Front Issues

The BRIC economy set to fulfill its potential

And they’re probably going to win the World Cup too.

The global football fest arrives at its spiritual home in 2014 and will be a huge AfH boost to the already accelerating growth of tissue product consumption. Just two years later, the country plays host to the world’s other global sporting event, the Olympics.

Not for nothing does this emerging nation of 203m people claim the first initial in the acronym of emerging economic superpowers – BRIC. The whole place is on the up and you can feel it in the air. Before we get on to the facts of tissue’s performance, it is worth considering the economic miracle that has unfolded in Brazil over the last few years.

In 2011, the country overtook the UK to become the sixth largest global economy. Its recession was short-lived and is now generally regarded as out of the way. Over the course of 2011, Brazil’s GDP grew by a relatively modest 3%, down from 7.5% in 2010, but the good news is that its domestic consumers are now spending again rather than saving.

Brazil has a dynamic, young population and in major cities a consumer boom is under way. Walk down many a street in cities such as São Paolo and there are plenty of famous Western luxury goods being snapped up by its growing numbers of brand hungry middle class citizens.

The catalyst has been 20 years of macroeconomic stability following decades of political instability. The financial reforms set in place by president Cardoso, between 1995 and 2003, put an emphasis on growth and president Lula da Silva picked up the baton over the last seven years before handing the reins of power to president Rousseff.

Financial improvements have continued apace. Income levels were boosted this year by the addition of a minimum wage while an increase in social spending programmes is tackling the gulf between rich and poor. Low-income households – Brazil has tens of millions of very poor people and there are still lots who use cloth to clean the kitchen, for example – are a key to the future.

As a country to do business with, the Eurozone sovereign debt crisis has served to highlight the shrinking gap in financial and political stability between Europe’s developed markets and Latin America’s rapidly developing and increasingly wealthy economies.

The statistics are impressive. Investment in Brazil and Latin America is booming. For example, in the two decades to 2010 the total Chinese investment in Latin America was less than $10bn. In 2010 alone this figure hit $15bn and year-to-date Chinese investment in the region is running at about $25bn.This huge inflow of funding typifies developing country market structure.

Toilet paper remains the most significant category in retail tissue at 81% value share in 2011 with volume sales in luxury and standard toilet paper growing by close to 15% annually in both categories. There has also been a growing shift from 1-ply to 2-ply, and there is even some 3-ply toilet paper also being sold.

Overall, the Brazilian market is the fourth largest in the world for retail tissue and hygiene. Sales topped US$9bn in 2011 – with US$1.2bn of this from incremental sales. Kitchen towels and boxed facial tissues saw double-digit growth over much of the last decade and the potential for continued growth is a mouth-watering prospect as domestic consumers gain access to ever increasing amounts of disposable income.

Brazil as a whole is also just beginning its love affair with supermarkets, with private label still a relatively new concept.

A more sophisticated retail structure is appearing, a growing middle class, and millions more Brazilians beginning to enjoy improved spending power. Huge potential then, but more importantly for the industry, potential that has a realistic chance of being fulfilled.

I take Brazil to beat Spain 3 – 0 in the final.