International players reap benefits of China skin care boom

By Simon Pitman

- Last updated on GMT

International cosmetics companies will be eyeing further
opportunities in the China cosmetics market as growth in the skin
care sector continues at unprecedented levels. And with the
continued increase in spending power being backed up by a flurry of
launches, growth is expected to be driven well into the future.

In 2004 sales of skin care products grew more than 20 per cent to reach CNY 25 billion (€2.54bn), a figure that has more than doubled since 1999. Increasingly it is international cosmetic brands that are playing a part in this growth, as consumers trade up from cheaper domestic brands to the likes of Ponds and Olay, the latest market report from Euromonitor​ reveals.

Premium brands are also benefiting from this trend, with names such as Lancome and SK-II seeing a marked increase in sales that have outstripped even the phenomenally high overall market growth. This has been particularly marked by a strong growth in premium skin care ranges, with new names such as Shu Uemura and Sofina hitting the market in 2004.

The report also highlights the growth of the premium sector in particular, which is being driven by the rising number of expatriates living in the main urban centres, combined with the growing number of Chinese returning from living abroad.

Until now the growth of the market has tended to centre on the most affluent parts of China - the big cities such as Shanghai, Beijing and Guangzhou, together with the key economic zones in the west and south of the country.

However, as wealth increases in the country, so too does its geographic reach. Now less affluent cities sach as Chengdu and Zhenzhou are becoming increasingly important retail centres. Mirroring this trend, Euromonitor's report also points out that manufacturers are leaving the economic zones in an attempt to get closer to the newly developing markets.

Likewise the retail sector is also developing and evolving at a fast pace. Avon and the local brand Dabao are big names with a developed dedicated store network. For Avon in particular, the relaxing of direct sales retail laws is expected to increase sales potential.

Door-to-door sales have been all but banned in China since 1998, but sales representatives are expected to hit the streets again en masse by the end of this year, following a relaxation of the laws. As well as Avon, major direct cosmetics Swedish-based Oriflame is gearing up to take advantage of the huge potential in this market.

Other leading international brands, such as L'Oreal and Aupres, are continuing to increase sales of their products through mass market channels that increasingly include supermarkets, hypermarkets and department stores.

The development of both the premium and upper-end mass market segments has also led to manufacturers using pricing to segment their products. According to Euromonitor this means that manufacturers are leveraging their product portfolios to create further segmentation that appeals to an increasingly sophisticated consumer.

An example of this has been seen with the Olay brand, for which the product portfolio has been expanded with the launch of anti-ageing, skin refining and skin rejuvenating products. Likewise L'Oreal has enlarged its portfolio to include sun care, skin whitening (currently the most sought after cosmeceutical product) and anti-ageing ranges.

But it is facial wipes that were the biggest performer in 2004, with growth in sales of nearly 38 per cent. Euromonitor says that although this growth has been established from a rather small base, with sales of CNY 50 million, advertising has been very limited, suggesting that there is big potential for the category.

Looking at the period 1999 to 2003, it was face masks and nourishing/anti-aging treatments that led sales growth, with increases of 207 per cent and 320 per cent, but again achieved from a small sales base.

Of the international players, Proctor & Gamble has kept ahead of rival L'Oreal in the all-important skin care category, with sales of its Olay brand helping to buoy its position. This gave P&G a 13.4 per share of the mass market skin care category. But L'Oreal is catching up fast, having jumped from a 6.7 per cent share in 2003 to 11.3 per cent in 2004 after it purchased the Mininurse and Yue-Sai domestic brands.

With the China economy showing no signs of a slow down, the spending power of consumers is expected to continue to increase across the country. This leads Euromonitor to believe that sales of skin care products will continue to rise significantly - with growth expected to top 88 per cent by 2009, reaching an estimated CNY 47.12 billion.

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