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Europe Offering Eastern Promise

By: Briony Davies, Euromonitor International
Posted: October 3, 2008, from the March 2006 issue of GCI Magazine.

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Another notable fast-moving sector in the region, although relatively small, is men’s grooming products. Despite accounting for only 6% of global value sales within men’s grooming products in 2004, Eastern Europe saw rapid growth compared to the previous year, up by 17% in value terms. Ukraine, Romania and Russia were the markets driving growth, with rapid expansion in some of the region’s more developed markets including Hungary, Slovakia and the Czech Republic. Growth was underpinned by a number of factors including rising disposable incomes, the growing sophistication of consumers, and the emergence of new products targeted specifically at men. However, behavioral change is needed before the sector can really develop, as it is still the norm for women to do all the shopping in Eastern Europe. Manufacturers that can groom men to actively choose their own products will be able to exploit the latent potential in this sector.

Direct Sellers Rise to the Top in Russia

Russia, with sales in excess of $6 billion, is the region’s largest market, almost three times the size of Poland that holds second place. With impressive growth of 14% in 2004, Russia is fast becoming a priority market for multinationals given its position among the world’s top 10 country markets for value and dynamism. Quality rather than price has driven purchase decisions here, with growth underpinned by improved consumer spending power. The most notable developments in the market were increased rivalry between multinationals and local players; the emphasis placed on natural products and the mushrooming of direct sales as a channel.

In 2004, P&G, traditionally the market leader, lost share to local players such as Kalina and Faberlic, and multinational direct sellers, Avon and Oriflame, who seized first and second position. Clearly distribution strategy and ability to tap into consumer needs are keys to success in Russia as exemplified by direct seller Faberlic’s astonishing sales growth of more than 500% between 2000 and 2004.

Last year, skin care grew more than 20% to reach $911 million. Products with antiaging properties became increasingly popular as Russian consumers were exposed to media messages that worked to build a desire for wrinkle prevention. Facial skin care currently accounts for almost 75% of the sector’s sales, but the emergence of low-priced products from local Russian manufacturers such as market leader Kalina is causing sector growth rates to slow in comparison to previous years. Direct sellers Avon and Oriflame also have influenced the direction of the market by increasing penetration via their wide distribution networks, and encouraging consumers to buy into a full range of products including cleansers and toners, rather than a single moisturizer. Traditional local leaders Kalina, Nevskaya Kosmetika and Svoboda repositioned their brands during 2004 and introduced more expensive products, thereby justifying increased unit prices. Russia’s depilatories and fragrances were the other sectors that saw greatest growth in 2004. In spite of dynamic developments in recent years, depilatories still account for a very small proportion of sales. In contrast to the developments witnessed in Russian cosmetics and toiletries as a whole, local manufacturers are notably absent in depilatories with multinationals Gillette, Energiser and Reckitt Benckiser taking 86% share of the market.

Skin care and Fragrances Rule in Romania

Romania, along with Ukraine, was the most dynamic market in the region. Romania showed rapid growth in 2004, with overall sales increasing by 19%, to almost $500 million. Key drivers are increasing disposable incomes due to the country’s economic recovery, the wider availability of products from multinationals and the increasing number of promotional campaigns that educate consumers. In contrast to Russia, local manufacturers are struggling to keep with the pace. Lacking the necessary funds for both technological improvement and marketing, the two major local manufacturers—Farmec and Miraj—that had almost total monopoly in the 1990s, saw their positions decline: Farmec now has only 2.9% market share and Miraj was split into numerous small companies that have not stood the test of time.