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Fragrance Gains in 2006

By: Briony Davies
Posted: May 10, 2007

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Innovation also helped this subsector, particularly efforts by domestic direct sales players such as Natura and O Boticário, which increasingly focused on using local ingredients to create scents of a quality on a par with international products. In 2006, direct sellers remained the dominant distribution channel for fragrances, accounting for 60% of regional value sales. Notable new launches included Lily Essence by O Boticário, which shot to the number one position in Brazil, the region’s largest market, shortly after an innovative launch that included SMS* marketing.

Going forward, Latin American consumers are likely to continue opting for national products over imported ones, due to their lower prices—a significant factor that impacts purchasing decisions in a market where 50% of consumers have an annual disposable income of less than $1,000.

The growth rate of fragrances in Eastern Europe was only slightly impacted by the Russian law, brought about by a crisis on the Russian market in 2006, regarding the turnover of alcohol and alcohol-containing products. The law required producers, distributors and retailers of alcohol-based perfumes and cosmetics, and household cleaners that contain more than 1.5% ethanol, to obtain two new licenses: one for possessing and one for selling such products. In addition, the companies were required to report data on the movement of these products to the Federal Tax Service. The rule was intended to regulate the industry, in part to curb counterfeiting. However, it appeared to be ineffective, in addition to leaving cosmetics companies unable to produce, import or distribute perfume or other products containing alcohol. The law has now been amended to reduce the impact on the industry, indicating that positive growth forecasts are likely to be realized in the future.

Mixed Fortunes in Asia-Pacific
Euromonitor International observes that, aside from Australasia, Asia-Pacific is the smallest regional market for fragrances, accounting for less than 7% of global U.S. dollar value sales in 2006. Cultural and economic drivers are responsible for this distinction. With the exception of highly Westernized societies, such as Hong Kong and Singapore where a high proportion of sales are made to expatriates, per capita usage remains limited due to the perception of fragrances as extravagant luxury items. In countries such as India, sales are further hindered by the widespread presence of black market and counterfeit goods, as well as the enduring popularity of traditional indigenous perfumes. Fragrances are also a relatively novel concept to both China and Japan, where they have a somewhat unsavory image due to their association with the elimination of body odor.

However, sales of fragrances in Asia-Pacific grew by 5% in U.S. dollar terms in 2006, a slight increase on the previous year. Growth was driven primarily by advances made in developing markets such as China, Vietnam and India, underpinned by rising affluence. In addition, enhanced media exposure raised consumers’ awareness of the various international premium fragrance brands, spreading Western beauty norms. In Japan, however, value sales of fragrances declined in 2006, by almost 1% in current value terms. The main reason for this was that many fragrances, especially imported products, were sold at discounted prices through department stores, drugstores and discount outlets.