Impact of COVID-19 on the Brazilian Personal Care Ingredients and Actives Market

By Juliana Bondança Pereira, Factor-Kline
July 7, 2020

Covid 19 impact on Brazil PCI and Actives market

COVID-19 in Brazil

According to official data from the federal government, on June 23, 2020, Brazil had more than 50,000 deaths and approximately 1.1 million people infected with COVID-19. However, due to a lack of testing for the virus, these numbers may be underestimated.

The Brazilian State had recognized the State of Public Calamity due to the pandemic back on March 20, allowing for budgetary flexibility and triggering a series of protective measures by regional and local governments. The most important measures were related to social distancing and shelter-in-place orders, with the suspension of face-to-face classes in public and private schools, suspension of religious and recreational services, and the closings of malls and stores. The exceptions were establishments that supply food and medicines, as well as gas stations.

The Brazilian government acted to provide resources to the health sector with an amount of approximately BRL 50 billion to fight the epidemic via purchases of test material, personal protective equipment (PPE), respirators, and more.

For citizens, the government provided emergency resources directed especially toward informal and low-income workers; this included the payment of BRL 600.00 per worker for a period of three months, BRL 1 billion in resources for the payment of electricity bills of low-income workers, advance payment of the 13th salary for retirees, and subsidized personal credit in public banks, among other benefits.

For the business sector, subsidized credit lines were available in state banks for working capital, in addition to the postponement of tax payments, resources for payment of wages to infected workers for 15 days, flexibility in labor legislation to allow a reduction in working hours, and partial reduction of wages to avoid layoffs. In return, companies are committed to not making layoffs to adjust costs.

Despite all these efforts, the impact of COVID-19 on the economy is expected to be significant, with a contraction of 6% to 9% in 2020 compared to 2019.

The economic impact will be more substantial in the urban states of the country, located in the southeast and south regions, which more heavily rely on the service and industrial sectors of the economy. The north, center-west, and northeastern regions will have their economies less affected, as they rely more on the agriculture, stocking, and extractive industry. However, the social impact of the pandemic is especially harmful to areas less urbanized and with a lack of infrastructure, including areas that do not have access to either hospital facilities or the recommended number of health professionals per 1,000 habitats recommend by OMS.

Even though the health crisis continues, the Brazilian government is adopting measures to reopen businesses in an effort to put physical commerce in place again. This includes reopening malls, street commerce, and sea sports.

Short-Term Impacts

The market already faces several difficulties in the short term, with the interruption of global supply chains as a way to contain the spread of the virus, leading to a shortage of raw materials. Another important impact refers to demand, as consumers and companies are looking to reduce their spending.

The impact on the industry came from the top, starting in physical stores; distribution, until it reached the industry; and, consequently, the market for raw materials, packaging, and actives.

At the end of this chain, where retail is located, however, some companies had an increase in revenue due to consumers rushing to supermarkets. The healthcare, cosmetics, and cleaning sectors industry suppliers benefit from the boost in consumer hygiene and cleaning habits.

On the other hand, small companies, even in the cosmetics segment, are among the most affected by COVID-19. This is due to the pause in industrial activity, combined with a severe interruption in the service sector due to the closure of perfumeries, specialized stores, and beauty salons, generating payment delays. This, in turn, leads more and more companies to exhaust their cash flow. As a result, it is expected that many of them will leave the Brazilian market.

Changes in Consumer Behavior

Social isolation has led consumers to adopt new habits, reevaluate priorities, and change their consumption.

As consumers adapt to social isolation and social distancing, the need to perform at-home beauty procedures, such as manicures, hair coloring, and facial treatments, arises. As the quarantine extends, more and more consumers have begun performing these services on their own. With the return of activities, it is possible that some consumers will continue to prefer getting these procedures done at home, thus permanently reducing the frequency of their visits to beauty salons, nail salons, and esthetic clinics.

Another important issue concerns the safety of products in terms of health. The consumer will seek more guarantees that products do not present risks and have the best quality, especially when it comes to cleaning products, antiseptics, and food items. In the short term, there may be a prioritization of quality when choosing a product, and sensitivity to price may become less relevant. Manufacturers and retailers will need to communicate why their products and supply chains are reliable. In times of crisis and low purchasing power, consumers tend to not risk it, opting for brands that they already know and trust, even if it involves paying a little extra for them.

In addition, consumers are valuing the purpose of the brand more than ever. Brands that have true positioning will be appreciated. Now, a consumer’s main interest is not what the brand has to sell but how it behaved during the COVID-19 pandemic.

Ingredients Market

The pandemic will affect each category of the personal care market in Brazil differently; personal care ingredients categories will be impacted according to the types of products in which they are present.

Resilient Categories

Surfactants: These are widely used in the cosmetics and personal hygiene industry, corresponding to the main category of the Brazilian market of ingredients for personal care, with more than 50% of market share in volume. Coronavirus prevention procedures involve frequent handwashing, and this stimulates the surfactant market, as surfactants are the ingredients used in soaps and cleansers. The drop in the consumption of shampoos during quarantine will be offset by the growth of surfactant consumption in the hygiene category. The Brazilian consumer associates the product's foaming with its cleaning potential, and this can affect the market by leading the consumer's preference to products that contain stronger surfactants and, hence, have greater foaming potential.

Preservatives: This category has been questioned in recent years due to concerns about the health impacts of some synthetic preservatives. The replacement of parabens in cosmetics formulations with milder options was then encouraged. With the new routine, the topic of microbiological contamination becomes even more sensitive, especially because packaging can be a vector of contamination for several types of microorganisms if care is not taken with its disinfection. In this way, the consumer will give priority to brands that guarantee the safety of their products, protecting against contaminants; this involves the use of more potent preservatives. Parabens are not expected to return to products, but formulations will continue to use synthetic options such as phenoxyethanol, since it has a greater spectrum of effectiveness compared to more natural, milder options. However, it is known that a high concentration of strong preservatives can generate adverse health reactions. In this way, the ideal ratio would be preservatives with less aggressiveness in the appropriate amount so that antimicrobial activity can be maintained. Therefore, blends between synthetic (more potent) and natural preservatives (less allergenic) will remain even stronger.

Emollients: Widely used in formulations to promote hydration, emollients will benefit from the increased demand for products that restore the skin barrier as the continued use of sanitizers causes dry hands. Pre-COVID, the market was facing a transition from synthetic products, such as mineral oil, to vegetable options. It is expected that this transition will continue, but at a slower pace, as companies seek to reduce their costs and, therefore, do not seek to bet on very innovative reformulations or launches in the short or medium term.

Rheology Modifiers: These are widely used in the most varied types of products; therefore, the drop in demand in some categories will not impact the category as a whole, as it will be offset by the expressive growth in others. It is important to highlight the case of carbomers, thickening agents traditionally used in the manufacture of alcohol in gel. With the strong demand for this type of product, in addition to the reduction of industrial activities, the carbomers market started to show shortages in the first months of the pandemic. This led the market to test alternatives such as acrylates, HPMC, HEC, CMC, and guar, taram and xanthan gums to supply the demand, and these ingredients also started to gain strength.

Most vulnerable categories

Conditioning Polymers: Widely used in hair conditioners, these are suffering a decline in consumption due to reduced hair washing during social isolation.

Emulsifiers: Mainly used in facial care formulations, these will be affected by the drop in demand for premium products and their replacement by masstige and mass options.

Pigments: Several formulations use pigments to give a specific shade to the final product. However, the makeup market is the one that uses this type of ingredient often, and since the makeup market is expected to decline during and after the pandemic, the pigment market will be directly affected. This segment has been undergoing a slow transformation, with the substitution of conventional pigments for pigments with a treated surface, which brought additional benefits to the formulation such as greater stability and improvements in dispersion, in addition to greater quality, plus better durability and spreadability. Even before the pandemic, this substitution was still incipient in Brazil due to the price barrier; treated pigments are much more expensive than traditional options. With the current economic crisis due to social isolation, it is possible that this replacement will be reversed as brands try to reduce their costs and consumers will look for cheaper options.

Fragrances: The Brazilian consumer highly values fragrance in the formulations of any cosmetic, and that is the reason this ingredient is widely used throughout the personal care market. However, the largest volume of this market goes to perfumes and colognes, and therefore it will suffer the impacts of the decline in demand during social isolation and subsequent consumer preferences for masstige and more economical products. Thus, it is expected that this market will be largely impacted in value in the coming years.

UV absorbers: The sun protection market, which uses this type of ingredient the most, has been strongly impacted by social isolation; this is directly reflected in the UV absorber market.

Hair Fixing Polymers: This market will follow the decline of the hairstyling products segment. As it is a market that was already in decline due to consumer preferences for a more natural look, it is expected that this type of ingredient will be even more impacted by social isolation.

It is worth mentioning that, for all categories, a reduction in the added value of the ingredients is expected. Given the economic crisis, it is estimated for the post-COVID scenario and the consequent reduction in consumer purchasing power that there will be greater preference for masstige and mass products over premium products. With this, it is possible to design which cheaper ingredients will be used more in formulations in the short and medium term, while formulas that use more innovative ingredients will be on standby.

Actives

The actives market will also feel specific impacts. As actives have added value and are used more widely in premium products, it is expected that the market will be negatively affected by the economic crisis in the post-COVID scenario.

On the other hand, actives that are already well-known in the market and improve skin hydration and recovery, such as ceramides, lipids, and aloe vera, may be able to maintain demand. In addition, given the trend toward greater appreciation of local industries, it is possible that actives of local origin will gain more prominence in formulations.

In the categories of botanical actives and marine ingredients, there may be a greater preference for unsubstantiated actives (with no proven efficacy and lower prices) to be used “just for claim” and to maintain the lowest price of products. Categories that involve higher added value actives, such as biotechnology and peptides, will suffer more from price sensitivity, and demand for this type of actives may decrease in the short and medium term. The categories of enzymes, coenzymes, proteins, and synthetic actives are already relatively mature in Brazil and are likely to recover post-COVID.

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