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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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Arguably, 2005 has cemented the most effective cosmetics and toiletries advertising technique of all time—that of the celebrity endorsement. Film stars, musicians and sports heroes have been backing beauty launches for decades. The move has proven so powerful that manufacturers, notably Coty and Elizabeth Arden, have begun using the famous to brand their products. Celebrity labels are most heavily concentrated in the fragrance sector—with Hilary Duff, Sarah Jessica Parker and Danielle Steel among the long list of stars who have put their names to scents in 2005. And so far, the strategy is paying dividends. Coty’s Glow by J-Lo has been the world’s most dynamic premium women’s fragrance since 2001.

However, manufacturers need to recognize the potential backlash that this strategy could unleash. Indeed, via such campaigns as Dove’s “Real Beauty,” a rise in self-esteem marketing is being seen. Unilever says sales of Dove’s skin firming range ballooned by 700% worldwide as a result. Encouraging women to feel comfortable in their own skin, Unilever positions Dove as a way for consumers to enhance their own unique beauty rather than squeeze into an unrealistic mold—an attempt to create a new mechanism for generating feelings of loyalty and trust. The market is seeing a rise in customized labels, promoting the idea that every consumer is a star. Recent launches include L’Oréal’s True Match foundation with opti-match technology and Estée Lauder’s customizable eye shadows and blusher. Manufacturers looking to stand out in 2006 could do well to ditch the celebrity and focus on the real beauties instead.

Organic C&T Dawns

As trends in food transfer into the personal care industry, consumer awareness of health risks rise and a general shift toward more holistic health and beauty continues, an increased demand for natural and organic C&T products is evident in 2005. Currently, organic C&T products—subject to different levels of certification depending on their country of origin—are the preserve of niche players such as Jason Natural Products, Burt’s Bees and Green People, with launches of private label ranges expected in 2006. However, mainstream companies definitely are embracing the naturals trend that parallels organic but is subject to much less rigid scrutiny, as governing bodies have yet to arrive at a standard definition of the term. Key sectors for natural products include baby care (as such products are perceived as inherently safer) and bath and shower, as manufacturers exploit this trend to increase prices and drive growth. Food ingredients (such as milk, honey and olives) and time-proven favorites including cocoa butter and aloe are an easy way to get into the game. In 2005, many C&T multinationals attempted to take advantage of consumer ignorance by using natural or herbal in their marketing when, in reality, the products are anything but. As consumers become increasingly savvy, this tactic could start to fall flat on its face, and is likely to become subject to regulation in the not-so-distant future.

Future Growth Forecast

Euromonitor International forecasts average annual growth of 3.7% to reach global sales of more than $300 billion by 2010. Skin care and sun care are expected to lead growth, with emerging markets Russia, China and Brazil increasing dramatically in terms of importance (watch for India to join this group). As these areas grow, it is likely that local leaders such as Natura, Kalina and Faberlic will become increasingly important on a global scale, as seen with South Korean player Missha in 2005.

In terms of trends, the megabrand looks set to stay for the near future as companies such as Shiseido include this in their core strategy. Since the finalization of L’Oréal’s acquisition of The Body Shop, Colgate-Palmolive purchased Tom’s of Maine, a natural personal care company, indicating that larger manufacturers are targeting niche players to give them a foothold in segments with growth potential. Whatever the future holds, innovation will be a key to success, and manufacturers and retailer alike will have to adapt to the changing circumstances rapidly to exploit growth potential.