Paul Altaffer10.01.05
There are several "up-and-coming" markets in South America. Two markets in particular are poised for growth for very different reasons. On one hand there is Argentina, which went through strong economic growth in the 1990s and then collapsed in 2001. Theirs is a tremendous story of recovery. Chile, on the other hand, has been the model for economic stability and growth in South America. Looking at the performance of these two markets and analyzing their future prospects summarizes how they embody some of South America's great potential.
The 1990s brought impressive growth to Argentina, as the country established itself as a major market force in South America. Argentina's currency, the Argentinean Peso, was pegged to the U.S. dollar at a 1 to 1 ratio. This fiscal policy was intended to curb inflation and to support Argentina's ambitious growth prospects. However, this policy caused many deep-seeded problems for the country. Most important among these problems was that with a fixed currency there was no system for financial and other markets to correct themselves. As a result, the Peso followed the U.S. dollar as a highly valued currency; however, the difference was the U.S. economy justified such a valuation, whereas the Argentinean economy could not. Prices, based on an overvalued Peso, became unrealistic and Argentina became hard pressed to export as its products and services became too expensive. This also meant that with an overvalued currency, consumers imported more goods and services. Savings and investment also began to drop.
By 1999, Argentina began sliding into recession. The currency and financial conditions made continued growth unsustainable. The recession led to financial collapse in 2001. Argentina was forced to give up the U.S. dollar pegging, to drastically devalue the Peso, to freeze accounts, suspend payments on debt (especially foreign debt) and to seize dollar-based assets. The economy tumbled as consumers completely lost confidence, unemployment soared and investments, especially foreign investment, disappeared. The economic turmoil led to political and social unrest as well. Many people believed the collapse would lead to a long period of recession or stagnation. There were many changes in government that deepened the sense of social and economic security.
However, fueled by a devalued Peso and a strong export market, Argentina began demonstrating signs of a recovery by late 2002 or early 2003. The story since then is reminiscent of the phoenix rising from the ashes. Argentina seems to be bouncing back with vigor. It has renegotiated its foreign debt, devalued its currency, built exports and encouraged new investments. There is still a high rate of unemployment and investor suspicion in certain areas, but the prognosis seems to be excellent. There is sustained and fast growth, and consumption is beginning to grow once again. It is true that shoppers are more frugal and seek better prices, but they are back out spending money and pushing the economy.
The prospect for the nutraceuticals industry in Argentina, based on data extrapolated from the over-the-counter (OTC) market, is pretty encouraging. The OTC market experienced solid growth in 2003 and 2004, and the belief is that 2005 will continue to impress.
In addition to the economic recovery of the country, growth may be partly a result of other factors as well. One may be that there is still a large number of uninsured people due to high unemployment rates, and these people are more inclined to self-treat and self-medicate. Grant Washington-Smith, senior business development Manager at Alticor, Ada, MI, finds this to be an encouraging trend. "There is a great deal of value in understanding the growth patterns and consumer interests of target markets…this helps us develop products and markets with much greater focus. Consumers are looking for value (low prices), but seem willing to spend on consumer products again, especially for products that support health and wellness." (In 2006, Mr. Washington-Smith will be joining Mr. Altaffer as co-author of a column called "From the Corners of the World," which will continue to focus on emerging markets in South America, but will also include coverage of other up-and-coming geographic regions.)
Table 1 below shows significant growth in the market for vitamins and dietary supplements in Argentina, even when accounting for the adjustment in currency values. Since 2001, after the collapse, growth has been impressive. Also, over the last several years, the Argentinean Peso has traded at an average of 2.7 to 3.0 to the U.S. dollar.
There have been some significant new trends as well with respect to distribution channels. The largest distribution channel has traditionally been pharmacies/drugstores. Pharmacies/drugstores continue to show strong growth and a lion's share of the market (62% in 2004) for vitamins and dietary supplements, according to Euromonitor. The direct-to-consumer channels of distribution have also shown strong growth and take second place with nearly 19% market share. Unfortunately, there has been no growth-even negative growth-in other traditional channels of distribution like health food stores and grocery stores. It is not clear why this is, but one reason might be that consumers are looking for value; the pharmacy and direct-to-consumer channels of distribution might offer greater value (lower prices or other economies) than the grocery or health food distribution networks.
For the last 15 years or so, since Chile returned to democratic rule, the country has become a model for economic, social and political stability in South America. While Chile does not have a large economy by many standards, it is diverse and does not depend solely on commodity exports for foreign reserves. Chile is a major producer and exporter of fruits and vegetables, wine, seafood and minerals, as well as a variety of other products and services. Its economy and policies are considered to be the most open in South America.
Much of this is due to changes brought into effect in the 1990s once the country came out of military rule. Inflation has been contained (less than 4% per year) and the infrastructure for investment and growth are well in place. Chile still has an issue with high unemployment rates and some regions are still marked by extreme poverty, but otherwise it is a country well placed for growth. Chile experienced dynamic growth in early 2000 (nearly 9% growth in GDP in 2001 and well over 7% growth in 2002), but slipped a little in 2003 (2.5%). However, 2004 and 2005 are expected to be good years with GDP growth rates at or near 7%. According to The Economist, Chile ranks fifth in the world in economic freedom behind Hong Kong, Singapore, the U.S. and Estonia-this is measured by how a "country's policies and institutions support property rights, personal choice and competition." The Chilean Peso trades at about 550 to 600 to the U.S. dollar.
The OTC market in Chile has not experienced the dynamic growth seen in Argentina, especially in the sector of vitamins and dietary supplements. Consumers are thrifty. They do not spend their money on non-essential products and as the cold and flu seasons of the past couple of years has been mild, consumers do not perceive the need to spend as much money in these areas. Also, consumers know very little about supplements other than the use of vitamins for treatment of colds and flu. More attention needs to be paid to explaining the benefits of nutrition and supplementation to consumers (Table 2).
Almost all sales of OTCs are through pharmacies and drugstores. Current regulations require that all OTC products be sold through pharmacies or drugstores, but there is strong pressure on the government to open distribution channels, so that supermarkets and other distribution channels are permitted to sell these products. Should this happen, the potential for growth of the category could be even stronger than it is now.
There is tremendous potential in Chile with educating consumers and offering products and services that deliver the perception of value while not pinching their pockets too much. There has been encouraging growth, for example, in certain supplement and herbal product sales, and there is the potential for much greater growth in these areas if consumers are made aware of the benefits of supplementation.NW
Argentina: Collapse and Recovery
The 1990s brought impressive growth to Argentina, as the country established itself as a major market force in South America. Argentina's currency, the Argentinean Peso, was pegged to the U.S. dollar at a 1 to 1 ratio. This fiscal policy was intended to curb inflation and to support Argentina's ambitious growth prospects. However, this policy caused many deep-seeded problems for the country. Most important among these problems was that with a fixed currency there was no system for financial and other markets to correct themselves. As a result, the Peso followed the U.S. dollar as a highly valued currency; however, the difference was the U.S. economy justified such a valuation, whereas the Argentinean economy could not. Prices, based on an overvalued Peso, became unrealistic and Argentina became hard pressed to export as its products and services became too expensive. This also meant that with an overvalued currency, consumers imported more goods and services. Savings and investment also began to drop.
By 1999, Argentina began sliding into recession. The currency and financial conditions made continued growth unsustainable. The recession led to financial collapse in 2001. Argentina was forced to give up the U.S. dollar pegging, to drastically devalue the Peso, to freeze accounts, suspend payments on debt (especially foreign debt) and to seize dollar-based assets. The economy tumbled as consumers completely lost confidence, unemployment soared and investments, especially foreign investment, disappeared. The economic turmoil led to political and social unrest as well. Many people believed the collapse would lead to a long period of recession or stagnation. There were many changes in government that deepened the sense of social and economic security.
However, fueled by a devalued Peso and a strong export market, Argentina began demonstrating signs of a recovery by late 2002 or early 2003. The story since then is reminiscent of the phoenix rising from the ashes. Argentina seems to be bouncing back with vigor. It has renegotiated its foreign debt, devalued its currency, built exports and encouraged new investments. There is still a high rate of unemployment and investor suspicion in certain areas, but the prognosis seems to be excellent. There is sustained and fast growth, and consumption is beginning to grow once again. It is true that shoppers are more frugal and seek better prices, but they are back out spending money and pushing the economy.
The prospect for the nutraceuticals industry in Argentina, based on data extrapolated from the over-the-counter (OTC) market, is pretty encouraging. The OTC market experienced solid growth in 2003 and 2004, and the belief is that 2005 will continue to impress.
In addition to the economic recovery of the country, growth may be partly a result of other factors as well. One may be that there is still a large number of uninsured people due to high unemployment rates, and these people are more inclined to self-treat and self-medicate. Grant Washington-Smith, senior business development Manager at Alticor, Ada, MI, finds this to be an encouraging trend. "There is a great deal of value in understanding the growth patterns and consumer interests of target markets…this helps us develop products and markets with much greater focus. Consumers are looking for value (low prices), but seem willing to spend on consumer products again, especially for products that support health and wellness." (In 2006, Mr. Washington-Smith will be joining Mr. Altaffer as co-author of a column called "From the Corners of the World," which will continue to focus on emerging markets in South America, but will also include coverage of other up-and-coming geographic regions.)
Table 1 below shows significant growth in the market for vitamins and dietary supplements in Argentina, even when accounting for the adjustment in currency values. Since 2001, after the collapse, growth has been impressive. Also, over the last several years, the Argentinean Peso has traded at an average of 2.7 to 3.0 to the U.S. dollar.
There have been some significant new trends as well with respect to distribution channels. The largest distribution channel has traditionally been pharmacies/drugstores. Pharmacies/drugstores continue to show strong growth and a lion's share of the market (62% in 2004) for vitamins and dietary supplements, according to Euromonitor. The direct-to-consumer channels of distribution have also shown strong growth and take second place with nearly 19% market share. Unfortunately, there has been no growth-even negative growth-in other traditional channels of distribution like health food stores and grocery stores. It is not clear why this is, but one reason might be that consumers are looking for value; the pharmacy and direct-to-consumer channels of distribution might offer greater value (lower prices or other economies) than the grocery or health food distribution networks.
Chile: A Sustainable Economic Model
For the last 15 years or so, since Chile returned to democratic rule, the country has become a model for economic, social and political stability in South America. While Chile does not have a large economy by many standards, it is diverse and does not depend solely on commodity exports for foreign reserves. Chile is a major producer and exporter of fruits and vegetables, wine, seafood and minerals, as well as a variety of other products and services. Its economy and policies are considered to be the most open in South America.
Much of this is due to changes brought into effect in the 1990s once the country came out of military rule. Inflation has been contained (less than 4% per year) and the infrastructure for investment and growth are well in place. Chile still has an issue with high unemployment rates and some regions are still marked by extreme poverty, but otherwise it is a country well placed for growth. Chile experienced dynamic growth in early 2000 (nearly 9% growth in GDP in 2001 and well over 7% growth in 2002), but slipped a little in 2003 (2.5%). However, 2004 and 2005 are expected to be good years with GDP growth rates at or near 7%. According to The Economist, Chile ranks fifth in the world in economic freedom behind Hong Kong, Singapore, the U.S. and Estonia-this is measured by how a "country's policies and institutions support property rights, personal choice and competition." The Chilean Peso trades at about 550 to 600 to the U.S. dollar.
The OTC market in Chile has not experienced the dynamic growth seen in Argentina, especially in the sector of vitamins and dietary supplements. Consumers are thrifty. They do not spend their money on non-essential products and as the cold and flu seasons of the past couple of years has been mild, consumers do not perceive the need to spend as much money in these areas. Also, consumers know very little about supplements other than the use of vitamins for treatment of colds and flu. More attention needs to be paid to explaining the benefits of nutrition and supplementation to consumers (Table 2).
Almost all sales of OTCs are through pharmacies and drugstores. Current regulations require that all OTC products be sold through pharmacies or drugstores, but there is strong pressure on the government to open distribution channels, so that supermarkets and other distribution channels are permitted to sell these products. Should this happen, the potential for growth of the category could be even stronger than it is now.
There is tremendous potential in Chile with educating consumers and offering products and services that deliver the perception of value while not pinching their pockets too much. There has been encouraging growth, for example, in certain supplement and herbal product sales, and there is the potential for much greater growth in these areas if consumers are made aware of the benefits of supplementation.NW
