4 Aug 2016
"Made in Brazil" takes on "Made in China" at São Paulo Household Show
Buffeted by falling exchange rates, as well as continuing political and economic turbulence, a number of businesses at this year's Spring La Feria de Brasil 1-99 saw out-China-ing China as their key route out of the current downturn.
The Brasil 1-99 Fair (La Feria de Brasil 1-99) has been running since 1999. Held twice a year, it now has 33 shows behind it. The 33rd was particularly memorable as it took place against the backdrop of Brazil's poorest economic performance for a decade or more. This saw many exhibitors rapidly rethinking their business models for the years ahead. A common aspiration seemed to be to replace "Made in China" with "Made in Brazil".
The original "1.99 Show" concept focussed solely on the single price retail market – the dollar shop in the US, the Real 1.99 shop in Brazil, and, perhaps, the 3,000 peso shop in Colombia. It has since evolved into the 1 to 99 show, a broader concept with a remit extending across all small household goods.
This year, glassware, ceramics and paper products were all well represented. It was plasticware, though, – a sector that is virtually Brazil's national industry – that dominated proceedings.
In total, some 100 exhibitors took part in the most recent event. Perhaps understandably, given the atmosphere of economic gloom and political uncertainty, buyers were a little harder to find.
One of the major participants this year was São Paulo-based Plasutil, a company said to be Brazil's leading plasticware manufacturer. With a 30-year trading history, it now has around 14,000 employees. Brandishing a drinks dispenser, Edson Begnami, the company's Commercial Director, said: "We make nearly our whole range here in Brazil – except, maybe, for this pump nozzle, which we import from China."
In terms of fending off competition from the cheap plastic products imported from Asia, Edson maintains that the company's best form of defence is adding value to its products through good functional design. He said: "Not only are we very price competitive with Asian producers, we also offer a range of special functions and designs.
"We have seven in-house designers, all briefed to create products that will specifically appeal visually and practically to the Brazilian market. They are designing with Brazilian consumers in mind and this means we are far more customer-focussed than many of our competitors."
The striking visual design on many of the company's containers is achieved through the process of Inmould Labelling (IML). This involves fusing a pre-printed label to the body in the mould, resulting in a more durable, high-resolution image on the end product.
Edsom also acknowledged that his company has faced some difficulties on account of the peculiarities in the Brazilian economy. He said: "We have to buy all of our plastic from Braskem, Brazil's only plastics producer, and that is very expensive."
According to its own figures, São Paulo-based Braskem is the largest producer of thermoplastic resins in the Americas and the eighth largest in the world. The biggest stake in the business is held by Oderbrecht, Brazil's giant construction-to-chemicals conglomerate. Earlier this year, Marcelo Odebrecht, the company's President, was jailed for 19 years, along with a number of other senior executives, having been found guilty of corruption and money-laundering.
The second most significant shareholder is Petrobras, the Brazilian state oil giant. It was this company's financial links with politicians that have been at the centre of the two-year corruption investigation that brought down the government. Understandably, then, the local plastics industry feels unsure about its immediate future.
Summarising the sentiments of many, Edsom said: "The fall in the Brazil economy over the last year has been felt in the plastics sector too. It is difficult to predict how this year will go as there is so much instability. We do not sell very expensive products, so we just keep working and hoping..."
One of the few companies to boast a bigger stand than Plasutil was São Paulo-based Zein Imports. Very much living up to its strapline – "Bringing the world to you" – it actually had the largest stand by a considerable margin, while also commanding a premium position just in front of the main entrance. Overall, the company offers a line of about 8,000 different products, including household items, tools, toys, decorations and cosmetics.
Outlining a little of the company's history, Founder Zein Atef Sammour said: "We launched the business in 1994, a time when Brazil was just beginning to import. Previously, we had made clothes and umbrellas but, in order to maintain our market share, we decided to start importing toys and Christmas gifts.
"A lot of domestic businesses lost market share to imports at that time and, to begin with, we were just focussed on surviving. Now, we seek to take a lead through our broad product mix, competitive prices and professional service."
Another major presence at the Show was São Paulo-based Fika. While, historically, the company has long been an importer of Chinese goods, it is now increasingly looking to source from Brazil.
Explaining the change in direction, Viktor Carvalho, a member of the company's senior management team, said: "We are one of the top 10 companies in this sector. We have been trading for eight years and we have always imported from China.
"Because of the changes to the exchange rates, we are now looking to source more products locally. The economy in Brazil is not healthy and the rise in the dollar exchange rate means we must either replace our products or reduce our mark-up."
Back in late 2014, the US dollar was worth some 2.4 Brazilian Reals. During the course of 2015, however, the Real plummeted, while the dollar rose. As of the end of September 2015, the dollar was worth almost 4 Reals.
Highlighting the challenges ushered in by this change in focus, Carvalho said: "As importers, we have to deal with a lot of complex taxes. We aim to have a competitive price, but we are not just selling on price. The locally made products are good quality, but sometimes we have to pay a little more.
"They make some similar products in Argentina and Uruguay, but we don't see them as offering any advantages. At present, it is easier for us to buy in Brazil.
"Overall, I am trying to be optimistic about 2016. We will do what we can to take the business forward whatever the difficulties. I don't expect to get better prices from China, so we are just hoping for the Real-Dollar rate to improve."
Despite Fika's changed priorities, a number of other companies were looking to increase their uptake of Chinese imports. Keita Uembra and his daughter Adriane are the founders of Keita, a São Paulo-based specialist in items for slicing and dicing, peeling and chopping vegetables.
Expanding on her own company's prospects, Adriane Uembra said: "Some 70% of our business is in kitchen products. These are all sourced in Brazil and sold through shops, supermarkets and catalogues across South America. We only have two real competitors and they are both quite new in the market. In order to maintain our market share, we take great care over the quality and presentation of our products.
"The remaining 30% of our product range is sourced from China. The high dollar has made it more difficult to import, but we can still do business. We are always looking for new opportunities.
"I expect that there will be a tendency towards lower cost products next year, but we believe our customers are looking for quality at a fair price and not just for the cheapest option. I will be visiting China next week in search of new products and suppliers. We are confident that we can grow the business over the next year."
Tellingly, not every exhibitor was quite so optimistic. Nelson Hensi, the Owner of Rio de Janeiro-based Diplomat, was offering a special show discount of up to 40% to customers on his array of imported gold and silver elephants, ballet dancers and African figurines and was, basically, keen to grab any likely customers walking by.
He said: "I have been selling the same products for 20 years and attending this event since the beginning – 16 years, 32 shows... This year, though, it is very hard. Something has to happen. It is not easy for us now. Many companies have closed. People are only buying items they really need, such as plasticware. I sell is gifts, which are much more of a discretionary buy.
"The value of the dollar means that prices have now increased by 50% over the last 12 months. It is good for items produced in Brazil, but not for me."
Prior to 2014, the exchange rate had been broadly stable for many years, with the Real fluctuating from between 1.6 to 2.4 to the dollar from 2006 up until just 18 months ago. The recent fall, then, has proved something of a shock to many businesses.
More recent developments, however, have offered some hope for importers. From the end of February to late April, the Real rebounded from 3.99 to 3.55 to the dollar. The prospect of a change of government, it appears, has improved international confidence in Brazilian businesses.
The 2016 Spring edition of the Spring La Feria de Brasil 1-99 was held at São Paulo's Expo Centre Norte from 20-23 March.
John Haigh, Special Correspondent, São Paulo