020).
“Even though the region’s growth rate has been reduced in several key countries due to an economic slowdown, they are expected to eventually rebound and continue their growth. The region has moved from an emerging to a developing market and will see, at the end of the forecast period, several countries in the mature market status. This slowdown which has impacted the larger economies have provided silver linings in other countries, and highlighted them as potential areas for current investment and growth,” says Rick Jezzi.
More information: www.inda.org/store