Developing markets prove alluring for cosmetics manufacturers

Related tags Cosmetics Usa

According to a new report, the major forces in the cosmetics
industry - that include L'Oreal, Proctor and Gamble (P&G) and
Unilever - are turning away from sluggish US domestic markets, and
focusing their attention on the developing markets of Asia, Eastern
Europe, and South America, Tom Armitage reports.

The 2003 edition of Cosmetics and Toiletries (C&T) USA by Kline and company analysts confirms that growth rates for the personal care sector are declining - which has in recent weeks prompted profit warnings from manufacturing giants Colgate-Palmolive and Unilever.

Lenka Contreras, vice president for Kline and company's consumer products practice, commented: "Many cosmetics and toiletries majors have now been seeing disappointing results in their home markets for a number of years now, and maybe more than ever, they are counting on good growth in developing regions to compensate".

The report also draws attention to the fact that the US C&T industry has progressed by just 1.7 per cent in 2003, experiencing the lowest levels of dollar growth in over 10 years. Similarly weak economic conditions in the European and Japanese cosmetics markets have left manufacturers turning increasingly towards developing markets.

In terms of actual sales volumes, developing markets are proving to be no obstacle, although despite the sizable potential for revenues and profits, it is still too early to tell.

L'Oreal - one company which has clearly underlined its intention to penetrate the lucrative developing Asian market, has already added major Chinese skin care product Mininurse to its collective brand portfolio in 2003, as well as securing production rights to the Yue-Sai line of cosmetics - which together respectively account for one of China's top three skin care brands, as well as China's leading domestic manufacturer of cosmetics products.

The company further consolidated its market position in the Asian market after purchasing a majority interest in Japanese skin care brand Shu Uemura, which it recently launched in China, together with its Matrix line.

The associated benefits of investing in developing markets are obvious - some analysts estimate total market sales in the Chinese cosmetics industry for 2003 to be in the region of US $1 billion, with the market still rapidly expanding. Furthermore, China's GDP has risen by more than 7 per cent for the fourteenth year in succession.

But although for cosmetics manufacturers the untapped growth potential remains great, global diversification presents almost as many challenges as it does growth opportunities - which is particularly evident in the heavily politicised Chinese market place.

"With such a larger area, sales channels and distribution are critical issues that need to be explored. In some provinces, certain cosmetics and toiletries (C&T) product classes aren't even being used, much less sold. This means that companies will be building rather than entering markets for their products,"​ Contreras commented.

According to Proctor and Gamble's fiscal year report, developing markets now account for an estimated 20 per cent of 2004 sales and unit volume in these markets has increased 19 per cent on the previous year. Eastern European countries, including Russia and Poland - the latter having just joined the EU - have proved the most lucrative targets for future growth in the cosmetics sector.

Unilever has also reported sizable growth in Argentina and Turkey, despite South America and the Middle East being dogged by looming threats of economic and political instability.

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