Global Cosmetics Industry Prospects 2009 Euromonitor 08 09

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© Euromonitor International >Cosmetics & Toiletries-Prospects

Global Cosmetics and Toiletries:

Industry Prospects for 2009 and

Beyond

August 2009

http://www.euromonitor.com/

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Global Snapshot

Regional Overview

Category Review

Channel Analysis

Competitive Environment

Global Prospects

Appendix


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Buoyed by continued strong growth in emerging markets, the global cosmetics and toiletries market suffered

but a slight slowdown in 2008 despite a full fledged global recession by the end of the year.

The leading markets of the US and Japan saw declines that will persist over the forecast years. Elsewhere,

the effects of the recession on CT spend, will be far more evident in 2009. Growth of only 0.7% in real prices

is forecast for the global CT sector in 2009, driven by skin care and men's grooming products.

Consumers are sacrificing luxury brands for mass or masstige alternatives and premium cosmetics are

bearing the brunt of the economic downturn. In 2009, consumers globally are expected to reduce their

premium CT spend by 1.3%, while hair care will be the only category to see negative growth (-0.3%).

Against the backdrop of tightened consumer purses, resilient and dynamic sectors are being skin care (anti-

agers), men's grooming products (undeveloped sector with untapped opportunities), sun care (education and

rising awareness of anti-ageing benefits), baby care (high population growth and rising incomes in emerging

regions; unwillingness to sacrifice on baby needs by parents in developed markets) and deodorants (as

replacement for fragrances). By 2010, all categories as well as premium, will see renewed expansion.

Despite being less dynamic than other categories, hair care, fragrances and colour cosmetics, will be key

contributors to global absolute value growth over the forecast period, by virtue of sheer size. Skin care, on the

other hand, will be of critical importance, being both amongst both dynamic as well as the largest category.

The Asia Pacific region, excluding Japan, and Latin America are the key growth markets of the future,

particularly, BRIC countries, China, Brazil and India. Success strategies for international manufacturers will

need to incorporate geographic expansion and product share gains in key categories such as skin and hair

care markets and China and Brazil, while laying the seeds in "frontier" markets with highest potential.

The CT consumer base is increasingly sophisticated and global. It is both keen on preventing ageing through

scientific progress, and ethically and environmentally conscious. To succeed, manufacturers thus also need to

invest in efficacious, technologically advanced formulations, as well as be innovative in their

marketing/packaging, addressing consumer concerns and adding clear value/benefits to their purchases.

Global Snapshot

Key Findings


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© Euromonitor International >Cosmetics & Toiletries-ProspectsGlobal Snapshot

Key Industry Issues

Consumers are increasingly concerned about the safety and purity of products

they consume, as well as their effect on the environment. Products that have

claims of being "natural", "organic" and/or eco-friendly are growing in popularity

across regions, and becoming mainstream. Greatest impact is on baby and

body skin care, and bath and shower. The organics trend is also spreading to

products where efficacy has been a priority, such as facial skin care, hair care

and colour cosmetics.

Consumer perceptions of luxury are changing. Luxury

is an enriching personal experience and no longer a

premium price-tag. Beauty masstige items can now

become affordable luxuries (at "mass prices") in a

tough economic climate. They are positioned across

the whole product spectrum.

Demand is on the rise for technologically advanced

formulations that are positioned on the boundaries of

cosmetics and drugs (cosmeceuticals). These

products are often seen as alternatives to surgery

and include both facial anti-agers as minimally-

invasive treatments such as "Botox."

The economic downturn is making

shoppers more value conscious.

The "at home" beauty care market

is benefitting as a cheaper

substitute to costly out-of home

services such as salons/spas (hair

colorants, perms/relaxants,

depilatories, nail polish), or dentist

visits (teeth whitening and

professional oral hygiene kits).

Beauty is merging with health and

well-being and becoming more

holistic – not just internal

appearance but also physical and

spiritual well-being. CT products

are taking new forms – from jars to

foods. Interest in nutricosmetics

and functional foods is

complementing the traditional

beauty industry.


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Industry Growth Shielded from Late Arrival of Recession

Growth in the global cosmetics and toiletries market slowed to 5% in 2008, from 6% in 2007, on increased

price sensitivity among consumers. Already in 2008 there were sharp declines in selected leading countries

and categories such as North American fragrances and Japanese skin care and colour cosmetics. There was,

however, offsetting buoyancy in emerging markets due to their relative immaturity, and also because the

effects of the global credit crunch were felt with greater delay there than in developed markets.

The full brunt of the global recession will be felt from 2009 onwards. In many countries, media coverage of the

economic slowdown only gathered speed during the second half of the year, meaning that prior to that

consumer spending was largely in line with that of previous years. As the bear market mentality set in among

consumers, however, many beauty product manufacturers posted fourth quarter results that were far lower

than those of the same period the previous year. In 2009 the effects will be far more evident as growth of only

0.7% in constant terms is forecast for the declines in premium sales. Western European premium sales (34%

of global) grew by 3% in 2008 versus 5% in 2007, but they will fall by an estimated -0.3% in 2009. As a result,

global premium CT sales are expected to contract by -1.3% in 2009.

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Global CT Performance 2003-2008

Total CT Premium CT % CT growth % premium growth


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Categories' Resilience Varied Markedly Across Regions

Deodorants and baby care were the best performers globally in 2008 with growth rates of 8% and 7% respectively. These

two sectors, along with bath and shower, were also the only ones to outperform their percentage rise of the previous year.

Latin American's love for scents underpinned strong growth in deodorant roll-ons and sprays. Unwillingness by parents to

give up quality on their children's products together with increased purchases for adult consumption (baby lotion) boosted

baby-care products demand.

Premium cosmetics and toiletries bore the brunt of the impact of decreasing consumer confidence and disposable income

and rising unemployment rates. The category's growth rate more than halved to 2% in 2008, as consumers sacrificed

luxury brands for mass or masstige alternatives.

While global skin care spend slowed to 5.5% growth (7.1% in 2007), nourishers /anti-agers remained star performers,

expanding by 9.7% or only 0.6 percentage points less than in 2007. This adds substance to the belief that most consumers

will sacrifice on many other fmcg's before they will alter their facial care routines.

Other resilient sectors included under-developed men's grooming (-0.3 or +6.1% in 2008), and sun care that despite

declining 1.3 percentage points, remained the most dynamic sector over the 2003-08 review period. Though global hair

care spending decelerated by 1.3 percent points and was the slowest growing category, the sheer magnitude of this

relatively mature sector determined it was the second largest contributor to absolute value growth during the review period.

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Global Sales by Category

Sales (2008, US$bn) % change 2007-08 % change 2006-07


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Global Snapshot

Regional Overview

Category Review

Channel Analysis


Global Prospects

Appendix


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© Euromonitor International >Cosmetics & Toiletries-ProspectsRegional Overview

Leading Regional Markets in Retreat

Economies with advanced, integrated credit markets are suffering the brunt of the current economic downturn. It is

these countries that also enjoy the highest per capita consumption of cosmetics and toiletries, are mature,

sophisticated and price sensitive, and are being hardest hit, as consumers curtail overall expenditure.

Though Canadians showed unwillingness to cut back in their personal care regimens, the overwhelming incidence of

the US within North America, resulted in an estimated -2.4% decline in the region's CT market in real terms (-0.4% in

current prices) during 2008. Americans of all income levels began tightening their belts, leading to massive

discounting even in premium cosmetics (never seen before). The region's CT market is projected to contract by a

cumulative 1.7% over the next five years.

In all, half of CT world sales are in leading markets that will contract or stagnate during the forecast period. CT sales

in Japan fell -1.4% in 2008 as consumers reduced premium cosmetics purchases. Japan accounts for 40% of Asia

Pacific's CT market, causing a sharp slowdown there over the next five years. For the largest five countries that

together account for three quarters of the West European market, CT sales will either contract or come to a near

stand-still over the forecast period.

Western Europe

Asia PacificNorth America

Latin AmericaEastern Europe

Middle East and AfricaAustralasia0

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120

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2008-13 CAGRBubble size represents US$ value sales in 2008

CT Regional Performance


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Asia Pacific will emerge the global driver of economic recovery. Excluding Japan, annual CT 2008-2013 sales

will grow 5.2% on average, spurred by brisk demand for skin care (and sun care), the largest and most

dynamic category, followed by hair care (2nd largest). CT sales in China and India (55% of AP-ex Japan),

have slowed but projected 5 year CAGRs are above 7%, offsetting weakness in Taiwan, and South Korea.

Latin America was the most dynamic market in the review period, contributing 30% of global absolute growth

in CT spend. Declines in hair care spend in the saturated markets of North America and Western Europe,

were offset by strong growth in Latin America thanks to increased penetration of conditioners and colourants

that are increasingly popular with teens and young adults.

CT value sales in several Eastern European markets should decline in 2009, however, the two largest, Russia

and Poland will expand by slightly over 1%, and the entire region begin recovery in 2010. Spend by category

is fairly spread in Eastern Europe. Skin care (20% of CT spend), hair care (18%), fragrances (17%), and

colour cosmetics (13%) are the key sectors by size and absolute growth. Russians are very designer oriented

in fashion, however, premium cosmetics spend that takes a greater share of CT spend in Eastern Europe than

in other emerging markets (14.9% CAGR 2003-08), is set to slow markedly.

Regional Overview

Emerging Economies Lead Industry Prospects

-202468101214

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Latin America Middle East Africa

North America

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Per Capita Expenditure by Region

Per capita CT spend (2008, US$)

% Change in CT Spend 2007-08

% CAGR in CT spend 2008-13

Note: 2007-08 % change figures are in current prices, whereas projected CAGRs are in real prices that exclude inflation. Eastern Europe, Latin

America and Middle East Africa's 2007-08 % change figures contain significant inflation.


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Premium cosmetics grew by 2.2% in 2008 as they bore

the brunt of the effect of falling consumer spending. By

product, most growth was in baby care and sun care.

Three product segments make up a huge 84% of

premium cosmetics: skin care, fragrances, colour

cosmetics. By geography, growth focused on Latin

America and Eastern Europe. Two regions make up

65% of premium cosmetics: Western Europe, Asia. In

Asia, baby care grew 35% in 2008, but from a low

base.

Strikingly, sales already fell meaningfully in every single

product category in the US (incl. sun care) in 2008, and

further significant negative growth is likely in 2009/10.

Going forward, sector growth will be pressurised as

reduced disposable income leads consumers to trade

down to varying degrees. This will affect primarily basic

cosmetic and toiletries products, but will also affect the

premium market. Market leaders Estée Lauder and

L'Oréal will face an increasingly fierce competitive

environment across all premium product categories,

though certain lines should hold up better than others.

This is due to the fact that they are easier to market

and 'glamour' helps to justify a premium positioning:

skin care (even high-priced face creams should benefit

as 'eternal youth' is priceless), and sun care (sun

protection, cancer prevention, premature skin-ageing).

Brand loyalty is generally high in premium cosmetics,

though firm separation from the mass market remains

critical in order to preserve product pricing.

Premiumisation will continue to be an important global

trend over the longer term. Premium brand sales

constituted 22% of the global market in 2008. Key sector

drivers include improved wealth in developed and

emerging economies, a growing middle class in BRIC,

further value-adding product enhancements via R&D,

the launch of new and highly priced products (niche

markets, especially in Western Europe), and increased

availability through select mass channels.

Regional Overview

Premium Cosmetics: Time to Buckle Up

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Premium Cosmetics % Growth by Region 2008


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North America and Western Europe Suffer Hardest

The CT market in North America is forecast to decline by US$1 billion in 2008-2013, driven by US premium

cosmetics (-9%), fragrances (-17%) and colour cosmetics (-6%). The West European CT market will remain

flat in 2009, though France (17% share of regional CT sales) will fare worst, posting negative growth through

2011, and Germany (17% share) is expected to grow a meagre cumulative 0.9% during the forecast period.

Italy, Greece, Sweden and Portugal will also decline in 2009, to recover in 2010, while the UK, the

Netherlands, Spain, Norway, Finland and Turkey will show healthy growth rates.

Private label has been a large beneficiary in the US (bath & shower, oral hygiene, baby and sun care) and in

countries such as Germany, Netherlands, France, Spain and the UK, where major retailers show increasing

sophistication in their private label offer and are expanding their ranges to include natural and organic

products (Carrefour, Tesco, Sephora, amongst others).

Major branded manufacturers are responding differently across countries and sectors, as price points fall with

new launches (US, premium cosmetics), or innovations in mature sectors such as hair care and skin care

underpin unit price growth in the Netherlands and Germany, or greater consumer segmentation reaps above-

average value growth in Spain (+5 % in 2008).

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North America and Western Europe Performance 2003-2013

NA WE % NA growth % WE growth


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The Japanese CT market is expected to contract by 5.1% or US$1.7 bn over the next five years, in constant value

terms. Although there are pockets of growth in 'preventive' products such as anti-ageing, oral care and sun care,

as well as depilatories, these are small in the overall context of the Japanese market. Consumers' trading down

from premium to mass and masstige products is affecting most sectors, but the bulk of the brunt is being felt in

skin-care (excepting nourishers/anti-agers), and colour cosmetics, that are also the largest sectors (42% and

20%, respectively, of Japanese CT spend), where average unit prices are declining.

The US CT market is expected to be US$1.6 bn smaller by 2013, however, this will be a comparatively modest

0.6% decline from 2008. The CT mix is less concentrated than in Japan as well as fragrances and men's

grooming products take a greater share of CT spend. Discounting and lower volumes in fragrances (80% are

premium, and considered a luxury) will reduce the CT market an estimated US$970 mn by 2013. The men's

grooming sector will be a growth driver in the US, as young men become more comfortable with grooming

regimens and the idea of cosmetics lines tailored for men becomes more mainstream.

Regional Overview

US and Japan: Erosion in Share of World Market to Accelerate

0 10 20 30 40 50 60

Germany

China

Brazil

Japan

USA

US

$ b

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Top Five by Market Size 2003/2008/2013

2013 2008 2003

Spain3% Italy

4%Russia

4%

UK5%

France5%

Germany5%

China5%

Brazil8%

Japan10%

USA16%

Rest of World35%

Top 10 % Value Share 2008


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A Diverse Environment in Asia Pacific

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Developed Markets 2008

Market Size (US$ bn) Per capita C&T (US$)

In 2009, Asian economies (ex-Japan) will grow their lowest since 2001, nevertheless, above 5%. Public debt

has been reduced (excepting India) and foreign reserves are mostly ample. A more rapid recovery than in

other parts of the world, should thus be possible as governments are better able to cope with recession

through increased spending. The region remains dependent on and vulnerable to foreign investment flows.

Skin care is the key sector taking up 37% of CT spend, and the share is higher in mature markets. Catering to

Asian women's traditional preference for clear and pale skin, majors P&G, Amway, and L'Oréal launched

several new whitening skin care products during 2008. Products with whitening function are penetrating into

nearly every area of facial skin care - moisturisers, cleansers, toners, face masks, and even nourishers/anti-

agers - as manufacturers seek to add extra benefits to basic functionality. Sales will slow sharply but the high

importance of facial skin beauty will continue to make skin care the star performer of the Asia Pacific CT

market (37% of projected five-year absolute growth), followed by hair care (20% of absolute growth).


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China Sees Highest Absolute Growth Potential

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Developing Asian Markets 2008

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Around half of CT purchases in developed Asia Pacific markets (per-capita CT spend above US$120) are

premium products, that will do poorly such as in Japan (US$252 CT per-capita spend) and Taiwan.

In contrast, countries such as China and India, where premium product penetration is low, will see premium

products outperforming mass even in the economic downturn. Broadly speaking, developing countries whose

CT markets are very large yet per capita CT spend remains low, will see the greatest absolute growth.


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The cosmetics and toiletries market in Eastern Europe

continued to grow a steady, rapid pace in nominal terms,

but significant rises in inflation sharply eroded the real

value of sales. Real growth of CT sales for the largest

15 countries (97% of Eastern Europe's CT spend)

slowed to an estimated 0.9% in 2008 from just over 3%

in 2007.

The repercussions of the global credit crunch were felt

fully in 1Q 2009 with collapsing commodity prices,

exports and credit access. The region's economy is

expected to contract by 4%, with slight recovery in 2010

(+0.8% real GDP growth). The downturn will be sharper

in CIS states including Russia, the Baltics and Hungary.

The region's recovery is constrained by inflated fiscal

budgets and in some cases large current account

deficits, requiring financial rescues by the IMF and

government donors.

In 2008, CT markets contracted in Ukraine (-0.4%),

Czech Republic, Hungary and Latvia, while Russia

slowed down sharply. Poland, stands out as a bastion of

stability, with steady, even if, low growth (+2% 2008).

Romania's CT market also did well (+4% 2008).

For the region as a whole CT sales will grow a modest

1% in constant prices in 2009, recovering over the

forecast period, driven by Russia, Ukraine and Poland.

Annual growth will average 2% over the next five years,

one of the lowest amongst emerging market peers.

Russia47%

Poland16%

Ukraine9%

Czech Republic

5%

Romania5%

Hungary4%

Slovakia3%

Other11%

Eastern Europe CT Market 2008

Regional Overview

Eastern Europe: Nominal Growth Masking Sharp Deceleration

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Eastern Europe Market by Category

2008 (US$ bn) 2008-13 CAGR (%)


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Skin care20%

Fragrances18%

Hair care17%

Colour cosmetics

14%

Men's grooming

9%

Oral hygiene

9%

Bath & shower

8%

Other5%

Russia CT Market by Category 2008Russian consumers stocked up on premium

cosmetics as the economic crisis intensified in

4Q 2008 and the rouble continued depreciating.

An acceleration of inflation supported another

year of strong growth (+12%, versus 13% in

2007) for Russia's beauty and personal care

market. In real, inflation-adjusted, terms,

however, unit prices came under pressure and

the value of CT sales slowed to a meagre 0.7%

for the whole of 2008 (4% in 2007), while

volumes drove market growth, with rises of

2.8% (3.4% in 2007).

During Q1 2009, consumer confidence was at a

10-year low, and various measures of

productive activity (industrial, natural gas, etc.)

suffered double-digit percent declines versus

the prior year. Spend in premium cosmetics

that had outpaced the overall CT market

through 2007, will now decline in 2009 hurting

perfumeries and smaller store-based beauty

retailers particularly, such as recently bankrupt

Arbat Prestige.

Regional Overview

Russia: Spend on Premium Cosmetics Set to Slow


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Russia: Direct Sellers Thrive in Recessionary Market

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Russia: CT Sales Evolution (Real Prices) 2004-2013

Total CT Premium Total % y-o-y growth Premium % y-o-y growth

With strong long-standing reputations, value-for-money images, and innovative marketing, direct sellers

flourished during 2008. Oriflame saw sales grow by 25% and staff by 50%. Amway saw another year of record

sales, up 32%. Avon launched Bond Girl 007 fragrance to coincide with the Quantum of Solace's movie

premiere, with a curvy, feminine-shaped bottle and high-tech metal top, even distributed at film screenings.

Active TV advertising—highly effective in Russian consumer choice—played a key role for direct sellers. It is

likely that buyers of premium cosmetics will look to direct sellers' masstige product ranges to reduce outlays.


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Japan: Pockets of Growth Overshadowed by General Declines

In Q1 2009, Japan's real GDP contracted by 4% quarter-on-quarter, the fastest decline since the 1974 oil crisis.

Japan's recovery will be slower than in its 1997-98 recession reflecting the more severe global economic downturn

currently, and Japan's reliance on exports to deliver economic growth.

Consumers' move away from premium to mass/masstige is the over-riding trend in Japan. Nourishers/anti-agers, sun

care, men's grooming, oral hygiene and organics should perform better than other sectors.

A distinctive feature of the Japanese market versus its AP developed peers, is the leadership of national champions

(Kao, Shiseido), though foreigners are making inroads with products that target untapped sub-sectors—such as Veet's

hair removers that helped Reckitt Benckiser make a 29% sales gain in depilatories in 2008—or by successfully

adapting top brands to local peculiarities such as L'Oréal (+17% sales gain in 2008) that successfully reformulated

Revitalift to suit the Japanese skin type.

With an ageing population and highly sophisticated Japanese consumer, new scientifically-based age-defying

products with increased efficacy, are the way forward for manufacturers. Segmentation and targeted marketing can

also bear fruit as the case with Shiseido's Elixir Prior that caters to the growing 60+ female group, with packaging for

easy handling, large labelling and easy-to-follow steps.

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Hair care Colour cosmetics

Men's grooming

Oral hygiene Skin care Anti-agers Premium CT

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Japan CT Market by Category

2008

2013

% CAGR 2003-08

% CAGR 2008-13


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China and India Growth Engines of Asia Pacific

China's booming skin care market grew an average 18% pa over the review period, yet per capita spend on

skin care was a low US$5 in 2008 versus Taiwan's US$63 and HK China's US$76. The top five players,

foreign, had combined market share of 50%, and fueled value growth with diverse marketing campaigns and

introductions of high potency anti-ageing products, as well as through greater segmentation of the 25-to-35s.

Brands grounded in local traditions are capturing market dynamism: Shanghai Jahwa's new Herborist range of

TCM-based skin care products saw 67% growth in 2008. Three of the top five brands are from direct sellers

that gained share in 2008 as the economic slowdown increased jobless women-turned-direct sellers.

As wealth and infrastructure investment gradually reaches the highly rural Indian population, and incomes rise

in urban areas, much of the absolute growth in the Indian CT market has come from sectors that represent

basic necessities (bath & shower, hair care and oral hygiene) where consumers are switching from loose,

unbranded products to branded goods. The most dynamic sectors in the forecast period are forecast to be

fragrances (+17% CAGR) and colour cosmetics (+20% CAGR) as more young women join the work force.

China and India will account for 66% and 22%, respectively, of Asia Pacific's absolute value sales growth

between 2008 and 2013, thanks to projected CAGRs above 7%. Thailand, however, with similar consumption

patterns to China, will also be an important generator of CT absolute market growth (+US$820 mn).

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Category Share of Total CT Market 2008

Bath & shower Hair care Colour cosmetics Oral hygiene Skin care Premium CT


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Lack of a credit/debit culture shielded consumers in

MEA from the global credit crunch, and the pace of

growth in CT sales actually accelerated during 2008

to a nominal rate of 10%, from 8% in 2007.

The collapse of oil prices and global economic

downturn, will reduce 2008-13 growth to 2.4% vs

1.8% globally. CT sales of US$13.7 billion are only

4% of the global market, the smallest region, and

lowest average per capita spend (US$11.6).

Saudi Arabia and UAE are expected to fare best, as

surpluses from windfall oil revenues allow them to

withstand the crisis. Iran, however, is expected to

fare worst as reduced government subsidies (in fuel,

electricity and water) bite into discretionary spend.

Nigeria, with unofficial unemployment at 40%, will

see a sharp reduction in its share of the CT pie.

CT sales began decelerating in the mature MEA

markets during 2008. Israel (US$149 per capita

spend) slowed to 10-year low as discounting hit hair

care and fragrances, its largest sectors, and move to

masstige impacted skin care and colour cosmetics.

South African consumers will be recovering from

sharp increases in food, electricity and fuel prices in

2008, and CT spend will slow markedly.

MEA Major Market Performance

Sales

US$ mn

Growth %

2008/07

CAGR %

2003-08

CAGR %

2008-13

MEA - Total 13,736 9.6 7.7 2.4

South Africa 2,396 11.7 9.2 2.4

Saudi Arabia 2,174 11.2 9.2 4.4

Iran 2,045 6.6 6.8 -6.2

Israel 1,088 2.9 7.7 2.2

UAE 834 13.7 9.7 7.3

Egypt 600 8.8 9.7 1.4

Morocco 523 7.7 5.3 6.3

Algeria 327 7.9 7.2 4.4

Kenya 273 9.0 9.4 0.9

Nigeria 255 5.5 9.7 -1.4

Tunisia 150 11.0 7.0 6.4

Cameroon 78 4.7 6.2 2.0

Other MEA 2,992 11.8 6.4 3.7

Regional Overview

Middle East and Africa: Resilient but Not Immune


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Fragrances (66% of which premium) was the most dynamic sector in MEA during 2003-08, accounting for

20% of the absolute increase in sales. The region benefits from a deeply-rooted fragrance culture that favours

premium and oriental products. Fragrances will be the largest contributor to regional sales growth during

2008-2013, followed by skin care (23% premium) and colour cosmetics (35% premium). Given tougher

economic climate, well-positioned and advertised masstige products show significant potential.

Iran's stellar growth of 76% in colour cosmetics in 2003-2008 masks a mixed reality of high inflation and poor

border control. Smuggled and counterfeits account for 80% of the CT market. Rapid expansion of satellite TV

and outreach to small cities has brought Farsi channel advertising to Iran's growing youthful population,

spurring CT purchases. Colour cosmetics will continue to drive positive CT sales growth in current prices.

As the UAE struggles with oil price and property market collapses, it will see 7% average forecast growth

underpinned by high per capita income, a cosmopolitan population with over 60% under 25, and an expanding

retail landscape. Hair care is the largest and most dynamic sector, with climate and ethnic factors supporting

strong growth (+12% 08/13 CAGR) across most products.

Regional Overview

Middle East and Africa: A Region With Diverse Markets

Baby care

Bath and shower products

DeodorantsDepilatories

Hair careMen's

grooming products

Colour cosmetics

Fragrances

Skin care

Oral hygiene

Sun care

0%

2%

4%

6%

8%

10%

12%

-1% 0% 1% 2% 3% 4% 5%

CA

GR

% 2

00

3-0

8, cu

rre

nt,

U

S$

bill

ion

CAGR % 2008-2013, constant, US$ billion

CT MEA Growth by Category

Bubble size shows sector's share of cosmetics & toiletries market, ranged displayed: 1.20-19.3%


22


Saudi Arabia: Low Per-capita Spend in Select Categories

Over the next five years, Saudi Arabia is projected to create US$525 mn in new CT sales, the largest

contribution in MEA, to become the leading market by 2013. Though per capita CT intake of US$86 is high by

regional standards, it is still low relative to the region's mature markets UAE and Israel.

Strong underlying industry fundamentals include: high purchasing power by majority of Saudis, and steadily

rising incomes; youthful growing population (2.5-3% pa); thriving religious tourism; sizable expansion plans by

retailing industry; and, strong supplier-driven growth through aggressive advertising and value-enhancing

product introductions. Until present the latter have supported high unit price growth.

Unilever's launch of Clear for Men, capitalized on the strength of the global brand, targeting a dynamic

category - men's grooming products - with an aggressive advertising campaign and wide distribution strategy.

The shampoo, based on patented VitaAce that removes and prevents recurrence of dandruff, dramatically

boosted the growth of the market's shampoo sector (+12% in 2008), and ended P&G's decades'-old monopoly

in anti-dandruff shampoos (Head & Shoulders). In 2008, Unilever proceeded with the launch of Clear's Hair

Fall Defence For Men, treating dandruff and preventing hair loss (adding benefits), the first product of its kind.

0

10

20

30

40

50

Bath & shower

Hair care Colour cosmetics

Men's grooming

Oral hygiene

Fragrances Skin care Premium

US

$

Per Capita Expenditure by Category 2008

Middle East and Africa

Iran

Israel

Saudi Arabia

South Africa

United Arab Emirates


23


After the region's 2002 financial crisis, most countries (except

Argentina, Venezuela) followed orthodox policies, thus Latin

America is well placed to withstand the global economic

downturn. Brazil, will contract in 2009 on external demand

factors, but swiftly return to growth in 2010. Mexico's reliance

on the US (76% of exports) will slow its economic recovery.

Latin America's CT market grew the fastest globally in 2003-08

(12.3% CAGR), and in absolute terms (US$23 bn to US$52

bn). Hair care continued to dominate CT spend (23% of total).

The hair care market, is relatively mature and slowing in the

recessionary environment. In Brazil, rising use of progressive

blow-dry in beauty salons, that requires reduced frequency of

hair washing to achieve smooth and straight hair, is

dampening demand for shampoos, conditioners and

colourants (an estimated 65% of Brazilian women have curly

or afro hair type).

The increasing quality of mass fragrances (86% of total),

climate and cultural factors, and innovative marketing and

segmentation, will drive fragrance sales in 2008-13. In 2009,

specialist retailer O Boticario, successfully launched Capricho

Day&Night targeting teen girls with two fragrances that create

a third when mixed, and introduced a winning Capricho

cosmetics range. Direct seller Avon has developed two skin

care ranges to target low-income women (Ageless Results),

and middle-to-high income (mainly older) women (Avon

Renew Ultimate), while adding nourishing/anti-ageing benefits

to its colour cosmetics ranges.

Regional Overview

Latin America Set to Weather the Economic Storm

Brazil55%

Mexico16% Venezuela

6%

Argentina6%

Colombia5%

Chile3%

Peru2%Other

6%

Share of Latin American CT Spend

0

5

10

15

20

25

0

2

4

6

8

10

12

14

16

% g

row

th

US

$ b

illio

n

Latin America Sales by Category

2008 2013 % CAGR 2008-13 % CAGR 2003-08


24


Global Snapshot

Regional Overview

Category Review

Channel Analysis


Global Prospects

Appendix


25


Consumers are far more willing to economise on toiletries than they are on cosmetics such as skin care and colour

cosmetics, however, in mature markets, the slowdown in toiletries' consumption has been moderate, and less intense

than that seen in value sales of cosmetics. Globally, cosmetics sectors outgrew their toiletries counterparts in 2008, as

they did throughout the review period 2003-08 across all regions. In 2008, however, there was a notable major

exception: Japan's cosmetics market took a sudden sharp turn, and both skin care and colour cosmetics spend

declined sharply. As Japan accounts for 51% of the Asian Pacific cosmetics sector, that region's overall toiletries

market outperformed that of cosmetics (5.2% vs. 3.8%). This is likely to continue as Japanese consumers are

expected to restrain their consumption of skin care and colour cosmetics products and continue switching down from

premium to mass and masstige alternatives.

World spending on fragrances accelerated over the past five years, outpacing both toiletries and cosmetics in 2007

and in 2008, but consumer spending patterns varied across regions. Latin America, Eastern Europe, and Middle East

Africa (a combined 40% of global spending on fragrances) saw double-digit growth in both mass and premium

products. Mass fragrances in Latin America (20% of the global fragrances market) rose by nearly 15% in 2008. At the

other end, North America (16% of world fragrance sales) saw a 4% decline, that region's worst performing sector due

to record discounting across both mass and premium fragrances.

Category Review

Cosmetics Surpass Toiletries, Fragrances Post Varied Results

0% 25% 50% 75% 100%

Fragrances

Cosmetics

Toiletries

Regional Shares of Major Category Groups 2008

AP AU EE LA MEA NA WE

-202468

10121416

World AP AU EE LA MEA NA WE

% C

AG

R

Regional 2003-08 CAGR (%)

Toiletries Cosmetics Fragrances


26


The world skin care market advanced by 5.5% to

US$75.8 billion in 2008 (vs growth of 7% in 2007).

Although skin care has enjoyed the highest 5-year

average growth rate (after sun care), its 2008

growth rate lagged deodorants (7.6%), baby care

(6.7%), sun care (6.6%) and men's grooming

products (6%).

Skin care, the largest CT category (23% of total

retail value), still grew faster than the US$333 billion

CT market, which rose by 5% in 2008. The key

driver behind skin care growth was nourishers/anti-

agers, which were up 10% in 2008 (2007: +10.3%)

and defied the trend for trading down in skin care.

Asia continues to account for a massive 39% of

world retail sales (followed by Western Europe,

28%), aided by premium skin care, but the highest

growth rates are in Latin America and eastern

Europe.

Skin care growth is expected to hold up well in

2009, with anti-ageing and nourishing products in

the facial care segment seen as primary drivers

(along with firming & anti-cellulite body care

products). Higher demand from ageing baby

boomers and new technological advances will drive

value growth while non-essentials (toners) will likely

suffer.

Category Review

Skin Care Dominates Global Cosmetics Market

-4

-2

0

2

4

6

8

10

12

14

16

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10

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40

50

60

70

80

90

2007 2008 2009 2010 2011 2012 2013

% y

-o-y

ch

an

ge

US

$ b

illio

n

Global Skin Care Sales by Region 2007-2013

Asia Pacific Australasia Eastern Europe

Latin America Middle East/Africa North America

Western Europe AP % change AU % change

EE % change LA % change MEA % change

NA % change WE % change


27

© Euromonitor International >Cosmetics & Toiletries-ProspectsCategory Review

Skin Care: Anti-agers Surpass Other Category Performance

0

2

4

6

8

10

12

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

% y

-o-y

va

lue

gro

wth

Skin Care Growth by Category 2004-2013

Skin care Facial care Nourishers/anti-agers Body care Hand care

Anti-ageing products continue to become increasingly specialised and segmented by age group, gender,

combination products, as well as targeting different parts of the body – eye, neck, face, chest, the whole body.

L'Oréal for example has developed different anti-ageing products for each generation of women, and its

website advises on which product to choose for their age group.

Nourishers/anti-agers will be the growth stars of skin care as consumers clearly prioritise age prevention. To

succeed, manufacturers will need to bring to bare technological advances and innovative marketing to tap into

consumer interest in scientifically-proven age prevention methods, together with holistic approaches to beauty

that stress inner health and wellbeing and the use of natural ingredients.

Turning masstige items into affordable luxuries in a tough economic climate characterized recent new

products by Beisdorf and Procter and Gamble. Age-defying cosmeceuticals with high-tech formulations at

affordable prices were: 1) Beiersdorf's Nivea Expert Lift, which comes in a novel and more mature purple

colour packaging, is formulated with Bioxilift ingredients, shown to increase the connective activity of collagen;

and 2) Procter & Gamble‟s Olay Regenerist promises 'dramatic results without drastic measures'.


28


Skin Care: Merger Between "Inner Beauty" and Science

Some scepticism remains over the efficacy of both cosmeceuticals and nutricosmetics, however supplements

alongside topical products (such as Nivea GoodBye Cellulite) are gaining appeal. Ferrosan's orally taken

Imedeen supplement that is patented with biomarine complex to optimise skin health, has clearly succeeded

in Western Europe. Q10 is both popular as a supplement and contained in skin care products. Natural

ingredients of sea kelp and red ginseng for example are being added to some premium cosmetic brands.

Given tighter consumer purses, it is likely the threshold for success of cosmeceuticals will be raised, and only

products that deliver the promised benefits will succeed. Cosmeceuticals contain biologically active

ingredients such as retinoids and hydroxy acids, or have trans-dermal properties that for example infuse

collagen into the skin, or use nanotechnology. Cosmetic-savvy women that recognise these scientific

properties have driven demand, despite some uncertainty as to their benefits, but they are increasingly

sophisticated and broadly speaking all consumers are more discerning and informed.

USA, 53%

Russia, 2%

Norway, 2%

South Korea, 2%

Japan, 34%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0 100 200 300 400 500

CA

GR

20

08

-20

13

Size 2008 (US$ million)

Top Five Co-enzyme Q10 Countries

Bubble size shows country share of the global CoQ10 sales in 2008


29


Depilatories, the smallest category in the CT sector,

grew by 5% to US$3.8 billion in 2008 (Western

Europe 39%, North America 33%). Women's razors

and blades is the biggest market, constituting 53%

of sector sales.

The strongest growth impulse was seen in women's

razors & blades, where there was buoyant demand

growth across all regions (especially Middle East

and Africa), followed by hair removers/bleaches,

where growth was firmly propelled by Latin America

and Eastern Europe, which showed very strong

growth across all product segments.

In Latin America, growth was driven by Brazil, which

expanded by 13%. Extensive advertising campaigns

and improved product positioning on shelves

stimulated hair removers sales. Hair removers

/bleaches posted robust value growth of 24% in

2008. Procter & Gamble remains market leader with

48% market share, though this slipped 100 bp, while

Church & Dwight strengthened its #2 position after

gaining 220 bp to 17.5% after investing in hair

removers products. Latin America is expected to

show the strongest regional growth pace in 2009-13,

driven by Brazil, and especially in the hair

removers/bleaches category.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Depilatories by Category and Region 2008

Western Europe

North America


Latin America

Eastern Europe

Australasia

Asia Pacific

Category Review

Depilatories Dominated by Razors and Blades


30


In Russia, sales grew 16% in value terms in 2008

(48% of Eastern Europe sales), with pre-shave

growing fastest (21%). Key drivers are a vastly

(supermarkets, pharmacies), growing advertising

under-developed market, expanding retail

infrastructure and consumer education on the

benefits of using depilatories, and rising

popularity of electrical epilators. Russian growth

rates will likely diminish – and Procter & Gamble's

47% market share feel pressure -- going forward

given a challenging economy, new competitors

entering the market and a growing number of

clinics and salons offering laser treatment. Note

that the bulk of annual sales occur during 3-4

months of the year.

Category Review

Depilatories: Buoyant Growth in Russia

-5

5

15

25

35

45

2004 2005 2006 2007 2008 2009

% g

row

th

Depilatories Performance 2004-2009

World Eastern Europe Russia

-5

5

15

25

35

45

2004 2005 2006 2007 2008

% g

row

th

Russia Depilatories by Category 2004-2008

Depilatories Pre-shave

Razors and blades Hair removers/bleaches


31


Hair Care Hit Hardest After Premium Cosmetics

Hair care (the third largest CT category) grew by 3.6% in 2008 (5% in 2007), marking the lowest growth rate in

the CT sector after premium cosmetics (2%). Sales growth was held back by a 1.6% fall in North America and

just 1% growth in Western Europe (together represent 44% of world hair care market), which was sufficient to

overshadow strong growth in Eastern Europe (8.8%) and Latin America (7.8%).

In North America, all product categories (except perms & relaxants, colourants) saw declines, particularly the

dominant salon hair care segment, that takes 26% of hair care spend. Home colourants should thus receive a

boost from the recession.

The BRIC hair care market continued to perform strongly, with India up 11% to US$1.3 bn in 2008 (drivers:

styling agents, salon hair care, colourants), followed by China (+10%) and Russia (+9%). Brazil grew a

modest 3% to US$6.8 bn (vs 12% in 2007), hurt by a fall in colourants.

-4

-2

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2

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6

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10

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10

20

30

40

50

60

70

2007 2008 2009 2010 2011 2012 2013

% y

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ch

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US

$ b

illio

n

Leading Hair Care Markets 2007-2013

Western Europe

North America

Latin America

Asia Pacific

AP % change

LA % change

NA % change

WE % change


32


Further Innovation to Sustain Growth Levels

Hair care sales are expected to cool further in 2009 driven by discounting, promotions and weak demand in

the US as consumers trade down from premium-priced salon hair care products to cheaper brands and private

label products.

Better insulated segments include naturally positioned hair care products, while added benefits such as anti-

ageing, doctor brands or UV protection may help maintain average unit prices.

-10

-8

-6

-4

-2

0

2

4

2007 2008 2009 2010 2011 2012 2013

% y

-o-y

ch

an

ge

US Hair Care Market by Value (Real Prices) 2007-2013

Shampoo 2-in-1 products Conditioners Styling agents

Perms and relaxants Colourants Salon hair care US hair care market


33


Oral hygiene is amongst the most commoditised

segments of the CT market. Segmentation,

consumer education and rapid product development

are supporting the global oral care market in the

short term, but price pressure, mass market

imitators and a lack of room for innovation are

making market development ever more exhausting

for producers.

The key to sustained growth will be consumer

education. This could drive consumption of floss and

mouthwashes, for example, but private label and

new entrants will present stiff competition.

In toothpaste, there is still significant room for further

development of natural ingredients and organics.

Category Review

Oral Hygiene: Multinationals Well Placed in Growth Markets

Oral hygiene grew by 4 % to US$34 billion in 2008 (vs 5.5% in 2007), consistently growing slightly slower than the

cosmetics and toiletries market over the past five years. Toothpaste rose by 4% to US$17 billion, now

representing a massive 51% of the oral hygiene market. The most dynamic segment with the fastest growth for a

third consecutive year was mouthwashes/dental rinses, expanding by 7% to US$3.5 billion (vs 10.5% in 2007)

and growing across all regions (low world consumption rates of such products and growing professional

recommendations for increased oral hygiene continues to unlock new growth potential, especially in Latin America

and Europe). In contrast, despite a bounce in 2007, tooth whiteners fell by 3% (competition from whitening

toothpaste) while mouth fresheners fell by 4 %, marking a fifth year of market decline.

Manual toothbrush sales accounted for 69% of segment sales and expanded by 4% whereas power toothbrushes

grew by 5.3%. Overall, the US$9.3 billion toothbrush market grew by 4.6% in 2008, and there was positive growth

across all regions. Western Europe kept its market share leadership with sales up by 3.5% to US$2.6 billion,

followed by Asia Pacific where sales came to US$2.2 billion (+3.9% in 2008).

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2013

Oral Care by Category 2003/2013

Toothbrushes

Tooth whiteners

Dental floss

Mouth fresheners

Denture care

Mouthwashes/dental rinses

Toothpaste


34


Colour cosmetics, worth US$43.5 billion,

slowed their growth to 4.4% in 2008 (vs. 5.8%

in 2007). A growth thrust from Latin America

(10.9%) and Eastern Europe (10.1%) was

offset by weak sales of just 1.1% in North

America (lip products, facial make-up) and

2.7% in Asia (mainly facial make-up).

Emerging markets mostly maintained their

rapid pace of expansion, substantially better

than developed regions. Latin America saw

double-digit growth in all sub-sectors except

nail products (-2.8%). China (+12%) and

India (+29% from low base) saw the highest

growth amongst BRIC countries. Brazil

remained the largest BRIC market with a

value of US$2.2 bn, however saw lower

though respectable growth of 9.4% in 2008.

The long-held 'lipstick effect' theory is not

holding up quite as well as in past recessions,

with both high-end and mass products being

affected. Colour cosmetics will grow below

the overall CT market; Asia Pacific (mainly

China) and West Europe will produce the bulk

of absolute growth and Latin America will

come in a close third value creation.

Category Review

Colour Cosmetics: Strong Growth Dynamics in India and China

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2007 2008 2009 2010 2011 2012 2013

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Global Colour Cosmetics by Region 2007-2013

Asia Pacific Eastern EuropeLatin America Middle East and AfricaNorth America Western EuropeAP % change EE % changeLA % change MEA % changeNA % change WE % change


35


Colour Cosmetics: Product Innovation Critical

Weaker economic growth, rising cost of living and lower household income will lead consumers to trade down

and make fewer purchases (lipsticks, eye-shadows, blushers), especially in mature western markets, despite

colour cosmetics tending to be small-ticket items.

Producers are responding with smaller packaging and compact versions that effectively raise unit prices, and

with 'better value' deals, but pressure on sales will persist in 2009.

To woo consumers manufacturers are adding extra features, such as anti-ageing benefits (Cover Girl/Olay-

Simply Ageless) and sun care SPF. The trend towards natural products is creating dynamic 'price-resilient'

demand for mineral make-up (ie. L'Oréal's Bare Naturale, Almay's Pure Blends).

Geographic expansion into emerging markets together with novel products and designs are imperative.

Battery-operated mascara is one such example, while colour palettes and textures suited to skin tones in

emerging markets is as yet untapped.

0

1

2

3

4

5

6

7

8

2004 2005 2006 2007 2008

% y

-o-y

gro

wth

Growth Rates of Global Colour Cosmetics Sales 2004-2008

Facial make-up Eye make-up Lip products Nail products


36


Fragrances grew by 5.5% to US$38.9 billion in 2008, or

13% of the global CT market. All regions, except Middle

East Africa saw a deceleration in sales from 6.9%

growth in 2007. The sector's overall performance

mainly reflected a lower 2.4% expansion in Western

Europe (largest fragrance market, 36% of world sales)

and a sharp 4.5% fall in North America. Both regions

saw a slowdown in both premium and mass. In the US,

the decline occurred in all product categories, and the

largest fall was in mass men's fragrances (-8.9%).

Latin America was the growth engine, strong across

categories, especially women's (premium +17.6%,

mass +16.7%). Brazilian sales rose by 14.9% to

US$5.3 billion (60% of Latin America); the strongest

growth was in Venezuela (35.5%) and Argentina

(27.0%).

Sector growth rates will cool as the narrowing margin of

disposable income from the past economic growth

phase will weigh on volume sales, especially in the

western world. Producer response will be on smaller

packaging (Estée Lauder's 'Beautiful'), limited editions,

and a continuation of 'masstige' such as celebrity

fragrances. These require no advertising budgets and

cost less to manufacture. Mid-ranging fragrances will

see more price pressure. Exclusive perfumes (Roja

Dove's Enslaved at £350/100ml, Le Exclusif) will

maintain a limited consumer base.

Fragrances: Latin America Marks the Growth Pace

-10% -5% 0% 5% 10% 15% 20%

Latin America


Eastern Europe

Asia Pacific

Western Europe

Australasia

North America

Premium and Mass Fragrances by Region

Mass fragrances Premium fragrances

Category Review

0

1

2

3

4

5

6

7

8

333435363738394041424344

2007 2008 2009 2010 2011 2012 2013

% y

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gro

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US

$ b

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n

World Fragrances Market 2007-2013

World fragrance market Annual growth rate


37


In 2008, the global bath & shower products market grew by

5% as consumers were more willing to trade up for basic

hygiene products. Bar soap is the single most valuable

product, with sales of US$11.8 billion (41% of sector value),

followed by body wash/shower gel (32%.)

Bar soap grew by 7% and was the fastest growing category

given rising disposable income in emerging markets and

despite falling sales in Western Europe (fifth year in a row).

Liquid soap was second fastest and rose by 6% (11% of bath

& shower sales), aided by bubble gel in individual capsules

and gel in sachets.

Asia is the largest market in value terms with a 27% share

(US$7.7 bn). The highest growth was in shower gel and liquid

soap. Latin America and Eastern Europe grew double-digit

and faster than the global average.

Latin American middle and high-income consumers traded up

to more sophisticated products, causing a sharp growth rate

of 14% in 2008. Shower gel is seeing strong growth as the

category is still very small. A trend to shower more often and

with more value-added features (eg. moisturising, anti-

bacterial properties) are the two main factors that buoyed

sales of bar soap.

Bath & shower sales are to grow on average 1.5% over

2009-13. Firmly rising growth rates in China/India stand in

sharp contrast to mature Japan, and Asia could further

expand its share of global bath & shower spend to 28% by

2013.

Category Review

Bath & Shower Products: Emerging Regions Steer Growth

-4

-2

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4

6

8

02468

101214

% C

AG

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US

$ b

illio

n

Global Bath & Shower Sales by Category

2008 2003-08 CAGR % 2008-13 CAGR %

Sector Growth: Mature vs Dynamic

DYNAMIC

Bar soap

Liquid soap

Body wash/

shower gel

Latin America

Eastern Europe

MATURE

Bath additives

Talcum powder

North America

Western Europe


38


Men's grooming was one of the most dynamic CT sectors

in 2008, growing by 6% to US$26 billion in value terms.

Men's toiletries grew by 7% based on solid growth in all

products, especially very strong growth in skin care

across all regions. Meanwhile, men's shaving products

grew by 5.4% as consumers traded up from disposable

razors to system razors (Gillette Mach 3, 4-5-blade).

Western Europe (WE) rose by 4.4% and is the largest

contributor to sales of men's grooming products being the

most mature regional market at 32% of global value. WE

maintains stronger growth dynamics than the US, and

forecasts suggest WE will grow substantially faster than

the US in 2009-13.

Latin America showed tremendous growth, rising by

11.9% in 2008, aided by changing attitudes towards

appearance and a rise in disposable income.

Sector growth potential is large (skin/hair care, bath &

shower) given: low penetration of men's product lines,

niche products not yet mainstream (male 'make-up':

YSL's Touche Eclat for Men), rising product sophistication

(higher value-added anti-agers & moisturisers) and

growing adoption of daily personal care routines (male

product lines start to mimic those of the more lucrative

women's market). Near-term, cash-strapped male

consumers are likely to trade down from premium to

mass brand/uni-sex, with price a large influence when

choosing personal care products.

The most important product distribution outlet for men's

grooming lines is grocery stores via which 53% of all

male-specific CT globally are sold.

World brand leaders are Procter & Gamble 36.1%

(Gillette Mach 3, Fusion, Series, Sensor), Unilever

10.0% (Axe/Lynx, Rexona), Energizer 5.5% (Schick-

Wilkinson sword) and Beiersdorf 4.8% (Nivea for Men).

P&G is clear leader in men's grooming given its 'Gillette'

superbrand, capturing well over a third of the world

market. Unusually high brand loyalty in men's grooming

(unlike the women's market) strengthens the value of

these market share figures.

Category Review

Men's Grooming Category Still in Its Infancy

0

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10

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2007 2008 2009 2010 2011 2012 2013

% y

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Men's Grooming Products Market 2007-2013

Men's shaving Men's toiletries

Men's shaving % change Men's toiletries % change


39


The global deodorants market grew by 7.6% in

value terms in 2008, despite the economic

slowdown. Much of this industry-beating growth

was due, in large part, to strong growth in sprays

and roll-ons in Latin America (Brazil +18%,

Argentina +28%) and Middle East/Africa (South

Africa, UAE/Saudi Arabia). Latin Americans' liking

of scents makes the region the world's second

largest for deodorants after Western Europe, which

grew by 2.7% aided by manufacturers' value-

adding efforts (enhanced efficacy, 24h/48h

protection, Old Spice Red Zone's anti-bacterial

properties).

Globally, the share of premium vs mass products

remained almost unchanged at 3%.

Sprays sales rose by 9%, driven by consumers in

emerging markets trading up from pumps to sprays

(growth engine Latin America up a massive 35%),

and the gaining popularity of sprays vs pumps and

new products with natural qualities (Natura): aloe,

cucumber, green tea appeal to consumers looking

for more natural, gentle and moisturizing products.

Many consumers with sensitive skin search for

gentle products without added fragrances or

irritants, especially given frequent use of

deodorants. Growth in Western Europe was a more

moderate 4%.

Unilever is undisputed global market leader with 31% share

(brands: Rexona, Axe/Lynx, Dove), and is the #1 player in

Western Europe and Latin America (combined 62% of world

market); the #2 player is Procter & Gamble with 10% market

share.

New product launches ('hair-minimising' formula for Dove:

24h anti-perspirant, skin care benefits, slower rate of under-

arm hair growth) could boost sales for the group, though its

response to price hikes by competitors to offset higher

production costs could challenge market share.

Category Review

Deodorants Fastest Growing in 2008

-5

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-3

-2

-1

0

1

2

3

4

0

1

2

3

4

5

6

7

8

Sprays (+9.2%)

Roll-ons (+9.5%)

Sticks (+5.0%)

Pumps (+4.7%)

Creams (+0.0%)

Wipes (+0.1%)

% C

AG

R

US

$ b

illio

n

Global Deodorants by Category

Market Size - US$bn 2008-13 % CAGR

Note: Brackets indicate % y-o-y growth for 2008


40


Sun Care Maintains Growth Dynamics

Sun care was a dynamic segment and rose by 6.6% in 2008, as every year driven by growth in increasingly

commonplace sun protection products (cancer prevention, premature skin-ageing), which now account for as

much as 83% of the sun care category. Both Eastern Europe and North America showed continuity in their

recent years' pace of growth.

Premium products represented 21% of total sun care sales in 2008, slightly above the previous year.

The need to respond to the dangers of unprotected exposure to the sun is the main demand driver, unlike

other cosmetic and toiletries categories, and has partly come at the expense of tanning.

Ingredient innovation has been important in the sun care market and products with 'higher factor' sun

protection are increasingly popular. Growth is anticipated to stay positive in coming years, and is likely to

outgrow the rest of the cosmetics & toiletries market. Concern that nanotech may penetrate sun-damaged skin

has so far been insufficient to meaningfully dent demand.

In some countries, usage of sun protection products has partly been driven by public health campaigns (eg.

Australia's 'Slip-Slop-Slap' campaign).

-5

0

5

10

2007 2008 2009 2010 2011 2012 2013

% y

-o-y

ch

an

ge

Global Sun Care 2007-2013

Sun protection (US$6.9bn) Aftersun (US$581mn) Self-tanning (US$710mn) Total sun care (US$7.8bn)

Note: Brackets indicate size of category in 2008


41


Sun Care: Leaders Differ Across Regions

North American sun protection sales grew by 10.5% as consumers sought protection against UV exposure

and improved skin care (rather than bronzing). A hefty 70.2% slice of the sun protection market is held by

Energizer (Banana Boat), Schering (Coppertone), and Johnson & Johnson (Neutrogena).

In Eastern Europe, sun protection sales rose 12.2%, boosted by demand in Russia and Ukraine (albeit from

small base). Regional brand leaders are Beiersdorf's Nivea Sun (12.7% market share) and L'Oréal's Ambre

Solaire (7.8% share).

Asia represented 20% of total sun protection. The trend for a pale complexion remains intact, especially in

Japan where market growth was driven by products as Kanebo Cosmetics' Allie Whitening Protector or Nivea

Sun Protect Whitening Gel.

China remains a comparatively small market as a minority of consumers use sun care given cost and limited

awareness. Sun protection sales rose by 16% in 2008 on the back of skin-whitening sun protection products

(eg. Dior Snow Sublissime UV) and mass sun protection products (eg. Herborist Sunblock Emulsion).

-2

2

6

10

14

18

22

0

1

2

3

4

5

Asia Pacific Australasia Eastern Europe Latin America Middle East and Africa

North America Western Europe

% C

AG

R

US

$ b

illio

n

Sun Care Market by Region

2008 Sales (US$bn) 2003-08 CAGR % 2008-13 CAGR %


42


The baby care market rose by 6.7% in 2008 to

US$6.7 bn or 2% of global CT spend. Sales

withstood economic pressures comparatively well

as parents were generally unwilling to sacrifice

product quality for their children (despite media

cover on potentially dangerous chemicals in baby

products).

Demand growth also benefited from increased

purchases of baby care products for adult

consumption (female consumers trade down to

cheaper baby body care, such as baby lotion).

Premium products represented 5.6% of sector

sales.

The move towards natural and environmentally

friendly products showed resilience in this category.

Baby toiletries remain the largest product type, with

sales of US$2.2 billion (38% of sector value),

followed by baby skin care with 31%. Baby toiletries

and baby hair care were the two fastest growing

products in 2008, rising by 7.3%/6.8% respectively.

Growing competition, especially from local

companies in emerging markets, will increasingly

place pressure on Johnson & Johnson's dominant

market share. This is the case across all BRIC

markets, and strong growth projected for China

suggest increasingly fierce competition from Tianjin

Yumeijing, Henkel and Pigeon Corp going forward.

Category Review

Baby Care: Small but Robust

Baby toiletries

38%

Baby hair care22%

Baby skin care31%

Baby sun care9%

Baby Care by Category 2008

02468101214

0

400

800

1,200

1,600

% C

AG

R

US

$ m

illio

n

Baby Care Market by Region

2008 Sales (US$mn) 2003-08 CAGR % 2008-13 CAGR %


43


Global Snapshot

Regional Overview

Category Review

Channel Analysis


Global Prospects

Appendix


44

© Euromonitor International >Cosmetics & Toiletries-ProspectsChannel Analysis

Winners and Losers by Channel Type

Department stores are losing relevance in a highly-pressured luxury market. The channel's value share of

global CT sales fell by 0.4 percentage points in 2008, as grocery retailers and non-store retailing (internet and

direct selling), made gains. The market share of department stores is down from 12% in 2002. Even emerging

markets favour new retail formats (share in Eastern Europe down from 10% in 2002 to 5% in 2008).

Specialists are benefitting from the booming emerging markets. They are filling the gap left by department

stores in decline and fueling the penetration of niche brands. Estée Lauder launched Clinique and Estée

Lauder as stand-alone outlets in India; department stores offer little to differentiate premium and mass.

Direct sellers are benefiting from the recession. Total direct sales amounted to US$36.4 billion in 2008, around

half of which came from Eastern Europe and Latin America. Door-to-door selling is diminishing in importance

in developed markets (albeit still posting reasonable growth), as the role of internet, interactive technologies,

blogs become more important and personal advice can be replicated through the internet and TV more easily.

Pharmacies/drugstores benefit from product differentiation and "pharma" brands. Drugstores gained share of

total cosmetics and toiletries sales in 2008 in the US, for example, as retailers such as CVS and Walgreens

upgraded their beauty departments and added more exclusive and private label lines.

Share of CT Purchases: Outlets Gaining Over

2003-2008 PeriodShare of CT Purchases: Outlets Losing Over

2003-2008 Period

Supermarkets 28%

Discounters 2%

Beauty Specialists 13%

Internet Retailing 2%

Direct Sellers 11%

Department Stores10%

Mass Merchandisers 3%

Small Grocers 5%

Pharmacies 6%

Home Shopping 1%


45


Intensive Retail Expansion in Russia

Price and convenience continued to place supermarkets in the lead of CT retailing, and the format gained

share across most regions, except in Latin America and Australasia, where supermarkets nevertheless

distribute the highest shares of regional CT sales in the world (39% and 44%, respectively). Geographic

expansion continued with intensive focus on Russia where Auchan and Carrefour made commitments to

expand their networks in 2009, and Wal-Mart looked set to take a controlling stake in local hypermarket Lenta.

As the Eastern European economic landscape continues its transformation, the falls in small grocery retailers

and department stores have been dramatic, with consumers being attracted to the ease of supermarkets and

the better product differentiation and service of beauty retailers (perfumeries). The latter are the 3rd most

important channel in this region, where fashion and appearance are taking increasing importance and growth

of the channel has been exceptional. LVMH was seen taking a 50% stake in Ile de Beaute in Russia in 2008,

indicative of the company's commitment to this fast developing market.

Beauty retailers also made great inroads in Western Europe, and Middle East Africa. However, focussing on

small speciality retailers as opposed to department stores has also become a focus in Japan. Shiseido has

released its first major brand for speciality shops in 10 years.

0

10

20

30

40

World Asia Pacific Eastern Europe Latin America Middle East Africa


% v

alu

e s

ha

re

Share of Regional Market

Supermarkets & Discounters Department Stores & Mass Merchandisers Drugstores & Pharmacies

Beauty Specialists Non-store Retailers Others


46


0

5

10

15

Internet Homeshopping Direct Selling

% v

alu

e s

ha

re

Non-store Retail 2003/2008

2003 2008

Channel Analysis

Internet Retailing Benefits from 'Cocooning'

Frugal Green

Cocooning Online

Worldwide, there is a trend towards the home – from the networked

office facilitating home working at one end of the scale to a fortress

existence at the other.

Many Americans are "hunkering down" and "nesting" at home that

translates to more time spent online, while CT manufacturers are

creating increasingly sophisticated online interfaces with consumers

that together, support increased CT spend via the internet channel.

Internet retailing has grown sharply in Eastern and Western Europe,

where usage has caught up with Asia Pacific levels that have slowed

in recent years.

In developing markets there is an increased supply of newly

unemployed that are keen to take up direct selling activities to

supplement family income.

Direct sellers' mass and masstige offerings incorporate the latest

scientific developments at affordable prices with personal service

and direct-to-the-home.

Consumer behavioural shifts in cold economic climate support the growth of non-store retail


47


Private Label Set to Grow in Emerging Markets

-10

0

10

20

30

40

0

1

2

3

4

5

World Asia Pacific Australasia Eastern Europe

Latin America Middle East Africa

North America

Western Europe

% C

AG

R

% v

alu

e s

ha

re

Regional Comparison of Private Label Penetration and Growth in Sales

Regional share of CT sales % CAGR 2003-08

Though private label sales grew by 7% in 2008, the segment's presence remains marginal with a 2.1% share of global

sales that is flat to 2003. Across regions, the relative success of private label is impacted by cultural factors (mistrust

in the Middle East for example, or strong price/quality link in Japan), disposable income levels (in Eastern Europe

private label fills the gap between high-end and low-priced products), and reach/strength of the supermarket

/hypermarket channel (very strong in Europe that drives global growth). Emerging markets where penetration is low

hold promise, and generally can target basic necessity toiletries.

Retailers are promoting 'captive' brands (not associated with the retailer) that claim a higher margin. Walgreen's

natural BioInfusions line recorded solid gains in the US market. In products where consumers prioritise image and

efficacy over price, such as skin care, private label has mostly failed with some exceptions (UK's Boots No7 Protect

and Perfect Beauty, Aldi's Siana anti-wrinkle cream).

Supermarket retailers are successfully adapting their strategies to a recessionary world and increasingly sophisticated

global consumer becoming more brand-oriented in their approach, segmenting with premium/economy ranges, and

with categories such as kids, healthy eating, organic, fairtrade, free from, ethnic etc. They are tapping into the natural

trend, with all majors branching into natural cosmetics, Auchan being the largest to roll out its certified organic

cosmetic and toiletry line in November 2008. Since mid-June 2008 private label focus has shifted firmly to discount

lines.


48


Global Snapshot

Regional Overview

Category Review

Channel Analysis


Global Prospects

Appendix


49

© Euromonitor International >Cosmetics & Toiletries-ProspectsCompetitive Environment

Brazil Aids Solid Sales Gains for Natura and Avon

Manufacturers that are able to capture additional CT spend in large and fast growing markets, such as Brazil and

China, are those making the greatest advances in global market share levels.

L'Oréal performed well thanks to increasing coverage of the emerging markets and being positioned in some of the

fastest growing segments, such as anti-agers, men's skin care and sun care. L'Oréal is well-placed in China's skin

care sector, that will be contributing the most to global CT growth. Its boost in share was also helped by the

acquisition of Yves Saint Laurent.

Strong performance in Brazil's colour cosmetics sector helped Avon increase overall global CT market share. Colour

cosmetics in Brazil is predicted to grow at a faster rate than global cosmetics and global colour cosmetics markets,

even if it is one of the slower growing areas in Brazil. To maintain share gains in the long-term, Avon needs to reverse

market share losses in China's skin care sector, and in other sectors predicted to grow fast such as Brazil fragrances

and Brazil skin care.

Brazilian company Natura has expanded throughout Latin America, with a strong "latin" ethos and products that

highlight the South American identity such as the 2008 launches of fragrances named Amor America Paramela and

Amor America Palo Santo. It has developed strong branding as an environmentally friendly producer, and its

packaging has reflected this successfully. It is the leading CT player in Brazil, thanks to top positions in baby care,

fragrances and skin care, and holds 2nd largest share in other sectors.

Hypermarcas of Brazil, formerly in household care and food packaging, entered the cosmetics and toiletries market

via acquisitions in the hair care and colour cosmetics sectors (Éh Cosméticos' company; the Aquamarine, Juvena and

Bozzano's brands from Revlon; and Niasi, all in 2008).

Market Share Gains 2008

L'Oréal Avon Natura Amway Oriflame Botica Hypermarcas

Global market share 10.4 3.6 1.2 0.9 0.7 0.5 0.2

Basis point change 20 20 20 10 10 10 20

Nominal sales growth 11% 14% 28% 15% 27% 31% 454%


50


Opportunities

WeaknessesStrengths

Threats

Commanding market

share in premium

Long-term benefits in

emerging markets

Further grow the YSL

brand in MEA

West Europe's high

growth categories

Negative CAGRs in

North America

YSL integration needs

to be effective

Premium cosmetics

segment volatile

Weak share in Asia

Pacific (AP)

The acquisition of YSL Beauté

catapulted L'Oréal to #1 in

West Europe's premium colour

cosmetics segment raising

market share to 23.7% from

18.3%, overtaking Estée

Lauder. West (and East)

Europe will drive premium

cosmetics growth. YSL also

boosted L'Oréal's global share

of premium CT spend to 14%,

from 12.8%, on the heels of

rival Estée Lauder's 15.3%.

Beyond the current recession,

the rising middle class of BRIC

countries and frontier markets

means demand for premium

cosmetics will increase in

these emerging regions over

the long term. L'Oréal can

capture this new spend with

the YSL brand using its

existing network.

Around 66% of Yves Saint

Laurent's CT portfolio consists

of colour cosmetics, that is

currently one of the slowest

growing categories within

premium, posting growth of 1%

in 2008. Additionally, current

trends favour mass cosmetics

(+6% 2008/07) over premium

cosmetics

AP will be amongst the leading

markets for premium

cosmetics over 2008-13, and

YSL's AP presence is currently

limited. With a share of 4.8%,

L'Oréal is the fifth leading CT

player in AP and could utilise

its position to leverage the

expansion of YSL, particularly

in colour cosmetics where

L'Oréal ranks third.

Middle East Africa continues to

offer good prospects for the

long term. Premium colour

cosmetics are predicted to

achieve the second highest

growth rate in MEA over 2008-

13. YSL has a good presence

in this region and is the third

leading brand in premium

colour cosmetics.

WE accounts for 65% of YSL's

portfolio. Premium cosmetics'

2nd highest predicted absolute

growth is in WE. YSL can help

L'Oréal capture growth via on-

line sales, by tapping into

men's grooming or with new

products to compete with the

likes of Lancôme's Turbo Lash

mascara.

.

The growth forecast for North

America's CT market is a

negative 1.5% CAGR over the

2008-13 period, while the

region's premium cosmetics

segment is forecast to decline

by an even greater -7.2%

(colour cosmetics -7.8%).

Around 16% of the YSL brand

is based in North America.

L'Oréal faced difficulty with its

acquisition of Chinese CT

brand Mininurse, where it

subsequently lost market

share. YSL's integration should

be aided by both companies

being West European and

culturally similar, and by

L'Oréal's now greater

experience integrating.


L'Oréal Boosted by Acquisition of YSL Beauté


51


Procter & Gamble’s performance in 2008 was not encouraging, with the firm losing share in the global

cosmetics and toiletries market. This was partly due to the divestment of Noxzema, but it also lost share in two

leading BRIC markets: China and Brazil.

L'Oréal's boost in market share was facilitated by its acquisition of Yves Saint Laurent, but it has been

focusing on markets with strong growth potential including China skin care. It has performed well in most of

the high growth markets.

Unilever and Colgate have been focusing on mass toiletries such as bath & shower, deodorant and oral

hygiene. These firms have strong brands which enjoy high degree of loyalty, but unless these firms expand in

high growth areas such as skin and hair care they may face stagnation in the long run.

Avon's share in the global cosmetics and toiletries market increased 20 basis points in 2008. This was partly

driven by Avon's growth in colour cosmetics in Brazil, but this market is predicted to grow below that of the

cosmetics and toiletries in Brazil. Avon lost share in some of the high growth markets such as China skin care.

Estée Lauder lost share mainly due to strong competition from masstige brands in the anti-ageing category

and heavy reliance on North America. Beiersdorf increased its market share at the global cosmetics and

toiletries level mainly driven by men's grooming and hair care. Beiersdorf however lost share in China's hair

care, a high growth market, despite the acquisition of C-Bons in 2007.

Shiseido and Kao, both Japanese companies, have managed to retain their shares. While Shiseido is moving

in the right direction by expanding in the skin care category in China, Kao is too Japan focused.


Regional Expansion to Increase Growth


52


Market Share Movement by Major Player

Top 10 Players Performance

Company nameY-o-y share

movement 2008

2004

Ranking

2005

Ranking

2006

Ranking

2007

Ranking

2008

Ranking

2008 %

value share

Procter & Gamble Co, The 2 1 1 1 1 12.6

L'Oréal Groupe 1 2 2 2 2 10.4

Unilever Group 3 3 3 3 3 7.1

Colgate-Palmolive Co 5 4 4 4 4 3.9

Avon Products Inc 7 6 6 6 5 3.6

Estée Lauder Cos Inc 6 5 5 5 6 3.4

Beiersdorf AG 8 7 7 7 7 3.3

Johnson & Johnson Inc 10 9 8 8 8 2.8

Shiseido Co Ltd 9 8 9 9 9 2.5

Kao Corp 12 12 10 10 10 2.3


53


Leading Companies in High Growth Markets

Chart/image area

Strengths Weakness Opportunities Threat Recommendation

Procter &

Gamble

Number 1. China

skin and hair care.

Gained share in

China hair care.

Lost share in

China's skin care

and Brazil hair

care.

Should focus on

China skin care

L'Oréal in China

skin care and

direct sellers in

Brazil

P&G should focus on

China skin care

through new product

launches.

L'Oréal

Gained market

share in China skin

care and Brazil hair

care

Lost market share

in Brazil skin care

Hair care in China

and skin care in Brazil

Shiseido in China's

skin care.

L'Oréal has been on

right track focusing on

China's skin care

market.

UnileverMarket penetration

in emerging markets

Unilever operates

in limited

categories.

Skin care in China

and Brazil

L'Oréal in Brazil

hair care and

Procter & Gamble

in China hair care

Unilever is focused on

limited categories and

should expand to fast

growing skin care

Beiersdorf

Increased market

share in skin care

China, but remains a

small player

Lost market share

in hair care China

Skin care China and

Hair Care China and

Brazil

Bawang in hair

care China

Beiersdorf is rightly

increasing its market

share in China, but

focus on product

development in hair

care China.

ShiseidoIncreasing market

share in China skin

and hair care

Limited regional

presence

Skin care and hair

care Brazil, although

it has Asian

orientation

L'Oréal in skin care

China

Although, Brazil offers

opportunity, Shiseido

is better off focusing

on China skin care

Coty

Amongst the leading

company in global

mass fragrances

category

Limited presence

in Brazil mass

fragrance,

Mass fragrances

Brazil

Natura, Botica and

Avon in Brazil

mass fragrances

Mass fragrance Brazil

offers good growth

opportunity for Coty.


54


Direct Sellers' Success Not Uniform

The performance of direct sellers during 2008 was helped by the global economic downturn in countries where direct

sellers already hold strong footholds, such as Russia and Brazil, however product strategies played the key role in the

success of individual manufacturers. Performance across regions varied sharply. Direct sellers enjoyed healthy share

gains in faster growing CT markets, ie. Latin America and Eastern Europe; they continued to lose strength in Asia

Pacific and Australasia, and held their ground in remaining world regions.

In Eastern Europe, Oriflame was again the clear winner, raising its market share from 5.7% in 2007, to 6.3% in 2008.

While Amway also made progress gaining 0.2 percent points, Avon continued a four-year long declining trend in

market share. Oriflame has had a string of successful product launches (see Regional Overview - Russia) that have

enabled the company to consistently make large market share gains over the past decade.

Brazil - where consumers spend three times as much on personal care as consumers do elsewhere - is a key market

for direct sellers, particularly in the fragrances category (18% of CT spend, versus 11% globally). Avon and Natura -

the top two global mass fragrance manufacturers - are amongst the overall top three in the Brazilian CT market. More

importantly, they achieved share gains during 2008, together with local beauty retailer Botica, while the vast majority

of leading international manufacturers lost market share.

0

5

10

15

20

25

30

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

% v

alu

e s

ha

re

Market Share of Direct Sellers by Region 1997-2008


Latin America Middle East and Africa North America Western Europe


55


Global Snapshot

Regional Overview

Category Review

Channel Analysis


Global Prospects

Appendix


56

© Euromonitor International >Cosmetics & Toiletries-ProspectsGlobal Prospects

What Does 2009 and Beyond Hold for the Industry?

Euromonitor International expects US and world GDP to decline in 2009 – for the first time in 60 years. Despite some

commentary in the financial press featuring "green shoots" of recovery in June 2009, growth is not expected to pick up

until 2010 and is likely to remain below trend levels for several years.

Leading BRIC economies that are expected to recover more quickly than developed countries, will lead regional CT

markets out of the downturn. While CT spend will fall an estimated -1.6% in Japan in 2009, the remaining Asia Pacific

region's CT market is projected to grow 4.2% in 2009, thanks to China (22% of AP's CT, +6% in 2009) and India (7% of

AP's CT, +8% in 2009). Similarly, Brazil that accounts for 55% of Latin American CT spend will grow by 4.5%.

Manufacturer strategies to succeed in the economic slowdown should incorporate expansion in the most dynamic/large

sectors of major emerging economies such China's skin care and hair care markets, and Brazil's fragrances, skin care and

hair care markets.

Because the largest sectors (hair care, fragrances, overall skin care excluding anti-agers) will slow markedly or decline

(hair care), adding benefits, tapping into popular trends (organics, cosmeceuticals) and investing in advertising and

marketing campaigns will also be necessary, particularly in mature markets.

Department stores should continue seeing footfall declines, and perfumeries/specialist beauty retailers and supermarkets

continue to expand, at a slower pace, still helping to drive CT sector growth. Private label, direct sellers and online retail is

poised to perform well in 2009, as consumers look for cheaper alternatives.

-2

0

2

4

6


Latin America Middle East/Africa


20

08

-13

CA

GR

%

Cosmetics and Toiletries Forecast Regional Performance

CT Premium CT


57


Skin Care, Fragrances and Hair Care to Lead Industry Growth

Skin care will be the most prospective sector in the next five years. The sector will grow above the cosmetics and

toiletries market and contribute the most to cosmetics and toiletries absolute growth. Growth in this category will

mostly be driven by China, while anti-agers will contribute 45% of skin care's absolute growth.

Fragrances is the next most lucrative sector; it will grow above the market rate, forming the second leading category in

terms of absolute growth, 61% of which will come from mass fragrances in Brazil.

Hair care, although projected to grow below the cosmetics and toiletries market, is the third leading category in terms

of absolute growth that will total US$4 bn in the next five years. This therefore falls within growth opportunity, and

shampoo will account for nearly 60% of the growth in this category, while the key markets will be China, Brazil and

India.

Firms well placed in markets projected to grow have a head start to benefit from future growth prospects. For

example, L'Oréal is a top ranking firm in both skin and hair care. However, how well the companies actually perform

will depend on how effectively they can diversify regionally.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2009 2010 2011 2012 2013

% y

-o-y

gro

wth

, va

lue

Cosmetics and Toiletries Forecast Category Performance 2009-2013

Total CT Hair care Colour cosmetics Men's grooming products Fragrances Skin care


58


Premium Cosmetics Set to Be Worst Hit by 2013

Forecast Category Performance

Categories CAGR 2008-13 Absolute growth (US$ bn)

Sun care 2.8% 857

Baby care 2.8% 1,145

Skin care 2.4% 9,466

Men's grooming products 2.2% 3,041

Fragrances 2.0% 4,103

Deodorants 1.9% 1,645

COSMETICS AND TOILETRIES 1.8% 30,292

Oral hygiene 1.5% 2,625

Colour cosmetics 1.4% 3,151

Bath and shower products 1.3% 1,887

Depilatories 1.3% 247

Hair care 1.2% 4,056

Premium cosmetics 0.7% 2,707

Note: Categories expected to consistently grow above the sector average every single year are marked in green, those below in red.


59


Though BRIC countries will not be shielded from

economic slowdown, they will drive CT market growth

over the next five years, accounting for a combined

US$19 billion out of US$30 billion in absolute value

sales growth to be generated globally during the

forecast period. The leading markets (US and Japan

currently) will contract.

By 2013 Brazil's CT market will be worth US$36 bn,

and China's US$25 bn, as continued economic growth

filters to the population. Brazil's annual spend will

average US$178 per person (3x the global average),

while China's will be around US$17 or 10% of Brazil's,

despite a much larger population. China's economy is

highly protected, and roughly a third is controlled by

the government. Foreign manufacturers still have to

partner with a Chinese company to trade locally.

India's CT market will remain small and still focused on

basic personal care categories. However, cumulative

growth of 45% will mean absolute growth will be the

third highest globally.

Over the next five years Russia's CT market will see

slower growth in real terms. The market will likely

exhibit maturity and relative saturation in major beauty

categories such as hair care, bath and shower, oral

hygiene, and skin care.

Global Prospects

Brazil, India and China: Antidote to Global Recession

0

5

10

15

20

25

30

35

40

China India Russia Brazil

US

$ b

illio

n

CT Performance in the BRICs

2003 2008 2013


60


Latin America Set to Overtake North America by 2013

Countries with 2008-13 CAGR that is positive,

equal or higher than the 2003-08 CAGRCountries whose 2008-13 CAGR is negative or

worsens markedly vs. the 2003-08 CAGR

Peru 8.7% vs. 6.3% $655 mn

Brazil 4.7% vs. 8.4% $7,457 mn

Chile 3% vs. 3.2% $262 mn

Colombia 2.1% vs. 2.1% $287 mn

USA -0.6% vs. -1.1% -$1,636 mn

Argentina 2.2% vs. 10.9% $331 mn

Venezuela 3.1% vs. 9.0% $508 mn

Uruguay 1.9 vs. 4.2% $27 mn

Immaturity in emerging markets supports value growth. Because per capita spend in mature CT markets is

high and has a comparatively greater premium component, there is possibly greater scope for curtailing

purchases when the economic climate worsens. Furthermore, the eye of the current global economic storm is

in North America's US market that takes 88% of the region's CT spend. These factors will underpin an overall

contraction of US$1 billion in the North American market over the next five years, despite only a modest

slowdown in Canada's 2008-13 CAGR's to 1.7%, from 2.7% during the review period.

Their proximity to the US will see Canada and Mexico generating lower average annual growth. Mexico's

2008-13 CAGR is projected to decline from 2.9% in the 2003-08 period to a low 1.6% for 2008-13. The

relatively large size of the overall CT markets of Canada and Mexico, will enable the two countries to continue

to generate important absolute growth in value sales (Canada US$606 mn, Mexico US$668 mn).

In all, Latin America, is poised to generate one third of the global CT market's absolute growth in the next five

years, overtaking North America by 2011. South American economies, which suffered a financial crisis in

2001-2002, are many now sound, and will see slower growth due to lower exports and reduced credit access,

but should remain resilient (excepting Argentina and Venezuela). Brazil is counted on to be the region's

engine, accounting for 55% of CT sales, but generating 71% of absolute sales growth in the forecast period.

Absolute Growth Absolute Growth


61


The BRIC countries were named as the most rapidly developing countries with the greatest economic potential. With

these countries continuing to develop fast, it is useful to look at the next tier of emerging economies. Those countries

following the BRIC path will typically have high rates of population growth, and rising disposable incomes, creating a

growing pool of potential consumers.

The frontier markets are far smaller economies than the BRICs and, with smaller populations hold less potential for

beauty firms looking for opportunities beyond the maturing developed world. However, economic growth is

accelerating in these markets, and amid optimism that more governments will embrace capitalism they have become

lures for foreign investors. The frontier markets, being less exposed to swings in the global economy, can also be a

way for cosmetics firms to reduce risk. Most importantly, they offer the multinationals new options for global expansion

beyond the BRIC economies, should any slow down, such as Russia.

Global Prospects

Frontier Markets to Watch Out for Next

0 1 2 3 4 5 6 7 8

Poland

Ukraine

Venezuela

Saudi Arabia

Netherlands

Canada

Peru

Mexico

Thailand

Spain

UK

Russia

India

Brazil

China

US

$ b

illio

n

Absolute Growth 2008-2013

0 1 2 3 4 5 6 7 8 9

Venezuela

Malaysia

Ukraine

Kazakhstan

Indonesia

Saudi Arabia

Brazil

Thailand

Belarus

Morocco

Vietnam

United Arab Emirates

China

India

Peru

%

CAGR 2008-2013


62


Masstige Beauty Will Continue to Accelerate

Key Issues Future Impact to 2013

Resilience

to

recession

As growth in the industry's largest markets of the US and Japan is unlikely to rebound until 2013, focus will

remain on the BRICs. However, with Russia's economy being severely hit by the recession and the BRIC's

personal care market expected to expand at a much lower pace than seen in the past, company

investments need to be more focused and targeted.

The most prominent growth potential will be in the rapidly expanding skin care market in Asia (China's

premium skin care is set to increase by 11% by 2013), fragrances in Latin America (Brazil is expected to

account for over half of the global absolute growth, an additional US$ 2.6 billion in the next five years), and

hair care in China, India and Brazil, contributing with a combined extra revenue of US$ 2.9 billion by 2013,

nearly a third of global absolute hair care growth.

Sun care will continue to align itself with beauty, as many skin care operators venture into this segment

with particular focus on anti-ageing benefits. The category's growth dynamics will remain largely

unscathed, with sun protection in North America and Asia posting highest revenue gains

The only regions to show sustained growth in premium cosmetics in 2009 and most dynamic CAGR for the

category by 2013 will be Latin America and the MEA (the latter should contribute with over half of total

absolute growth in premium fragrances).

The rise of

'masstige‘’/

focus on

value

As consumers increasingly look for better value, acceleration in masstige beauty (particularly successful in

anti-agers) will continue, while companies focus on investing in more sophisticated formulations

Consumers will continue to trade up from mass to more specialised, but slightly more expensive brands,

as well as trade down from department stores to the upper end of mass to benefit companies, such as

P&G and Beiersdorf. While many are opting for lower priced brands, high quality and novelty continue to

be a key factor. The most successful brands will be those that offer something unique, but also put extra

emphasis on value, while preserving the 'functional' benefits and a luxury status.

The price points on certain premium products may need to come down in order to retain the mid-luxury

market, as already evidenced by heavy discounting and promotional activity in the luxury arena.

The interest in masstige alternatives to replace premium products will depend on the depth and length of

the current recesssion. In many emerging markets, the current halt of the premiumization trend is likely to

prove temporary as economies rebound.


63


Demand for Both Natural and Scientific Beauty Set to Thrive

Key Issues Future Impact to 2013

The rise of

cosmeceuticals

The trend towards high-tech formulations and improved product efficacy will continue to spiral, many

consumers will opt for cheaper alternatives to cosmetic surgery procedures and salon beauty

treatments. As concerns with health and ageing become increasingly prominent, medical-grade

efficacy and a doctor's seal of approval will become a key factor in purchasing decisions.

At -home treatments are surging as consumers are tightening their belts. The expected rise in DIY

beauty treatments and devices, now spanning across not just luxury and doctor brands, but also

more mainstream masstige offerings, will herald the evolution of cosmeceuticals.

There is a backlash emerging against product inefficacy and safety, that can be constraining. As the

distinction between drugs and cosmetics becomes more ambiguous the formulations of cosmetics

will be under closer scrutiny and products are likely to be treated as strictly as pharmaceuticals.

Ingestible

beauty

The convergence between beauty and food will maintain its momentum. This will present further

scope for development for both cosmetic and food/dietary supplement manufacturers.

However, beauty foods require strong credibility for success. Ingredient formulations in drinks and

foods with beauty enhancing properties must be convincing and marketing should clearly

communicate the exact benefits and efficacy of products (particularly in Europe and the US, which

are still lagging behind Asia).

With footfall in department stores and high-end outlets falling, distribution and pricing strategies of

such products may have to be readdressed to ensure returns.

Demand for

natural, organic

products

Demand for natural/organic beauty products will continue to boom, as consumers become more

focused on safety and well-being, as well as more educated about product claims and labelling

While a strong industry-wide impact will not be felt in the short term, certain categories, such as

baby care, deodorants and mineral make up have shown resilience in demand for natural product

lines and look set to remain strong despite the recession. As more retailers tap into this trend and

branch out into natural cosmetics distribution through more mainstream outlets is bound to increase,

fuelling further demand.

However, the lack of a unified global standard for natural cosmetics will continue to be a hindrance

to growth and increasing consumer product awareness.


64


Global Snapshot

Regional Overview

Category Review

Channel Analysis


Global Prospects

Appendix


65


All values expressed in this report are in US$ terms, using a fixed 2008 exchange rate.

All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical

data are expressed in current terms; inflationary effects are taken into account.

Cosmetics and Toiletries (CT) coverage:

Cosmetics

Colour cosmetics

Fragrances

Skin care

Toiletries

Baby care

Bath and shower products

Deodorants

Depilatories

Hair care

Men's grooming products

Oral hygiene

Sun care

BRIC (Brazil, Russia, India and China)

Middle East and Africa (MEA)

Appendix

Definitions


66


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Global Cosmetics Industry Prospects 2009 Euromonitor 08 09

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