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Annual State of the Industry: BRIC: It’s Mighty, Mighty

By: Alexander Kirillov
Posted: June 9, 2008, from the June 2008 issue of GCI Magazine.

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Russian market growth will remain robust in the forecast period. The market, driven by premiumization, expansion of retail channels, rising disposable income and strong consumer confidence will continue growing at 4% in real terms, reaching $12 billion in 2012, up from the current $9.9 billion. Contributing to this, Russian consumers are increasingly open to natural and organic cosmetics, with both domestic and international players getting involved in the trend.

Due to increased spending power, consumers in Russia are becoming more sophisticated and particularly focused on natural and ethically sourced ingredients. The trend for natural cosmetics in Russia is driven by consumer awareness of the potential hazards of the chemicals used in cosmetics and a conscious effort to avoid them. This is combined with a genuine awareness of the importance of protecting the environment from which the ingredient is sourced.

In 2007, the Chinese market for cosmetics and toiletries grew 9% in constant prices, on par with Brazil. The booming economy along with the upcoming Olympic Games and emerging middle class stimulated growth in the country, where per capita consumption still remains only 10% of that in Brazil. The Indian market, where per capita spending in constant terms on cosmetics and toiletries is only one-third of China’s, showed more modest results at 5% growth. However, the trend is looking upward from 2% growth rates only three to four years ago.

U.S. Market Slipping

As the U.S. economy faces increasingly gloomy prospects, the cosmetics and toiletries market shows strong signs of contraction, with virtually no growth in real terms in 2007 and a disappointing outlook. According to Euromonitor’s forecast, the U.S. market will decline 2007–2012 by almost $1 billion—as calculated in 2007 prices—or 0.4% a year on average. Fragrances will be the sector hardest hit by the economic downturn, as cash-strapped consumers turn away from items they consider superfluous. With premium fragrances seemingly available everywhere, perfumes’ mystique has disappeared for Americans. Premium cosmetics as a whole will shed $410 million in the next five years, as consumers switch from expensive prestige brands to less expensive analogues.

Skin Care Remains Biggest Sector Globally

The global skin care market reached $65 billion in 2007, growing by 7%—the same growth rate as in 2006. Global skin care manufacturers have introduced a wide range of innovative products, especially in the antiaging segment, capitalizing on consumers’ fears of looking old and the emergence of such new science advances as nanotechnology.

Indeed, two antiaging segments—nourishers/antiagers and firming/anticellulite body care—demonstrated the strongest results, growing at double-digit rates. As an anecdotal example of consumer interest in the antiaging segment and its explosive potential, there was a noticeable consumer frenzy over the masstige antiaging brand Boots No.7 in the U.K. after it was endorsed in a BBC television program. Strong growth of local brands such as Antivozrast in Russia and The Face Shop in South Korea saw high growth rates for mass and masstige products, demonstrating the strong global consumer demand for such products.

Celebrity Fragrances Big in Western Europe