China Cosmetics Market
Retail value of cosmetics by wholesale and retail enterprises above designated size*, 2005-2009 80. 0 70. 0 60. 0 Billion yuan 50. 0 40. 0 30. 0 20. 0 10. 0 0. 0 2005 2006 Sales value 2007 2008 2009 Growth 5% 0% 38. 7 33. 5 48. 8 20% % yoy 15% 10% 59. 7 74. 0 30% 25% • yoy growth (%) Cosmetics FY09 1Q10 1H10 1-3Q10 16. 9 15. 6 15. 8 16. 3 Source: National Bureau of Statistics of China (NBS) *Designated size: with annual sales of 5 million yuan or above and with an employment of or over 60. 4 Retail price of cosmetics in China on a rising trend • Cosmetics retail price has been on a rising trend since July 2010.
Retail Price Indices of Cosmetics in China, January 2009 – October 2010 (Same Month of Preceding Year =100) 101. 4 101. 2 101. 0 100. 8 100. 6 100. 4 100. 2 100. 0 99. 8 99. 6 99. 4 Ja n09 Fe b M ar Ap r M ay Ju n Ju l Au g Se p O ct No v De Ja c n10 Fe b M ar Ap M r ay Ju n Ju Au l g Se p O ct Source: NBS 5 Increasing margin pressure on cosmetics enterprises • • Although retail price has been on a rising trend, industry players said that it has lagged behind the cost increase. Increase in costs such as rental, labor, logistics, advertisement, and slotting fee etc. are exerting heavy pressure on cosmetics enterprises.
Many cosmetics players, especially those with poorer brand equity, have witnessed their profit margin eroding. • 6 II. Competitive landscape 7 Foreign players have a strong foothold in the mid-range to high-end segments • Comparatively, foreign players have a more extensive brand portfolio than domestic players. (See Appendix) • Foreign players have a strong foothold in the mid-range to high-end segments. • China has become one of the most important markets for many foreign cosmetics companies. – Greater China is the second largest market for Procter & Gamble, after the North American market.
According to Access Asia, the sales of P&G in China reached 13. 23 billion yuan in 2009, with a market share of 19%. – L’Oreal International sees China as its major growth engine: Garnier recorded a sales growth rate of 61. 2% yoy in China in 2009; L’Oreal Paris recorded 25. 5% yoy growth in China market’s sales in 2009. 8 Foreign enterprises have acquired a number of renowned domestic brands • As a shortcut to acquire resources such as brand equity, local connections and distribution channels, a number of foreign cosmetics players have been actively exploring merger and acquisitions (M&As) opportunities.
A number of well-known local brands were acquired by foreign brands over the past years. Homegrown cosmetics brands that had been acquired by foreign companies: – Acquisition of Dabao (?? ) by Johnson & Johnson in 2008 – Acquisition of C-Bons (?? ) by Beiersdorf in 2007 – Acquisitions of Yue-sai (?? ) and Mininurse (??? ) by L’Oreal in 2004 • • In December 2010, Coty Inc. , one of the leading global beauty companies, had agreed to acquire a majority stake (~400 million USD) in domestic skincare group TJoy Holdings Ltd (??? ). The acquisition is expected to close in January 2011. 9
Domestic brands are more popular in lower-end segments • Domestic brands generally priced lower and target the mass and lower-end segments. They have less extensive brand portfolio compared with foreign counterparts. (See Appendix) Though generally weaker in brand building and supply chain management, a number of domestic players have strived hard to move up the value ladder. Some are developing new brands to target higher-income consumers. – e. g. the launch of Herborist (??? ) and ShanghaiVive (?? ) by Shanghai Jahwa co. Ltd (???? ). 10 • • • Many new players are tapping the market An increasing number of retailers in China such as Wal-Mart, Watsons, Sephora and Sasa have launched private label cosmetics products in recent years to improve profitability. Brands from other industries also jump on the bandwagon to offer cosmetics products. – For example, Swedish apparel brand H&M launched a new line of Ecocert certified organic-ingredient-based skin care products in 2010, including shower gel, body scrub, moisturizer, hand cream and lip balm etc. – Fujifilm introduced its skincare products (Astalift) to mainland China and Hong Kong markets in 2010.
The brand Astalift is also available in Taobao Mall, one of China’s most popular online shopping platforms. • 11 III. Latest developments 12 Department stores, supermarkets and hypermarkets remained the major distribution channels • According to Access Asia, department stores(56. 2%), hypermarkets and supermarkets (20. 2%) were the major distribution channels for cosmetics and toiletries* by sales in China in 2009. Some other emerging channels that are gaining popularity: – Professional stores Watsons, Sasa, Sephora and Cosmart (??? ) – Beauty parlors Herborist SPA (?????
SPA), Chlitina (???? ) and Natural Beauty SPA (??? SPA??? ) – Online retailing platforms Corporate websites Integrated B2C online retailing platforms Professional online stores L’Oreal, DHC, Lancome, Estee Lauder, Clinique, Biorthem Joyo Amazon Taobao mall (http://beauty. tmall. com/) strawberrynet. com, Sasa. com, www. sephora. cn • • Many players have opted for multi-channel operations 13 *Include Baby Care, Bath & Shower, Deodorants, Hair Care, Make-up and Colour cosmetics, Men’s Toiletries, Oral Hygiene, Perfumes & Fragrances, Skin Care and Sun Care.
Cosmetics retailers are accelerating their penetration into China • Sephora, which has already established presence in more than 20 cities including Shanghai, Beijing and Tianjin, had planned to open 100 stores by the end of 2010. It has begun to expand to many 2nd- or 3rdtier cities such as Wuxi, Wenzhou, Changsha and Changshu. Management of Sasa said in 2010 that it planned to increase the store number to 100 in two and half years. Watsons, the leading health and beauty retail chain in Asia, has opened more than 700 outlets in more than 100 cities of mainland China as of December 2010.
Watsons aims to have 1,000 outlets by the end of 2011, covered more than 100 cities of mainland China. • • 14 Massive advertising by cosmetics companies • According to CTR, the cosmetics and toiletries industry was the biggest spender (67. 1 billion yuan), during 1-3Q 2010 on advertising in China when compared to other industries. Cosmetics players have spent huge sums of money on advertising in China. According to CTR, P&G was the biggest spender (25. 0 billion yuan) on advertising in China during 1-3Q 2010, followed by LO’real (9. 1 billion yuan) and Unilever (8. 3 billion yuan). P&G has been the biggest spender at the annual auction for prime time advertising slots of the China Central Television (CCTV) for the past few years. Advertising on China’s largest national television network enables P&G to promote brand awareness. Thus far, celebrity endorsement is one of the most popular methods for players to create noise in the market. • – 15 Male grooming market is growing fast • The male grooming market is growing very fast and still has much untapped potential. According to HKTDC, men’s cosmetics accounted for 12. 7% of the total cosmetics market in 2008.
The segment is expected to grow exponentially for the next few years. The sales of male specific skincare products of brands such as Nivea, L’Oreal, Biotherm and Garnier etc has been growing rapidly. LO’real reported that sales in men’s skincare products in China rose by 27% in 2009 and the company expected it to increase by 40% in 2010, five times the increase of women’s skincare products. Domestic companies such as TJoy (??? ), Bawang (?? ), GF (? ?), Softto (??? ) and Inoherb (???? ) etc. are increasingly keen to offer cosmetics for men as well. • • • 16 More players tap into the cosmeceuticals market •
Many players (including pharmaceutical companies) have introduced cosmeceuticals in the past few years. Companies such as Beijing Tongrentang (????? ), Shanghai Jahwa (???? ), Jiangsu Longliqi (????? ),Yunnan Baiyao (? ??? ), China Shenghuo Pharmaceutical (?????? ), Herborn (??? ),Herborist (??? ), Inoherb (???? ) and Shiseido have tapped the cosmeceuticals market. Distribution channels for cosmeceuticals include mainly drug stores, dispensary chains and counters in department stores. • • 17 Demand for natural and organic cosmetics is growing • Demand for natural and organic products is growing amid increasing awareness of sustainability.
Aveda, Origins, Yves Rocher, Clarins, Sisley, Jurlique, and L’Occitane are some well-known brands that offer natural and organic ingredient-based cosmetics products. • 18 More stringent regulations on cosmetics • The State Food and Drug Administration (SFDA) issued the Regulations on Naming of Cosmetics (??????? ), which was effective from February 2010. – Wordings, such as names of well-known traditional Chinese herbalists (e. g. Huatuo ?? , Bianque ?? ), are prohibited. Besides, the products should not include wordings such as “anti bacteria”, “detox”, “anti-allergy”, “fat burning” and “truly natural” in their names. Implemented by China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), the Instruction for Use of Products of Consumer Interest – General Labeling of Cosmetics (??????? – ??????? ) was effective from July 2010. – Cosmetics companies are required to display detailed information such as ingredients, expiry date etc on the labeling. 19 Buying cosmetics products abroad is popular • Chinese tourists spent a fairly large proportion on shopping (32%), as compared to food (12%) and accommodation (11%). Cosmetics are top on their buying list.
With increasing income, Renminbi appreciation against US dollar and easing travel restrictions, many Chinese consumers shop for cosmetics products abroad. Luxury cosmetics products in mainland are generally more expensive than that in overseas markets. Currently, a consumption tax of 30% is levied on luxury and high-end cosmetics in China. Mainland tourists like to travel abroad to purchase cosmetics due to cheaper price and more product varieties. Please refer to our newsletter China’s Outbound Tourism : “http://www. lifunggroup. com/eng/knowledge/research/china_dis_issue 75. pdf” for more information. 20 • • • Other trends to watch •
Multi-functional products (e. g. color cosmetics with skincare function, BB Cream etc. ) are gaining popularity. More players now try to incorporate advanced biotechnologies in new product developments, e. g. sulphate-free shampoo. Kids’ cosmetics market is still underdeveloped. Major players include Frog Prince (???? ), Coati (??? ), Mentholatum, Yumeijing (??? ) and Johnson & Johnson. • • 21 IV. Snapshots of subsector performance 22 Background • The China National Commercial Information Centre (CNCIC) conducts monthly survey to around 200 major department stores* in China to study the performance of different cosmetics sub-sectors.
In this newsletter, performance of 5 sub-sectors is examined: – – – – – Shampoos and conditioners Other hair care products Skincare products Color cosmetics Fragrances • *Note: It is noteworthy that the CNCIC data covers sales in major department stores only. Retailers of other formats such as specialty stores are growing in popularity. The actual overall market share of cosmetics brands may deviate from the CNCIC data. 23 China’s cosmetics market is relatively concentrated • • Top 10 players in the 5 major sub-sectors achieved over 70% of the market share in department stores in 2009.
Top 10 players in the shampoos and conditioners sub-sector achieved more than 95% of the market share in 2009. Market share of top 10 brands of selected sectors, 2009 Share of total sales value (%) 100 90 80 70 60 50 40 30 20 10 0 Shampoos and conditioners Other hair care products Skincare products Color cosmetics Fragrances 95. 19 79. 85 71. 82 70. 70 72. 10 Source: China National Commercial Information Centre (CNCIC) 24 Performance of selective product sectors Shampoos, conditioners and 2-in-1 conditioning shampoos: share of total sales value, 2009
Other hair care products (colorants, hair mask & styling agents): share of total sales value, 2009 Share of total sales value(%) 0 5 10 15 20 25 30 Share of total sales value (%) 0 2 4 6 8 10 12 14 16 18 20 Rejoice (P&G) 10. 12 6. 88 17. 68 ?? Bawang (Bawang International) ?? Slek (C-Bons Group*) *Beiersdorf acquired 85% stake in C-BONS Hair Care in 2007. Source: CNCIC ?? ??? L’Oreal (L’Oreal ) (Savol) 6. 37 ?? ?? ?? Pantene Pro-V ??? Head & Shoulders (P&G) (P&G) 20. 41 25. 24 Youngrace (Youngrace Cosmetics Group) Decolor (Guangzhou Decolor Cosmetics) Maestro (C-Bons Group*) ?? ?? 17. 95 12. 48 11. 04 10. 1 25 Performance of selective product sectors (Cont’d) Skin care products: share of total sales value, 2009 Color cosmetics: share of total sales value, 2009 Share of total sales value (%) 0 2 4 6 8 10 12 14 16 18 20 Share of total sales value (%) 0 5 10 15 20 25 30 27. 20 12. 62 6. 13 5. 79 4. 87 Lancome (L’Oreal ) 5. 31 7. 96 CD Christian Dior (Christian Dior (China) Fragrance & Source: CNCIC ??? Estee Lauder (Estee Lauder) Olay ?? ??? Aupres (Shiseido) 16. 22 Aupres ??? L’Oreal (L’Oreal ) 17. 98 L’Oreal ??? ???? ?? ??? ??? ??? Olay (P&G) 19. 02 Maybelline (L’Oreal ) (L’Oreal ) (Shiseido) (P&G) 26
Performance of selective product sectors (Cont’d) Facial cleanser for men: share of total sales value, 2009 Fragrances: share of total sales value, 2009 share of total sales value (%) 0 5 10 15 20 25 30 35 40 45 0 5 Share of total sales value (%) 10 15 20 19. 75 16. 08 9. 24 6. 81 5. 07 25 ??? TJOY (Nanjing Jianong Chemical Co Ltd) 6. 03 Source: CNCIC ?? ???? Mentholatum (Mentholatum) 13. 16 Lancome ??? ??? L’Oreal (L’Oreal ) ?? Biore (Kao) 16. 02 14. 30 Christian Dior CD (Christian Dior (China) Fragrance & Cosmetics) BOSS (Hugo Boss AG) Burberry (Inter Parfums) (L’Oreal ) ?? ??? ??? Nivea (Beiersdorf) 38. 31 Chanel (Chanel SA) 27