May 22 (Bloomberg) -- One of the women cleaned houses. The other flipped burgers. They put their heads together to found a hairdressing business that later got backed by one of Latin America’s largest private-equity funds and is now one of Rio de Janeiro’s most ubiquitous beauty salon chains.
Heloisa “Zica” Assis and Leila Velez founded Beleza Natural two decades ago with 10,000 reais scraped together from savings and the sale of a Volkswagen Beetle. Today it’s headed toward 1 billion reais ($451 million) in sales by 2018, according to the company.
In a country where the beauty standard is influenced by the blond and wavy-haired supermodel Gisele Bundchen, Beleza Natural is targeting women with curly or kinky hair, who make up the majority of the female population in Brazil.
“This was a niche market that had been forgotten,” Assis said in a phone interview from Rio de Janeiro on May 13.
Closely held Beleza Natural, whose corporate name is Cor Brasil SA, is benefiting from a surge in demand among an expanding middle class in Brazil, the world’s third-largest market for hygiene and personal care.
Many Brazilian women use treatments such as the formaldehyde-based Brazilian blowout, which was banned in Canada in 2010 and Italy in 2013 because of the toxic chemicals involved, to straighten their locks. Beleza Natural, with its focus on curls and kinks, is encouraging women to show off their natural look.
GP Investments Ltd., founded by Brazilian billionaire Jorge Paulo Lemann, bought a third of Beleza Natural for 70 million reais last year. Lemann sold his stake in GP Investments in 2004.
With the funding, Rio de Janeiro-based Beleza Natural seeks to boost the number of stores sixfold to 120 in four years, Assis said. Revenue will rise from 148 million reais in 2013, according to a regulatory filing.
GP, based in Hamilton, Bermuda, bought the stake as an “opportunity to get into a company with clear competitive advantages that benefits from an extremely favorable market,” according to a regulatory filing when it purchased the stake in July.
Publicly traded cosmetics companies haven’t fared so well this year in Brazil. Natura Cosmeticos SA, Latin America’s biggest cosmetics company, has slumped 6.9 percent this year. Avon Products Inc., which got 49 percent of first-quarter revenue from Latin America, has fallen 20 percent.
Beleza Natural produces 280 tons of shampoo, conditioner and comb-in treatments each month, Assis said. It sells the products exclusively through its salons, where clients take a number and go through stations that include an interview on their hair history.
The stations were inspired by Velez’s teenage days as a McDonald’s Corp. manager, where she took every training class available and studied the company’s strategies closely.
Velez also took a page from Disney World in Orlando, Florida, where she saw that the amusement at the parks started while people stood in line. She built waiting rooms with televisions where they invite doctors and psychologists to talk about women’s health and raising children.
Conscious of their past struggles, the women keep the experience affordable with the cost of the super-relaxing treatment, the most popular, at 89.90 reais, compared with 200 to 300 reais in other salons, said Velez, 40, the chief executive officer and business side of Beleza Natural.
“We came from these communities,” said Velez, who will speak next week in Sao Paulo at Women’s Forum Brazil 2014, an event bringing together corporate leaders to discuss global issues affecting women. “We know what it’s like.”
Assis, 53, is the one who created the formula for taming curls after 10 years of losing hair as she experimented on herself and her husband.
Beleza Natural exemplifies the rising middle class in Brazil, said Renato Meirelles, president of research company Data Popular. With more women working, and four out of five jobs for women requiring facing the public, there’s more concern for how they present themselves.
“With the increase of income, something once seen as superfluous became a necessity and it’s a path with no return because women don’t want to stop working,” Meirelles said.
In the last 11 to 12 years, about 42 million people have joined the ranks of the middle class in Brazil.
Five years ago, Brazilians spent 31 billion reais on beauty products, personal hygiene and cosmetics, compared with an estimated 57 billion reais last year, according to an April study by research group Mintel Group Ltd. The middle class will continue pushing growth in the sector this year, and sales should reach 83 billion reais by 2018, according to the study.
Beleza Natural attends to 100,000 clients each month. Almost three-fourths of them arrive with friends and in caravans from cities Beleza doesn’t yet serve. Assis’s business was inspired by her own hair.
“My black power afro was a success, I would win hair contests,” Assis said. “But to enter people’s homes to work, I had to do everything I could to lower the volume of my hair, and it wasn’t happening.”
Blacks in Brazil represent more than half of the population yet are virtually invisible in society, from advertising to soap operas and the government, said Luiza Bairros, minister of racial equality, in a telephone interview.
“We need to break this barrier so people perceive, so society perceives, that Brazil is a diverse society, and more than that: Brazil is mostly black,” Bairros said. “We are 51 percent of the population and it’s not possible to behave anymore as if we didn’t exist.”
Assis and Velez see empowering women as part of their job.
“I don’t sell a product, we sell pure high self-esteem,” said Assis, who wants to eventually take the Beleza Natural concept to the rest of the world. “We know the U.S. is also big business for us, we dream of being there, we want to be there.”
The focus for now is on Brazil because there is still so much potential, Velez said.
Brazil’s economy has slowed, growing at an average annual pace of 2 percent from 2011 to 2013, less than half the 5.1 percent clip for the three years ending in 2008.
“We’ve had very bad phases in Brazil and business drops a little, as it will at any company, but after month or two, customers are back and there’s always new people coming in,” Assis said.
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