Brands often talk about the opportunity and potential in Brazil, but it’s not all that easy doing business there. In addition to mountains of red tape, there is the all-encompassing ‘Brazil cost’ due to high taxes. For Frank Lund, founder and general director of distributor Frajo, the cost is there for everyone, and as long as Brazil remains inefficient in terms of infrastructure, has an over-regulated business environment and a complex tax system, almost every company will suffer.

One main problem is the country’s high taxes and the resulting cost of beauty products, which can be two to three times more expensive than in their country of origin. To get around this problem, more companies are looking at local production. This eliminates import duties and means that companies can use the savings to build their brand and expand distribution. Coty, for example, has begun producing the Rio Glow fragrance from its Jennifer Lopez brand locally, in partnership with direct-sales company Jequiti, thereby taking advantage of lower taxes.

Another example is the Everlast fragrance (whose license is held by UK-based company IBML Group), which was developed locally by distributor Bright Star. Brazil was one of the best-performing markets for Everlast, which prompted IBML Group to begin local production of its fragrances there. The results of the collaboration have been positive and some of the locally produced products may even be exported to other markets. Spanish Group Puig also locally produced fragrances from Brazilian actress Juliana Paes.

To get around the tax issue, some companies have sought to come up with products with a lighter fragrance concentration, as levies on these items are lower. However, the general director of LVMH fragrance brands Brazil, Renato Rabbat, this strategy has its limits. “If taxes were lowered the country would be looked at with new eyes, but today there is no volume to justify the development of Brazil by international brands, even with some successful limited-edition lower concentration fragrances, such as Kenzo Flower Legere,” he comments.

To read BW Confidential’s full report on Brazil’s beauty market consumers click here.