Most Popular in:
A Challenging Global Climate for Fragrances
By: Rob Walker, Euromonitor International
Posted: October 26, 2012, from the November 2012 issue of GCI Magazine.
page 2 of 3Secondly, middle class and middle-aged consumers in the West are the most immunized demographic in the world from bouts of macroeconomic contagion. This is the generation that built up fat pension pots, enjoyed easy access to credit and rode the upside of what ultimately became an unsustainable real estate boom.
Quite simply, consumer expenditure by people in the 40-plus age band will become increasingly important for the fragrances industry, both in mass and premium categories.
It is no coincidence that Avon Products Inc., the world’s biggest player in the mass fragrances category, has signed Jon Bon Jovi as the face for its Unplugged line. Bon Jovi, who at 50 is two years older than Brad Pitt, will appear in both the Unplugged for Him and Unplugged for Her advertising, set to be rolled out later this year.
Age segmentation is common in the skin care category. L’Oréal, for example, operates six different age band categories for its skin care line. But, age differentiation has often been blurred in fragrances. As the battle for market share intensifies, age segmentation in fragrances could develop as a decisive point of competitive differentiation over the next five years, especially in marketing.
Mass Brands Heavily Dependent on Emerging Markets
In the current climate, mass fragrances ought to be more resilient, which, in turn, implies new opportunities from down trade activity as consumers opt for more affordable scents. Indeed, the global composition of the mass market is completely different from the premium market.
Six of the top 10 markets for mass fragrances in 2011 (by retail value) comprised emerging markets, namely Brazil, Russia, Mexico, Colombia, Poland and Argentina. Furthermore, emerging markets accounted for the top 12 markets in the world in terms of absolute retail value growth (2010–2011). Brazil, Argentina and Venezuela alone accounted for 55% of that total.
If premium fragrances are overexposed to developed markets, then the same argument can be applied to mass fragrances in terms of the emerging markets. However, tighter discretionary spending patterns in Western Europe and North America could play out attractively for mass brands, sparking a windfall of new demand.
Adidas was the top-selling mass fragrance brand in Western Europe in 2011, according to data from Euromonitor International. This is precisely the type of brand to benefit as cash-strapped consumers look for lower cost alternatives to their favorite premium fragrances. Adidas, in particular, will have been boosted by its brand exposure in the London 2012 Olympics.
Still Opportunity Aplenty for Premium Brands
The challenge for premium (and super premium) fragrances will be to work harder at justifying their price points. For example, quintessential and high-quality ingredients will need to be more visible in marketing and advertising activity.
The Internet could be another lifeline for premium brands, due to its greater flexibility on pricing. Best deal purchasing culture is notably gaining momentum in Western Europe, and it is not only applicable to mass brands. Rather, affordable luxury is currently one of the biggest growth categories.
In 2011, Internet retailing accounted for 5% of total sales of fragrances in Western Europe, up from 3% in 2006. That share seems set to grow year-on-year, especially as consumers engage more directly on a day-to-day basis with fragrance brands via social media platforms and the blogosphere.
Manufacturers of premium fragrances will need to build stronger positions outside their comfort zones of Western Europe and the U.S., however. For example, Russia, Saudi Arabia, Argentina, South Africa and China have been key engines of new business in the past year, according to data from Euromonitor International. The industry needs to build on these results. Now is not the time to be risk averse, despite the jitters in China and Brazil.