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Annual State of the Cosmetics and Toiletries Industry

Alexander Kirillov

The global cosmetics and toiletries industry saw another year of strong growth in 2007 to reach a value of $290.9 billion. According to Euromonitor International’s research, the market grew by 6%, which represents only a slight slowdown on the 2006 figure ($274.7 billion). The worsening economic climate in many developed countries, particularly the U.S., and signs of a slowdown in penetration in emerging markets proved a drag on growth. These trends were partially offset by strong growth in emerging markets, continuing premiumization and product innovation across all sectors.

Sun care, while down from the double-digit growth achieved in recent years, remained the most dynamic sector, as consumer awareness of the dangers of solar radiation grew. There was no change to skin care’s status as the largest contributor to absolute growth, either. Thanks to innovation, premiumization and consumer fears about aging, skin care accounted for more than a quarter of the $16.2 billion growth in global beauty sales in 2007.

No Changes in Global Top 10

The global rankings of major cosmetics and toiletries manufacturers have not changed since 2006. Procter & Gamble, L’Oréal and Unilever occupy the top three places globally, accounting for 30% of the market. Unilever demonstrated the strongest growth, 7.7% in 2007, while Procter & Gamble and L’Oréal increased their sales by roughly 5.5% each. Of the top 10 global players Beiersdorf showed the healthiest growth, benefiting from its strong position in Eastern Europe and acquisition of C-Bons in China.

Favorable economic conditions in emerging markets benefited smaller local players. Companies such as Natura and O’Boticario in Brazil, Kalina and Faberlic in Russia, Jiangsu Longliqi and La Fang International in China, and Godrej and Dabur in India, showed very strong growth in their domestic markets, often outpacing multinationals.

BRIC Leads Growth of Global Market

Emerging markets remain the power engine of the global beauty market. Accounting for only a third of the global market of cosmetics and toiletries, they added more than $10 billion or two-thirds of absolute growth in 2007—with BRIC countries responsible for over 70% of this gain. Euromonitor does not expect the pace of growth to slow in the next few years, and, according to Euromonitor’s forecast, Brazil and China will gain almost $10 billion each by 2012, topping the list of the markets with the highest absolute growth. While India and Russia are expected to show more modest results, they still remain among the top five on the list. The only developed market on the list is Japan, mostly due to its sheer size rather than high growth rate.

Strong growth in Brazil was driven by steady economic expansion in the country, and the cosmetics and toiletries market benefited from this, expanding 22% in 2007 and reaching $22.3 billion in retail prices. Substantial contributions to these results came from successful governmental efforts to combat poverty through social programs as well as the favorable effect of U.S. dollar devaluation as local manufacturers took advantage of a cheaper greenback to invest in new technologies and modern machinery.

Russian market growth will remain robust in the forecast period. The market, driven by premiumization, expansion of retail channels, rising disposable income and strong consumer confidence will continue growing at 4% in real terms, reaching $12 billion in 2012, up from the current $9.9 billion. Contributing to this, Russian consumers are increasingly open to natural and organic cosmetics, with both domestic and international players getting involved in the trend.

Due to increased spending power, consumers in Russia are becoming more sophisticated and particularly focused on natural and ethically sourced ingredients. The trend for natural cosmetics in Russia is driven by consumer awareness of the potential hazards of the chemicals used in cosmetics and a conscious effort to avoid them. This is combined with a genuine awareness of the importance of protecting the environment from which the ingredient is sourced.

In 2007, the Chinese market for cosmetics and toiletries grew 9% in constant prices, on par with Brazil. The booming economy along with the upcoming Olympic Games and emerging middle class stimulated growth in the country, where per capita consumption still remains only 10% of that in Brazil. The Indian market, where per capita spending in constant terms on cosmetics and toiletries is only one-third of China’s, showed more modest results at 5% growth. However, the trend is looking upward from 2% growth rates only three to four years ago.

U.S. Market Slipping

As the U.S. economy faces increasingly gloomy prospects, the cosmetics and toiletries market shows strong signs of contraction, with virtually no growth in real terms in 2007 and a disappointing outlook. According to Euromonitor’s forecast, the U.S. market will decline 2007–2012 by almost $1 billion—as calculated in 2007 prices—or 0.4% a year on average. Fragrances will be the sector hardest hit by the economic downturn, as cash-strapped consumers turn away from items they consider superfluous. With premium fragrances seemingly available everywhere, perfumes’ mystique has disappeared for Americans. Premium cosmetics as a whole will shed $410 million in the next five years, as consumers switch from expensive prestige brands to less expensive analogues.

Skin Care Remains Biggest Sector Globally

The global skin care market reached $65 billion in 2007, growing by 7%—the same growth rate as in 2006. Global skin care manufacturers have introduced a wide range of innovative products, especially in the antiaging segment, capitalizing on consumers’ fears of looking old and the emergence of such new science advances as nanotechnology.

Indeed, two antiaging segments—nourishers/antiagers and firming/anticellulite body care—demonstrated the strongest results, growing at double-digit rates. As an anecdotal example of consumer interest in the antiaging segment and its explosive potential, there was a noticeable consumer frenzy over the masstige antiaging brand Boots No.7 in the U.K. after it was endorsed in a BBC television program. Strong growth of local brands such as Antivozrast in Russia and The Face Shop in South Korea saw high growth rates for mass and masstige products, demonstrating the strong global consumer demand for such products.

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