The government chose to devalue its currency by 32 percent on Friday, a move that forced personal care giant Colgate to announce an expected drop in earnings for the current quarter.
The Venezuela government is believed to have spent big during the 2012 election campaign to get Hugo Chavez re-elected, which has also been coupled, once again, with runaway inflation.
Colgate downgrades earnings
Colgate, which derives approximately 5 percent of its revenues from the country, downgraded its expected earnings per share by 5 to 7 cents for the first quarter of 2013, although it did stress that it would not affect the 2012 results.
Although many all the world’s major international cosmetic and personal care players have exposure to the market, analysts believe that, as well as Colgate-Palmolive, Avon could also be set to lose out significantly.
In recent years Avon has been aggressively growing its market share in the country in recent years and has evolved as a major player as a result, doing millions of dollars of trade in the country through its army of door-to-door sales staff
Back in January 2010 the Venezualan government also chose devalue the currency in an effort to shore up demand for locally produced goods.
Then the move served to prop up the Venezuelan economy, during time when the country, as a major exporter of oil worldwide, had been hard hit by falling demand for oil in the light of the global recession.
Exchange rate halved in 2010
Then, Chavez cut the exchange rate of the Venezuelan bolivar against the US dollar to 4.3 bolivars per dollar to 2.15, while maintaining a subsidized rate of 2.6 per dollar for essential products such as food and medicines.
Cosmetics and personal care products were not classified as essential products by the government and as a result this led to a long list of imported cosmetics increasing significantly in price, with some products doubling in price.
Following the announcement, Venezuelan consumers cleared store shelves of some of the most popular imported goods, with big brand personal care products such as toothpaste and skin care reported to be amongst the most popular purchases.