The time is now for niche players to target the developing markets

By Simon Pitman

- Last updated on GMT

Related tags Bric Brazil Developed country China Russia

With the growth of cosmetics sales continuing in most of the major developing markets new opportunities continue to proliferate for niche cosmetic players, but now is the time to get in on the act.

The rapid development of the world’s more advanced developing markets has paid dividends for many of the bigger personal care players.

Indeed, during the current economic downturn, the financial performance of giants such as Beiersdorf, Procter& Gamble and L’Oreal, have been buoyed by their activities in developing countries.

These bigger players were fast off the block, having the financial resources to invest in the development of their brands as well as making acquisitions to bolster their operations on the ground.

Entry for smaller players more challenging

Entry for the smaller players is obviously a slower process and the vast majority of businesses do not have the benefit of virtually unlimited financial resources.

However, many of the larger developing markets have recently undergone huge social and economic changes that have transformed the retail and consumer landscapes, paving the way to easier entry for smaller cosmetics players.

The main source of this growth has tended to focus on the BRIC (Brazil, Russia, India and China) markets.

In particular, China, India and Brazil have seen their GDP continue to grow at well into double figures, standing up well to the global economic downturn.

Russia has been an exception in this equation, with data released by the Russian government today suggesting that the economy will shrink by 7.5 percent in 2009 and retail sales sliding 9.8 per cent in the year up to August 2009.

However, with oil prices and supplies recovering, the country is expected to exit the recession in the fourth quarter of this year, and many analysts believe the recovery will be rapid.

Developing markets have plenty of room for further growth

Likewise, it is the potential for yet further growth within the developing markets, and particular the BRIC countries, that is providing not just the big players, but increasingly the smaller niche players opportunities that are likely to pay big long-term dividends.

In all of these markets increased spending power in urban areas had led to a revolution in the retail sector, particularly in the development of large malls, supermarket chains and increasingly sophisticated pharmacy chains.

This development has given way to a big increase in the number and variety of products that are available, and with consumers looking for new ways to spend growing incomes, it is also giving way to new niche categories of cosmetic and personal care products.

Market research provider Organic Monitor recently underlined how this phenomenon has triggered the growth and further development of the market for organic and natural cosmetic products throughout Asia, growth that is being mirrored in other developing markets too.

Interest in these products, particularly in China, is down to much the same reasons that have led to growth in this category in developed market: avoidance of harsher chemicals and a growing focus on wellbeing.

This sort of phenomenon has been identified in all the major developing countries in recent years, whether it be luxury anti-ageing products, skin whiteners, fragrances or natural products.

Consumers expect both efficacy and quality

However, one thing that both analysts and companies establishing themselves in the developing markets have strived to underline is the fact that, in line with the desire for more sophisticated products, consumers also expect a corresponding level of efficacy and quality.

Like their counterparts in the developing countries, the wealthier consumers that are feeding this growth are acutely aware of marketing claims. This means they read labels carefully and will be quick to pick up on contradictions or claims that cannot be met.

In short, expecting to launch in these markets with products that are not extremely well developed and of the highest quality just won’t wash.

While niche cosmetics are likely to remain a small part of these markets for some time to come, the potential for further growth in the longer term is phenomenal for companies that take the right approach.

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