India’s Cosmetic Market Ready for Big Leap

Oct 10, 2008 | Contact Author | By: Priyanka Bhattacharya
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Title: India’s Cosmetic Market Ready for Big Leap
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The Indian cosmetics and toiletries market has seen major changes both in terms of user perception and product availability over the past five years. There have been market shifts during this period and the past two years have seen the market take further momentum. According to figures given by the Confederation of Indian Industries (CII), the total Indian beauty and cosmetic market size currently stands at US$950 million and showing growth between 15–20% per annum. The overall beauty and wellness market that includes beauty services stands at about US$2,680 million, according to CII estimates.

The steady growth rate in the Indian cosmetic and beauty service market has made the Indian government see it as a source of potential revenue for the country. In fact CII organized its first beauty B2B event—Beauwell India 2005—in Chennai in March, which attracted foreign participation especially from Europe. In presenting the event, TT Ashok, chairman, CII (Southern Region), said, “As the cosmetic industry is growing so rapidly, we at CII felt the need for an industry event to showcase the opportunities in the beauty and wellness business, and present a business platform for suppliers as well as players in the beauty service business.”

The increasing market size is the direct result of the changing socio-economic status of the Indian consumers, especially women. Higher paying jobs and increasing awareness of the Western world and beauty trends there have served to change the tastes and customs of the middle class and higher strata of the society, with the result that a woman from such social strata now is more conscious of her appearance and is willing to spend extra cash on enhancing it further. Today increasing numbers of women, especially from the middle-class population, have more disposable income leading to a change in cosmetic and skin care product consumption. This actually has fuelled a growth in certain product categories in the market that hardly were experiencing it earlier. Two such categories are color cosmetics and sun care products that have shown growth rates of 46% and 13% respectively over the past two years, according to Euromonitor International.

Customer Segments

According to a CII report, US$0.68 per capita is spent for cosmetics, which might be lower than some other countries, but this indicates a growing awareness among consumers. “There are two major factors that are swaying the buying decision among women here. First obviously is the television and media exposure they have today. The other not so obvious one is the corporate dressing culture, which slowly is evolving in the Indian market. Due to set dress code in MNCs, a female employee is conscious about picking the right makeup colors for the office. Today she has the money and the inclination to spend it on separate sets of products, especially color cosmetics,” said Abdul Rahim, managing director of the Chennai-based cosmetic distribution company GR Fragrances Pvt Ltd, which markets the Diana of London range of cosmetics.

According to a source at L’Oréal India, women in the age group of 30 and above are getting very selective about the type of products they choose. “As older women have more cash and are more conscious of their appearance, especially skin, they are willing to spend more on separate sets of creams and lotions that target problem areas. These women also are more open to buying higher-priced products,” he says.

In addition, men as well as the beauty professionals and beauty services segment are emerging as big buyers of cosmetics and skin care here. Pradeep Verma, managing director of Derma Color, which sells Kryolan in India, said “The market is ready for professional makeup products since the Indian professional makeup artists are very well-trained and are aware of the products and prefer to use international brands. Earlier they were sourcing their products from international markets such as Dubai or Bangkok or Singapore. But now players such as Kryolan and MAC have direct presence, so the professional makeup artists are picking up from us.”

Brand Positioning

With increasing awareness among customers, it has become very important for the cosmetic and skin care companies here to develop the right brand positioning and create the right product and brand awareness.

Pricing of the product and the nature of product usage are the two criteria that define brand positioning. For instance products falling under the price range of Rs 45 to Rs 200 are in the mass-market category. The middle market price can range from Rs 200 up to Rs 800. In the high-end market, pricing can range from Rs 800 to about Rs 5000. Finally there is the premium range of products where the pricing can touch up to Rs 35,000.

“Today it is important for big brands like us to define different brand positioning to retain the right market share. For instance, at L’Oréal we push Maybelline and Synergie ranges to the younger generation and also in the lower income group mass market. While L’Oréal range of cosmetic and skin care products are for the middle and higher-middle class women and Vichy is for high-end users,” explains the source at L’Oréal India. Brands such as Lakme and Color Bar are being pushed as mass market products and focus on younger women and women with lower buying power. Then there is Revlon, Chambor, Diana of London, Bourjois and Pupa that make the mid-range while Clarins, Shiseido, MAC, Christian Dior, Nina Ricci, YSL and Lancôme make the high end. La Prairie touches the premium end of the market.

Besides L’Oréal, Unilever, through its Indian arm Hindustan Lever, Procter & Gamble, and most premium and high-end brands prefer to come to the country through distributors such as Baccarose, Euro Traditions, Cosmos Brands, MKP and GR Fragrance.

Product Preference

India presents a big opportunity for global cosmetic vendors selling color cosmetics and specialized skin care products in the market. Today these product segments are showing impressive growth rates.

In skin care, the most popular are anti-wrinkle, anti-blemish and skin-whitening products followed by sun care and bathing products. However, while presenting a market potential, other specialized products such as anticellulite lotions or nail creams and nail care products, while presenting a market potential, need more customer education before they can grow. Meanwhile, hair color and styling products also have logged in impressive revenue for players such as L’Oréal and Schwarzkopf in the market. In fact, HLL recently launched hair care products through its brand Lakme for the mass market in India.

In color cosmetics, lipsticks and nail colors still account for nearly 65% of the market followed by eye makeup, especially eyeliners and Kohl pencils. In the fragrance market, while most popular brands are available here, the deodorant versions are showing better acceptance than the EDPs or the EDTs mainly due to the pricing factor.

Challenges

While the market seems impressive, there are hurdles that impede growth. The Indian duty structure on imported products can pose a major deterrent to multinational vendors. Despite the new value added taxation regime, where the duty has been reduced to 12.5%, the overall duty on the product still comes to about 40%. This in turn reflects in the pricing of the products.

Most vendors add the duty to the product pricing to generate the right revenue. However, there is no organized cosmetic industry body that can take up the issue with the government. In fact this leads to the biggest threat —the unorganized or grey channel. There are small retailers in the market who directly import from markets such as Dubai, where pricing can vary from 30–70% from Indian product pricing. Thus today the grey channel makes up about 60% of the Indian cosmetics market.

Renuka Choudhury, Union Minister of State for Tourism, states that though the beauty industry has grown, there are neither benchmarks nor norms for it to follow. She called on the CII to establish an institute for the beauty and wellness industry.

Growth Opportunity

According to industry watchers, the Indian market is ready and is just waiting for the right spur. In fact some even expect the market to show 25% growth as they anticipate a boost in the retail segment.

A shift from generic retail outlets to specialty shops and floor spaces in malls and big department stores will help the cosmetic and skin care brands showcase their products and increase customer education and awareness. Features such as makeovers and free beauty consultations will attract more customers. The trend is visible in certain malls in the major cities across the country already. Dharmendra Khanna, business manager at Kunchals, a Delhi-based cosmetic specialty shop, said, “As cosmetic buying is impulse buying, so we need to create the right ambience.” The consumers today need the right setting to buy their products. Trained staff to create the right look for the customer to sway their buying is a must.” In fact, the company is expanding its presence in anticipation of entry of more brands in the country. Similarly, Baccarose is expanding its Parcos branded cosmetics stores in a big way as are the MKP and Cosmos brands. However the B and C class towns are yet to see such focused approach from the vendors. In fact these are markets where more awareness is necessary as they still remain mass-market product users and have lower spending power. This is a segment that presents a big opportunity to brands both national and international.

The second big opportunity where India is being perceived to have a good scope is manufacturing. In fact during the Beauwell event, it came to light that some major European cosmetic vendors were looking for distributors and third-party manufacturers to set up joint ventures in the country. In fact after China, India is being seen as a strong manufacturing hub and a good source for natural ingredients. Shyam Arya, director of Indus Cosmeceuticals, a cosmetic contract manufacturer, said “In terms of manufacturing, we have a good bio resource as well as trained professionals that makes it right for multinational vendors to look at India as a manufacturing hub, especially for natural or herbal-based products.”

Many Indian companies such as Lotus Herbals, Forest Essentials and Shahnaz Husain are looking to increase their brand presence in the international markets and are scouting for international partners to sell their products.