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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.

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Looking forward, the key to unlocking potential in this emerging market lies in tapping into the rural consumer base, which direct sellers such as Avon and Oriflame, having licenses to operate in China, are well placed to do. Multinational manufacturers also need to be aware of local consumer preferences and tailor product portfolios accordingly.

Skin Care: Large and Growing Fast

Skin care, with sales of $60.1 billion in 2006, is the largest of all cosmetics and toiletries sectors; it is also the fastest growing both historically and by forecast. Consumers’ desire to reverse, halt and prevent the signs of aging is fueling sales—particularly in the antiaging and anticellulite subsectors, which grew at 10.3% and 9.3%, respectively, to exceed the overall category increase of 7%.
Innovation is a major feature of the skin care sector, largely because brand loyalty is low, particularly in the dynamic antiaging sector, prompting companies to try to lure consumers with eye-catching new developments. Segmentation is sophisticated, and its latest permutation includes encouraging younger women to trade up to higher value products and appealing to consumers over 55 with, for example, whitening and brightening creams, as opposed to traditional antiagers.

Products that mimic the results or experience of beauty salons and spas are also an important trend in skin care, and natural and organic ingredients continue to be a major growth driver. Recent trends include a crossover from food products and source-specific ingredients. The small players that dominate this market niche are becoming acquisition targets as this trend continues to gain momentum, as exemplified by L’Oréal’s recent acquisition of Sanoflore.

Fragrances Fight Back in 2006

Fragrances stood out with particularly strong growth in 2006 compared to the other sectors. Coming in third after sun and baby care sales, fragrance posted an increase of 7% to reach $30.7 billion. In 2005, fragrances had only been the sixth most dynamic sector, beaten out by emerging categories, such as men’s grooming products and skin care, where value-adding had been aggressive. This upturn in fortunes is due largely to the success of the masstige segment, dominated by celebrity-branded scents, in the major Western European markets. Fragrances rose by over 2% in 2006, up from less than 1% the year before. While emerging regions, such as Latin America and Eastern Europe, continue to contribute the most in terms of absolute growth, increases in Western Europe contributed an extra $260 million to 2006’s global total.

Shift in Retail Landscape

In retail, convenience is a key driver of change. Supermarkets/hypermarkets are, by far, the leading channel for cosmetics and toiletries purchases in Western Europe, Australasia, Latin America, Africa and the Middle East, and a close second after direct sales in Eastern Europe. Low prices and one-stop shopping convenience are a powerful combination in today’s fast-paced society, and supermarkets/hypermarkets attract a share from almost all other channels. Only in North America are supermarkets/hypermarkets lower down the rankings, holding fourth place with a 15% retail value share—this due primarily to the success of discounters, namely Wal-Mart.