Hypermarcas – Brands and Buying Sprees in Brazil

by Dave

knowledge@wharton

Hypermarcas, the São Paulo-based firm, Often referred to as the “Unilever of Brazil,” the has a market capitalization of R$31.5 billion (US$20 billion) as of March this year, net 2010 revenue of R$3.2 billion — up from around R$2 billion the previous year — and sizable market share in many parts of Brazil’s health, beauty, personal care, home care and food businesses, making it number one or number two nationally for products ranging from sweeteners to body lotion to condoms.

That in itself is remarkable. But what is also sparking the interest of the international investor community is that Hypermarcas has built its vast empire using nothing more than an arsenal of tried-and-tested marketing, pricing and distribution tactics, along with a hefty dose of M&A and razor-sharp management of its brands — “our most important asset,” as Mattos says. It’s a combination that has made Hypermarcas one of the largest, most diversified companies in Brazil.

“Hypermarcas is an example of how local companies can go after a huge market leader,” says Fernando Robles, professor of international marketing at George Washington University’s Elliott School of International Affairs in Washington, D.C. In this case, one market leader in Hypermarcas’s local patch is Unilever. The Anglo-Dutch consumer goods firm is a force to be reckoned with, selling more than 400 brands — 13 of which generate annual sales of more than US$1 billion — and spanning 180 countries, including Brazil for more than 50 years. But like other MNCs, keeping its lead in a fast-changing country like Brazil isn’t as straightforward as it once was.

“The consumer market in Brazil used to be very stable,” says Robles. “Now, it is becoming more fragmented, geographically and by social class and type of channel. Companies like Unilever have a hard time trying to figure out what their strategies should be for all these little niches, so they struggle. The smaller [firms] can be more focused and go after those niches, and they do it well, without much heavy investment in advertising and communications.”

There’s no question about how Hypermarcas positions its products, according to Mattos. Rather than competing directly against the MNC giants and their premium products, its products fall within low- to mid-range price points, appealing to middle-class aspirants with rising disposable incomes and the budget-conscious. “It was a decision taken from the beginning that we would always look for segments that are mass consumption,” says Mattos.

With its roots firmly planted in Latin America’s booming — and biggest — economy, Hypermarcas is reaping the rewards of that decision. Analysts at Citi, for example, consider the firm “one of the most direct plays on the growth of the middle class in Brazil.” Academics at the Fundação Getúlio Vargas (FGV) in Brazil say the country’s so-called “C class” — that is, middle-income families earning roughly between US$720 and US$3,100 a month — increased from 38% of the population in 2003 to 51% in 2009, and will reach a projected 56% by 2014. While its overall per capita GDP at purchasing power parity last year was slightly below the overallLatin America average — at US$11,210 — it was nonetheless well ahead of China and India, according to a research note from Crédit Agricole published in May.

A case in point: Beauty products. ABIHPEC, a Brazilian industry
association, says there are more than 1,600 companies competing in the
country, the world’s third-largest cosmetics, toiletries and fragrance
market (after the U.S. and Japan)
– 20 of which each generate after-tax
revenues of more R$100 million annually and represent 73% of the
sector’s total gross sales.

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