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State of the Industry: Will Megabrands Rule?

By: Briony Davies, Euromonitor International
Posted: June 6, 2006, from the June 2006 issue of GCI Magazine.

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Second-place Asia-Pacific scored sales of $63 billion, an increase of 5%. Japan accounts for just over 50% of this region’s sales with growth of 2.9% last year, representing the strongest increase this country has seen for many years. It is China, however, that contributed the most to the region’s growth. Dynamism in China is not new, with European and American multinationals acquiring Chinese companies and brands for many years to enable them to benefit from high forecast growth. China’s status as a priority market was reaffirmed in 2005, with major players, including Estée Lauder (introduced both MAC and Bobbi Brown) and P&G (introduced Max Factor), increasing brand portfolios there.

Retailers, including C&T specialists Sephora and Sa Sa, also have their eyes on China with new store announcements on a frequent basis; direct sellers such as Avon, Alticor, Mary Kay and New Skin are salivating at the potential to benefit from the Chinese government’s December 2005 decision to lift restrictions prohibiting sales agents that are not attached to stand-alone stores. All of these factors are likely to unite to enable manufacturers to push C&T out of the primary economic zones to the majority of the population, creating a massive sales boost.

Brazilian Beauty Blossoms

Latin America was the fastest-growing area last year, with sales up 11.3% to $28 billion, with all countries posting good gains. Brazil, in particular, has boosted the region’s sales with significant acceleration since 2001. Looking forward to 2010, the country will remain Latin America’s most attractive market—both in terms of growth and value sales gains. Huge future potential make it a honey pot for new entrants keen to take advantage of both increased domestic demand and the rising popularity of Brazilian products in developed regions. The addition of natural ingredients, as diverse as obscure Amazonian fruits and extracts of shark fin, has been a key trend in Brazilian new product development since 2001. In opening a Paris store last year, Natura Cosméticos SA, Brazil’s leading direct sales player in C&T, is attempting to capitalize on the preference for natural products in Western markets.

Companies planning to conquer the Brazilian market should heed this advice: The greatest rises are expected in fragrances, hair care and premium quality product offerings as consumers trade up in line with their growing incomes. With a majority of the population earning between BRL7,000 and BRL14,500 ($2,500 to $5,000) per month, manufacturers should target the masstige price category to maximize profitability from the country’s strong growth forecasts. However, consumers in the lower income brackets should not be ignored, with the development of cheaper product ranges for the discount market a sure-fire way to reap rewards.

Skin Care Reigns

Skin care is the largest sector in global C&T, and, in contrast to the second and third largest (hair care and color cosmetics), it maintains very strong growth rates with sales up 6.8%. Although facial skin care presents the biggest prizes, 2005 has seen manufacturers such as L’Oréal and P&G (with its Olay brand) extend their facial brands to other parts of the body. Firming/anti-cellulite body care enjoyed growth of approximately 9.5% in 2005, making it the world’s most dynamic skin care sector and demonstrating a growing consumer preoccupation with body-focused skin care. In June 2005, LVMH’s Benefit brand became body conscious, launching its Wonderbod collection. This February, Beiersdorf subsidiary Juvena introduced Juvedical Renewing Body Serum and Renewing Body Cream as part of its attempts to offer products suitable for the whole body.