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Beyond BRIC: Opportunities for Premium Beauty and Personal Care
By: The Smart Cube
Posted: February 8, 2012, from the March 2012 issue of GCI Magazine.
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Growth potential aside, marketers must consider two key issues: the mindset of the young consumer and ongoing political and social upheaval in the region. The young consumer in the Middle East, a key demographic for beauty, is troubled: 60% of the Middle East population is less than 25 years old and most face bleak economic prospects. Shortly before the outbreak of the “Islamic spring,” a report from the ILO referred to them as “a lost generation of unemployed young people.” Changing attitudes among the younger generation has, in turn, contributed to the charged social and political atmosphere of the Middle East. Nearly all the Middle Eastern countries are experiencing upheavals, which may be economically beneficial in the long term but will create significant economic and political uncertainty in the medium term. Political factors are also important; for example, the political elite in Iran have a deep anti-Western stance and have banned makeup and imposed prohibiting duties on imported cosmetics with obvious ramifications for Western brands. However, the beauty market in the Middle East is likely to benefit from the recent developments in the region to improve women rights and achieve greater political and economic freedom.
Outlook on the Future
Growth in the global beauty industry [will likely see] developed economies remaining the most valuable beauty markets, emerging countries providing beauty companies with a rapidly increasing population, an expanding middle class consumer base, and a population opening up to spending on beauty care products. While the BRIC nations are likely to remain the main growth drivers of the beauty care industry, many developing countries pose intriguing challenges to marketers seeking new markets and new consumers. For those countries identified above, a younger and more affluent population will be well suited to ideal for premium beauty products in the next decade. That said, marketers will need to invest heavily in various types of consumer and market research to understand the local dynamics and preferences prior to focusing on new target markets. Such efforts may distinguish the leaders, who may grab the most market share, from the followers.
A Note on Methodology
To identify beauty care markets that are likely to exhibit accelerated growth over the next decade, The Smart Cube analyzed changes in GDP per capita over the past decade and the current demographic makeup of each market. GDP per capita and its evolution over the past decade clearly indicate public disposable income and variation in it. Meanwhile, the demographic makeup, in terms of old age dependency ratio and population change over the past five years, provides a good estimate of the future consumer base. As there is no ideal old age dependency ratio (ratio of population aged 65 and above per 100 population between 15 and 64 of age) in place, this report compares each country’s dependency ratio to the world average of 11.6 in 2010 as a basis to compare the dependency ratio.
To provide further insights into the demographic characteristic of countries exhibiting dependency ratio more than 11.6 (in 2010), population change during 2005–2010 has also been indicated. Countries identified as high growth prospects have been selected assuming that rising disposable income and large working populations are good omens for predicting the sale of non-essential products such as beauty care. Through this study, The Smart Cube observed:
- That beauty product spend is highly correlated to the average disposable income of the population and the working population (in the age group of 15 and 65 years).
- Consumers in countries with middle income (per capita GDP between $3,000–10,000) show an increased tendency to spend on non-essential products or aspirational products such as beauty care.
- Consumers that buy mass consumer beauty products migrate to premium beauty products as disposable income rises.
- Expenditure on premium beauty products further increases as a country’s population moves into the high income bracket (per capita GDP of above $10,000).
Also essential for the development of the economy and a pillar of consumer spending is the working age population (between 15 and 65 years) of a country. A healthy working age population impacts economic growth in two ways—increase in per capita labor input leads to accelerated per capita growth and higher savings, resulting in more investment and spending. This working population is a key target segment for beauty care companies as it has a high disposable income and is willing to invest on appearance, along with being brand conscious.