Cosmetic industry accelerates growth

The formal cosmetics industry, which encompasses the manufacture of hair and skin products, bath or toilet soaps and deodorant, in the Dominican Republic has almost tripled its sales in the last decade, from US$35 million in 2012 to almost US$90 million last year.

That growth revealed by figures from the Directorate General of Internal Taxes (DGII) – which does not include the operations of informal factories, which account for more than half – has a lot to do with local products being consistent in their quality.

It is also the result of the public and private sectors working together to drive innovation in the industry, according to the president of the Beauty Products Cluster, Rommy Grullón.

“The cosmetics industry is very thriving and is always at the forefront, fighting to earn its space,” says Grullón, who points out that it exports to more than 40 countries in the world, mostly to the United States and the Caribbean islands.

Although Dominicans spend 8.63% of their income on personal care (3.52% is spent in hairdressing salons and 5.11% on personal care products and articles), according to data from the Cluster, most of the sales of many manufacturers are the result of their exports.

As part of the government’s support to this sector, the National Commission for the Defense of Competition (Procompetencia) organized last year international business rounds, from which several manufacturers in the free trade zone model reached agreements to export to Mexico and Colombia.

Creole cosmetics mainly reach the shelves of stores in the United States, the Netherlands, Spain, Puerto Rico, Haiti and Cuba. But the intention is to explore new markets in Europe and the Caribbean.

Grullón believes that Asian countries also represent an interesting option, especially for hair products, but to go after that area, first the local chemists would have to adapt their formulas, since the needs are different from the requirements of hair in a tropical climate.

The Beauty Cluster was created in 2009, as a result of the Industrial Innovation Program: Competing in Speed and Flexibility developed by the Association of Industries of the Dominican Republic (AIRD) with the support of the National Competitiveness Council (CNC), with funds from the Inter-American Development Bank (IDB).

Since then, the AIRD has carried out research on the sector’s performance, which has provided a better understanding of its profile and needs. Among the main regional competitors that have been identified are Mexico and Panama, countries that export their beauty products mainly to North and Central America.

Among the countries with the highest participation in global exports are Brazil, Argentina and Colombia, whose exports are mainly destined for South America.

Tourism has also supported the promotion of the industry. For example, visitors arriving from Russia, a growing segment of tourists in recent years, after trying local brands, take them back to their countries, which has opened opportunities for some companies to sell in that market.

That industry corresponds to the line “Manufacture of petroleum refining and chemical products”, which in 2019, reported 9.8% of the added manufacturing value and 1% of the GDP, according to statistics from the Central Bank of the Dominican Republic.

From 2014 to 2020, the products with the highest increase in exports have been hair preparations (66%), mixtures of odoriferous substances (58.6%) and beauty, makeup and skin care preparations (22.7%), according to figures from the Directorate General of Customs.

Emigrant ambassadors

The boom of Dominican migration to the United States that took place in the 1990s became the launching pad for the export of locally manufactured hair products.

The women worked mainly in beauty salons, but when they could not find conditioners in North America that provided them with hair results similar to those in their own country, they began to ask their relatives to send them local formulas, which they then shared with their foreign neighbors.

So says Ricardo Esteban, who represents the third generation of managers of one of the oldest beauty product companies in the country, Halka Industrial, founded in the early 1930s.

Esteban says that his family started out making soaps, colognes and petroleum jelly for hair. Later, the market began to demand solutions for more specific hair care products, so Halka Industrial, with its HK Cosmetics brand, has been adapting to these requirements.

“The foreign market has great growth potential,” says Ricardo. “Despite being a pandemic year, in 2020 we had a 37% growth in sales and we added six countries for export, Canada, Chile, Peru, Ecuador, Mexico and England”, adds Esteban, commercial vice-president of Halka Industrial.

For this factory, with 158 employees, international trade represents 39% of its sales, mainly exports to Holland, Spain, France, Italy, Belgium and Slovenia.

Esteban explains that the demand for hair products has evolved to a consumer who demands more organic proposals and appreciates more blends based on natural ingredients.

At the dawn of the cosmetics industry, curly hair straightening treatments and colorants were the main sellers. But now, the trend of bringing Afro-textured hair to natural, so prevalent in the Caribbean, has prompted manufacturers to work on new lines to meet those needs.

“Right now we have five new products, because consumers like to try new things, which is causing a trend, the company that does not innovate is doomed to disappear,” argues Esteban.

The president of Halka Industrial, Isabel Esteban, explains that the Covid-19 pandemic has represented a survival challenge for the sector, since due to the limitations that the health crisis has imposed on production and marketing, some companies have opted to diversify their portfolios.

The company has ventured into the generation of disinfectant products for mass consumption, such as antibacterial gels and soaps. Likewise, to face the impact of the pandemic, they adopted other measures, such as reactivating their online store, offering attractive discounts, payment facilities and home delivery service, in order to maintain sales levels.

Among other measures, they cut their advertising and marketing expenses as much as possible, as well as other superfluous expenses. They also made the filling processes more efficient, says Esteban.

Aspects to improve

Manufacturers face the situation that this sector has weak entry barriers, that is, they have few export restrictions, so it is easy for companies that do not follow rigorous production processes to penetrate international markets, says José Antonio Lomba, president of the Association of Manufacturers of Personal and Household Care and Hygiene Products (AFAPER).

The businessman points out that in the United States, for example, beauty products do not require sanitary registration, but only the nomenclature of the ingredients, which makes it easier for informal companies to sell their products in that nation.

“We have the challenge of ensuring that Dominican merchandise sold today outside the country guarantees that it meets the quality criteria established in the destination market, so as not to discredit the work done by many companies that have a tradition of excellence,” he says.

Lomba indicates that the authorities have the opportunity to support the sector in monitoring the legality of the trade, since it is estimated that out of 150 companies in operation, only 50 are formally registered.

The president of Afaper says that the illegal situation of so many companies generates a competitive disadvantage, because these companies do not pay taxes and can offer lower prices than those that are contributing to the tax authorities and assuming the costs of generating formal jobs.

“Informal operating structures generate distortion and discouragement for those who do comply,” says the executive.

On the other hand, a weakness of the sector is that its costs depend a lot on the dollar prices, a currency that in the last two years has shown an upward trend in the country. But another aspect that affects them is that 90% of the raw material is imported, and for example, the sea freight of cargo from China has tripled its price in the last year. The transfer of a container that at the beginning of last year could cost 1,500 dollars this year has had moments that have reached up to 13,000 dollars, according to data from the Association of Shippers of the Dominican Republic.

With the value of the dollar increasing, as well as freight rates, it has been difficult for many companies to maintain their prices without passing on the cost to consumers.

In this regard, Lomba proposes the formation of platforms that would allow Dominican laboratories to buy raw materials and packaging material jointly, which would ensure that several companies acquire larger volumes at the same time and obtain better prices.

“One advantage is that there are local companies that distribute some raw materials, which means that in some cases it is not necessary to buy complete containers,” says Lomba, who also heads Laboratorio Capilo Español, a company that produces around 100 tons of cosmetic substances a year, mainly for hair care.

Lomba indicates that a market niche that has a lot of potential is that of deodorants and lotions, but to exploit it, it would be necessary to innovate and mark a distinctive seal, such as using natural elements from the country, like coconut and cocoa.

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