EXECUTIVE SUMMARY
Presidential elections boost consumption
Home care recorded sales growth in 2011 following a decline in 2009 and 2010. Interest rates remain negative in real terms and bank credit flows to consumers encouraged spending. In a year of presidential elections, the national budget deficit deepened and consumer spending was again high while inflation accelerated and posted a threat to purchasing power in the short term.
Import barriers threaten growth
Artificial import barriers were increased in 2011 with the aim of protecting the local industry and workforce. However, a lack of stock was a major concern of leading retailers and threatened demand. These policies were reinforced in February 2011 via the expansion of a “restrained” portfolio across industries. This is challenging the business plans of brands and is driving them to invest in local production or face higher tariffs and longer restocking cycles.
Construction industry is losing strength
After the presidential elections in October 2011, the government imposed restrictions on the acquisition of foreign currency – a development which hurt construction activity, which is US dollar-denominated. Home care products rely in part on a growing consumer base in order to sustain medium and long term growth fuelled by young people leaving their parents’ homes or couples getting married and renting or buying apartments due to increasing disposable incomes, a burgeoning middle class and rising employment rates amongst young adults.
Discounters profit from high inflation and lower purchasing power
Although disposable incomes are already being negatively affected by high inflation, they are still growing in real terms. Sales from supermarkets and hypermarkets are likely to migrate to discounters and convenience store channels as consumers with reduced budgets prefer proximity over big promotions.
Dengue and swine flu epidemics drive sales
After the outbreak in 2009 of the H1N1 and dengue epidemics, manufacturers seized the opportunity to portray disinfectant products as protection mechanisms. Companies started to make alliances with health foundations and well respected local specialists to educate consumers on cleaning and disinfecting their homes in order to avoid the dangers of such epidemics. As long as disease outbreaks remain under control, companies will have to shift their strategies to innovation and premiumisation in order to boost sales and meet above average growth rates in mature areas.
Inflation could hurt purchasing power
Inflation has been high in Argentina for the last five years and reached over 20% over the last two years as the government boosted public expenditure and investment to fuel private consumption. However, the growing national budget deficit and scarcity of healthy sources to finance public expending at previous rates will likely to be financed with increasing rates of money after congress reformed central bank regulations in early 2012 to permit further government financing. This is likely to negatively impact both purchasing power and consumer confidence.
Current impact
INDEC (the national institute of statistics) estimates that local consumer prices increased by 9.5% in 2011 - well below private estimates from well-known local consultancy firms, with the consensus being near to 25%. Thus far, external financing via a significant current account surplus led to the central bank increasing the money supply at a rate well above nominal GDP growth, thus putting pressure on interest rates and boosting consumer credit as interest rates remain negative in real terms. Presidential elections in 2011 were the main driver to sustained consumption despite the growing national budget deficit.
Outlook
After the presidential elections, in the last months of 2011 consumer confidence about the future of the economy put pressure on the foreign exchange market and consumption contracted. On the other hand, the country’s capital account deficit increased as Argentineans migrated their portfolios from Argentinian pesos to US dollars and other dollar-denominated assets. As a consequence, after the government decided not to increase ARS interest rates in order to avoid a drain in ARS-denominated savings, the foreign exchange market was hit by heightened controls regarding the purchase of foreign currency by both enterprises and individuals. In addition, import barriers were also heightened – a development that led to the availability of goods at retailers being reduced. If consumer confidence and the value of the peso cannot be restored via policies which aim to reduce inflation and increase private investment and expand supply across industries, inflation is likely to increase at a faster rate than salaries - a development that would cause a contraction in purchasing power.
Future impact
In a weaker economic environment, companies could find it difficult to translate salary increases into higher prices. Weaker consumer confidence and high inflation leads to both a reduction in the purchasing power of the population and weaker sales levels. Together with a lack of appropriate level of investment in certain areas due to declining investor confidence, this would reduce long term growth and further fuel inflation. As Argentina continues to have no access to the international financial markets, it depends heavily on internal financing and as these sources are becoming scarce, the government will likely cut spending. If not, it will become more dependent on central bank reserves to finance public consumption to boost aggregate demand – a development that will cause inflation to accelerate and business and consumer confidence to plummet. In either case, purchasing power will likely level out at lower rates than those seen over the review period.
Government drives consumption
The government continues to boost consumption with expansionary policies, especially monetary, to meet high growth objectives. This strategy mainly appeals to the middle and lower classes who are enticed by the idea of increasing their standard of living. Moreover, taking into account constant and increasing inflation, it makes more sense to invest wages in durable goods instead of saving them and losing value due to inflation.
Current Impact
Rising prices have turned Argentinians into “smart” consumers and made them more careful when choosing their purchases. However, different market players are progressively managing to restore consumer confidence. Major banks started this trend after the local financial crunch in 2001-2002. Since then, banks, brands and retailers have started to work together to offer different promotions and boost demand further while simultaneously building stronger consumer loyalty via 12-month interest-free instalments. However, the economic slowdown that continued at the beginning of 2009, mainly sustained by the global financial crisis and local uncertainty due to the struggle between the government and farmers, threatened to halt rising consumption. Nevertheless, the national government actively and directly pressured each of the main brands and banks to continue with discounts and promotional strategies.
Outlook
Banks are continuing to expand consumption credits at low rates and instalment facilities at zero rates in agreement with major retailers. Incentives to boost consumption, especially of appliances, could become more common. Increasingly tighter import and exchange controls will be used to artificially improve the current and capital accounts and help support foreign reserves and monetary expansion in order to support consumption and credit. Banks, brands and retailers have not been able to stop the discounts and promotions trend. Increasing card penetration, which reached 24 million credit cards in 2009 in a country with a population of 40 million, is an indication of this development. Credit cards have become a key tool in expanding consumption in the country.
Future impact
Increasing inflation forced Argentine consumers to become smarter and take savings measures in order to continue shopping. Marketing promotions and general discounts have become the most efficient tool for expanding consumption and helping consumers to obtain the goods they want and to increase their standard of living. This has resulted in the definition of new consumption habits, with any Argentines now waiting for discounts before purchasing. It is clear that spending helps to motorise the economy. However, the lack of a clear strategy to help Argentina achieve stability in the long term will continue to make investors and consumers more cautious. Nevertheless, the government will keep focusing on boosting consumption to consolidate economic growth.
Import barriers lead to reduced availability of goods
Anti-dumping trade policies and non-automatic import licenses were heightened in 2011 with the aim of protecting the local industry and workforce against the entrance of low cost products. These policies were reinforced in February 2011 through the expansion of restrained portfolio across industries. This challenges brands’ business plans and drives them to invest in local production or face higher tariffs and longer restocking cycles.
Current impact
Through Resolution 45, which was issued at the beginning of 2011, the Ministry of Industry extended the application of the non-automatic licensing system to a new set of imported products and established 200 new non-automatic licenses (monitored licences), which have been in effect since March 9th 2011.
Outlook
High prices and a lack of stock were the major threats to demand within retailers in 2011. The shortfall in products caused a further price hike due to rising demand. This adds to the overall inflationary trend which was started after the major crisis in 2001 and reinforced in 2008 by constantly increasing inflation for all types of products. However, in 2011, as companies set up local facilities, the supply chain was re-established, albeit at the cost of higher average prices, lower average quality due to the launch of budget brands and a narrower product portfolio.
Future impact
Further price increases are likely to continue in the short term. The current scenario, marked by shortages of some premium products, led to an increase in average prices across different areas. The protectionist regulation on controlled imports and local production is likely to continue during 2012. At the same time, some companies are also reviewing their strategic plans in preparation for exporting in a bid to address the trade balance as the government claims to be encouraging domestic production.
Construction industry is losing strength
The construction industry is one of the main drivers of home care sales. The area was boosted in the mid-2000s as interest rates plummeted and mortgage credit became affordable, with home care sales increasing by more than 46% over the review period. After presidential elections in October 2011, the government imposed restrictions on the acquisition of foreign currency – a development which hurt construction activity, which is a US dollar-denominated area in Argentina.
Current impact
The construction sector is already showing signs of weakening as a result of foreign exchange market intervention in the acquisition of US dollars. The number of building permits is already declining and represents a threat to the fundamentals for long term growth of home care sales. Moreover, this policy led to consumers perceiving the future of the economy as being more risky in the short term and reinforced low consumer confidence, with high inflation being fuelled by the government. Home care products rely on a growing consumer base to sustain medium and long term growth, with sales being fuelled by young people leaving their parents’ homes or couples getting married and renting or buying apartments. Such activity is being fuelled by increasing disposable incomes, a burgeoning middle class and rising employment amongst young adults.
Outlook
According to the Consumer Confidence Index carried out by Universidad Torcuato Di Tella, consumer confidence fell more than 8% in early 2012 whereas the durable goods and real estate sub index fell nearly 10% (more than five percentage points) to 30%. Both indexes registered the largest contraction since 2008, when the global financial crisis occurred. So far, the economy has maintained some growth momentum. However, the combination of foreign exchange controls, a lack of external financing and the uncertainty that surrounds the current policy environment should take a toll on growth.
Future impact
The main challenges are at the sector level, where controls on prices, imports and foreign exchange are affecting profitability and production. The business climate is deteriorating rapidly and the mood in the business community is falling. The main concerns are the inability to plan production due to arbitrariness regarding import decisions whereas profit margins are also deteriorating. As consumers become more risk averse due to the weakening economic and political environment, they will likely cut back on non-essential products within areas like home care.
Dengue epidemic and swine flu continue to drive sales
After the H1N1 and dengue fever outbreaks in 2009, manufacturers seized the opportunity to portray disinfectant products as protection mechanisms. Companies started to make alliances with health foundations and well respected local specialists to educate consumers on cleaning and disinfecting their homes to avoid being contaminated by such epidemics.
Current impact
Rising consumer awareness is resulting in changing cleaning habits and rising demand for products with disinfecting properties within home care. Since 2010, educational campaigns have helped to boost sales as schools, households and workplaces learned about the benefits of a cleaner environment.
Outlook
Campaigns will continue to be run in order to increase awareness of the uses of surface care products and other disinfectants. As awareness of the causes of certain diseases increases, growing attention will be paid to purchasing cleaning products, particularly disinfecting products such as bleach.
Future impact
The Argentinian economy is set to grow at a below average rate for emerging non-BRIC markets in 2012 and as long as outbreaks such as those seen during 2009-2010 stay under sanitary control, companies will have to shift their strategies towards product innovation and premiumisation in order to boost sales and meet above average growth rates in mature areas such as bleach and other products with disinfectant properties. Brands with disinfectant positioning such as Ayudín, Querubin and Lysoform will profit most from this trend in the future as consumers will continue to disinfect in a bid to avoid illness.
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Overview
Discover the latest market trends and uncover sources of future market growth for the Home Care industry in Argentina with research from Euromonitor's team of in-country analysts.
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The Home Care in Argentina market research report includes:
- Analysis of key supply-side and demand trends
- Historic volumes and values, company and brand market shares
- Five year forecasts of market trends and market growth
- Robust and transparent market research methodology, conducted in-country
Our market research reports answer questions such as:
- What is the market size of Home Care in Argentina?
- What are the major brands in Argentina?
- What is the importance of the trend towards environmentally friendly products in home care?
- What are the main growth drivers of the home care market in Argentina?
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This industry report originates from Passport, our Home Care market research database.
