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A Tipping Point for Beauty

By: Rob Walker, Euromonitor International
Posted: February 4, 2013, from the March 2013 issue of GCI Magazine.

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Indonesia, with its youthful demographics, is another second-tier emerging market in ascendency. Unilever is well positioned to capitalize on the upside, accounting for more than a third of the total market thanks to strong demand for Pond’s, Pepsodent, Lifebuoy and Sunsilk. L’Oréal is behind the pace, but could look to ramp up participation through mergers and acquisitions. Distribution is a big challenge in Indonesia; hence leveraging the local know-how of national players could be crucial.

Developing new positions in emerging markets that lie off the beaten track, such as those in sub-Saharan Africa, could also yield highly attractive returns, certainly into the long term. Sub-Saharan Africa has a newfound global confidence, fueled by its burgeoning economic prowess. GDP in Kenya, for example, is projected to grow more than 200% to 2020, at U.S. dollar prices.

Over the next five years, compound annual growth rates in beauty spending are expected to rise in double digits in a host of frontier African markets. The region’s footprint might be small in the big picture, but the speed at which Latin America and emerging Asia has grown over the past decade is a measure of how fast global market dynamics can change.

Spreading risk in emerging markets could be key to maximizing future opportunity in beauty care. The BRICs have been a powerhouse of growth, and their participation in the growth story will continue to be strong. But, the middle class in the BRICs has become more discerning in its consumption habits, and that has made brand development more challenging and margins tighter.

Second-tier and frontier markets are some years behind the BRICs in terms of retail modernization and consumer sophistication, and, precisely because of that, they present some of the most attractive new investment opportunities.

Rob Walker, senior fast-moving consumer goods analyst, Euromonitor International, can be contacted at rob.walker@research7.euromonitor.com.