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Fragrance Markets: Reinvigorating Fragrances

By: Briony Davies
Posted: October 2, 2007
Back to the October issue.

According to Euromonitor International’s data, fragrance was the third most dynamic cosmetics and toiletries sector in 2006, behind sun and baby care, and posted an increase of 7% to reach $30.5 billion. This is a much more positive picture than was being painted this time last year when fragrances ranked sixth in terms of growth, having been beaten out by emerging categories such as men’s grooming products, sun care and skin care, where value-adding had been aggressive. Traditionally a crowded, highly competitive sector, fragrance sales in 2006 were propelled by demand in emerging markets. The category’s future prospects are also looking strong, with sales set to exceed $35 billion, and manufacturers are employing innovative tactics to fight back against reported “meltdowns” in developed regions.

Growth in Emerging Markets
The upturn in the fragrance sector is largely due to growth in Latin America and Eastern Europe, where recent economic prosperity allows consumers to spend more on beauty nonessentials. Fragrances rose by 21% in Latin America and 13% in Eastern Europe in 2006—a combined increase of $1.3 billion, more than double the total value contributed by the remaining regions, including the two largest—Western Europe and North America.

Both Latin America and Eastern Europe have a strong tradition of wearing scents—particularly the former, where usage even extends to babies and young children. Here, mass fragrances are the engine of growth, as consumers put scent above image and are more price conscious than in other markets. Nevertheless, companies are working to increase prices, and value growth far outstrips that of volume in both the mass and premium segments.

Innovation by the domestic direct sellers is a major thrust behind growth, as do fragrances that draw on locally sourced ingredients to create high quality, upper-mass scents on a par with international labels. In 2006, direct sales remained the dominant retail channel for fragrances, accounting for 60% of sector value.In Eastern Europe, mass fragrances also account for the lion’s share of value. However, Euromonitor International data shows that premium fragrances saw the faster growth in 2006, increasing by over 14% in value terms to account for a third of the $3.1 billion sector. Dynamism in the segment is being driven by improved distribution through chained specialist outlets. Value growth was, however, inhibited by obstructive new restraints on the sale of ethanol-based products in Russia, the region’s largest market. The law was eventually amended to exclude fragrances and other beauty products containing alcohol, and the total impact on the sector is unknown, but 2006 growth did mark a slowdown on the previous year.