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State of the Industry: Eco-values Escalate
By: Briony Davies
Posted: November 14, 2007, from the June 2007 issue of GCI Magazine.
The latest research from Euromonitor International shows that, in 2006, the cosmetics and toiletries industry posted a growth rate of more than 5% over 2005, its overall highest since 2001. The industry continues to benefit from a combination of strong macroeconomic trends (including a worldwide rise in consumer spending power); key demographic factors such as aging populations and higher life expectancies; an increased interest in appearance and personal care as a means of preventive healthcare; and lifestyle and climatic changes that are creating opportunities for new product niches. Legislative restrictions, too, are having a positive impact by improving consumer confidence and facilitating international trade, and technological advances are improving product efficacy and providing manufacturers with new marketing tools and advertising opportunities.
With growth rates of 13%, Eastern Europe and Latin America were the fastest movers from a regional perspective, alongside key markets in Asia-Pacific, with expansion linked to large populations, rising disposable incomes, modernizing retail and distribution networks, and increased consumer awareness. With regard to the mature markets of Western Europe and North America, fortunes appear to be on the up after a lackluster 2005, due, in part, to the continuation of economic recovery in the large markets of the U.S., Germany and France. Western Europe takes the lion’s share of global C&T sales, although its importance has contracted over the years. The region now accounts for just less than 30% of the world market, with sales up 3% on the previous year. North America’s performance is closely linked to that of the U.S., where 2006 sales were in excess of $50 billion—a first.
Russia was the largest cosmetics and toiletries market in Eastern Europe in 2006, with sales of $8.5 billion, representing approximately 42% of regional value. The trend toward more premium products is a particular feature of the Russian market. As growth threatened to slow across most cosmetics and toiletries products, the premium segment offered the greatest opportunities. Growth of 13% in Romania is also notable, and came about largely as a consequence of the country’s improved economic fortunes, resulting from regulatory reforms necessary for its accession to the European Union (EU). Heavy brand advertising by multinationals also drove up sales, although discounting in the core hygiene sectors, such as bath and shower products and oral hygiene, proved a drag on growth.
Eastern Europe is expected, in the long term, to become a two-tier market, a division forming between the EU accession nations and Commonwealth of Independent States (CIS) countries. EU members will experience rapid development, with the trends evident in Western Europe spreading eastward. Demand for premium products and value-added brands may even exceed economic growth in these markets as consumers look to leave the hardships of the recent past behind and embrace Western lifestyles. It is largely the younger demographics that are driving value growth, as these consumers are more willing to sacrifice thriftiness for fashion.
The CIS countries (an alliance of former Soviet Republics), excluding Russia, are set to see less dramatic rises in economic fortunes, and remain more insulated from international fashion and beauty trends. The opportunities are strong in Eastern Europe, but there are some threats and challenges that manufacturers need to be aware of—including the abundance of counterfeit and copycat brands, and economic and political instability. Growing energy prices, too, could undermine the cost advantages of local production, as could rises in living standards, which would inevitably increase labor costs.