2
p.7II. Competitive landscape
p.28V. Appendix
p.22IV. Snapshots of sub-sector performance
p.12III. Latest developments
p. 3I. Market Overview
In this issue:
4
China’s cosmetics retail value showed steady growth in 1-3Q 2010
• According to National Bureau of Statistics, China’s cosmetics retail value reached 74.0 billion yuan in 2009, showing nominal growth of 16.9% year-on-year (yoy).
• In 1-3Q 2010, the retail value of China’s cosmetics registered a slower nominal growth of 16.3% yoy.
Retail value of cosmetics by wholesale and retail enterprises above designated size*, 2005-2009
33.538.7
48.8
59.7
74.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
2005 2006 2007 2008 2009
Bill
ion y
uan
0%
5%
10%
15%
20%
25%
30%
% y
oy
Sales value Growth
16.315.815.616.9Cosmetics
1-3Q101H10 1Q10 FY09yoy growth (%)
Source: National Bureau of Statistics of China (NBS)
*Designated size: with annual sales of 5 million yuan or above and with an employment of or over 60.
5
Retail price of cosmetics in China on a rising trend
Retail Price Indices of Cosmetics in China, January 2009 – October 2010 (Same
Month of Preceding Year =100)
Source: NBS
• Cosmetics retail price has been on a rising trend since July 2010.
99.4
99.6
99.8
100.0
100.2
100.4
100.6
100.8
101.0
101.2
101.4
Jan-
09Feb M
ar Apr
May Ju
nJu
lA
ugS
ep OctN
ovD
ecJa
n-10Feb M
ar Apr
May Ju
nJu
lA
ugS
ep Oct
6
• Although retail price has been on a rising trend, industry players said that it has lagged behind the cost increase.
• Increase in costs such as rental, labor, logistics, advertisement, and slotting fee etc. are exerting heavy pressure on cosmetics enterprises.
• Many cosmetics players, especially those with poorer brand equity, have witnessed their profit margin eroding.
Increasing margin pressure on cosmetics
enterprises
8
Foreign players have a strong foothold in the
mid-range to high-end segments
• Comparatively, foreign players have a more extensive brand portfolio than domestic players. (See Appendix)
• Foreign players have a strong foothold in the mid-range to high-end segments.
• China has become one of the most important markets for many foreign cosmetics companies.
– Greater China is the second largest market for Procter & Gamble, after the North American market. According to Access Asia, the sales of P&G in China reached 13.23 billion yuan in 2009, with a market share of 19%.
– L’Oréal International sees China as its major growth engine: Garnierrecorded a sales growth rate of 61.2% yoy in China in 2009; L’Oréal Paris recorded 25.5% yoy growth in China market’s sales in 2009.
9
Foreign enterprises have acquired a number of renowned domestic brands
• As a shortcut to acquire resources such as brand equity, local connections and distribution channels, a number of foreign cosmetics players have been actively exploring merger and acquisitions (M&As) opportunities. A number of well-known local brands were acquired by foreign brands over the past years.
• Homegrown cosmetics brands that had been acquired by foreign companies:
– Acquisition of Dabao (大寳) by Johnson & Johnson in 2008– Acquisition of C-Bons (絲寳) by Beiersdorf in 2007– Acquisitions of Yue-sai (羽西) and Mininurse (小護士) by L’Oréal in
2004
• In December 2010, Coty Inc., one of the leading global beauty companies, had agreed to acquire a majority stake (~400 million USD) in domestic skincare group TJoy Holdings Ltd (丁家宜). Theacquisition is expected to close in January 2011.
10
Domestic brands are more popular in lower-end segments
• Domestic brands generally priced lower and target the mass and lower-end segments.
• They have less extensive brand portfolio compared with foreign counterparts. (See Appendix)
• Though generally weaker in brand building and supply chain management, a number of domestic players have strived hard to move up the value ladder.
• Some are developing new brands to target higher-income consumers.
– e.g. the launch of Herborist (佰草集) and ShanghaiVive (雙妹) by
Shanghai Jahwa co. Ltd (上海家化).
11
Many new players are tapping the market
• An increasing number of retailers in China such as Wal-Mart, Watsons, Sephora and Sasa have launched private label cosmeticsproducts in recent years to improve profitability.
• Brands from other industries also jump on the bandwagon to offer cosmetics products.
– For example, Swedish apparel brand H&M launched a new line of
Ecocert certified organic-ingredient-based skin care products in 2010,
including shower gel, body scrub, moisturizer, hand cream and lip
balm etc.
– Fujifilm introduced its skincare products (Astalift) to mainland China
and Hong Kong markets in 2010. The brand Astalift is also available in
Taobao Mall, one of China’s most popular online shopping platforms.
13
Department stores, supermarkets and hypermarkets remained the major distribution channels
• According to Access Asia, department stores(56.2%), hypermarketsand supermarkets (20.2%) were the major distribution channels for cosmetics and toiletries* by sales in China in 2009.
• Some other emerging channels that are gaining popularity: – Professional stores
Watsons, Sasa, Sephora and Cosmart (歌詩瑪)
– Beauty parlors
Herborist SPA (佰草集漢方SPA), Chlitina (克麗緹娜) and Natural
Beauty SPA (自然美SPA生活舘)– Online retailing platforms
strawberrynet.com, Sasa.com, www.sephora.cnProfessional online stores
Joyo Amazon
Taobao mall (http://beauty.tmall.com/)
Integrated B2C online retailing
platforms
L’Oréal, DHC, Lancôme, Estée Lauder, Clinique,
Biorthem
Corporate websites
• Many players have opted for multi-channel operations *Include Baby Care, Bath & Shower, Deodorants, Hair Care, Make-up and Colour cosmetics, Men’s Toiletries, Oral Hygiene,
Perfumes & Fragrances, Skin Care and Sun Care.
14
• Sephora, which has already established presence in more than 20 cities including Shanghai, Beijing and Tianjin, had planned to open 100 stores by the end of 2010. It has begun to expand to many 2nd- or 3rd-tier cities such as Wuxi, Wenzhou, Changsha and Changshu.
• Management of Sasa said in 2010 that it planned to increase the store number to 100 in two and half years.
• Watsons, the leading health and beauty retail chain in Asia, hasopened more than 700 outlets in more than 100 cities of mainland China as of December 2010. Watsons aims to have 1,000 outlets by the end of 2011, covered more than 100 cities of mainland China.
Cosmetics retailers are accelerating their penetration into China
15
Massive advertising by cosmetics companies
• According to CTR, the cosmetics and toiletries industry was the biggest spender (67.1 billion yuan), during 1-3Q 2010 on advertising in China when compared to other industries.
• Cosmetics players have spent huge sums of money on advertising in China. According to CTR, P&G was the biggest spender (25.0 billion yuan) on advertising in China during 1-3Q 2010, followed by LO’réal (9.1 billion yuan) and Unilever (8.3 billion yuan).
– P&G has been the biggest spender at the annual auction for primetime advertising slots of the China Central Television (CCTV) for the past few years. Advertising on China’s largest national television network enables P&G to promote brand awareness.
– Thus far, celebrity endorsement is one of the most popular methods for players to create noise in the market.
16
Male grooming market is growing fast
• The male grooming market is growing very fast and still has much untapped potential. According to HKTDC, men’s cosmetics accounted for 12.7% of the total cosmetics market in 2008. The segment is expected to grow exponentially for the next few years.
• The sales of male specific skincare products of brands such as Nivea, L’Oréal, Biotherm and Garnier etc has been growing rapidly.
• LO’réal reported that sales in men’s skincare products in China roseby 27% in 2009 and the company expected it to increase by 40% in 2010, five times the increase of women’s skincare products.
• Domestic companies such as TJoy (丁家宜), Bawang (霸王), GF (高夫), Softto (索芙特) and Inoherb (相宜本草) etc. are increasingly keen to offer cosmetics for men as well.
17
More players tap into the cosmeceuticals market
• Many players (including pharmaceutical companies) have introduced cosmeceuticals in the past few years.
• Companies such as Beijing Tongrentang (北京同仁堂), Shanghai Jahwa (上海家化), Jiangsu Longliqi (江蘇隆力奇),Yunnan Baiyao (雲南白藥), China Shenghuo Pharmaceutical (昆明聖火藥業), Herborn(本草堂),Herborist (佰草集), Inoherb (相宜本草) and Shiseido havetapped the cosmeceuticals market.
• Distribution channels for cosmeceuticals include mainly drug stores, dispensary chains and counters in department stores.
18
Demand for natural and organic cosmetics is growing
• Demand for natural and organic products is growing amid increasing awareness of sustainability.
• Aveda, Origins, Yves Rocher, Clarins, Sisley, Jurlique, and L’Occitane are some well-known brands that offer natural and organic ingredient-based cosmetics products.
19
More stringent regulations on cosmetics
• The State Food and Drug Administration (SFDA) issued the Regulations on Naming of Cosmetics (化妝品命名規定), which was effective from February 2010.
– Wordings, such as names of well-known traditional Chinese herbalists
(e.g. Huatuo華佗, Bianque扁鵲), are prohibited. Besides, the
products should not include wordings such as “anti bacteria”, “detox”,
“anti-allergy”, “fat burning” and “truly natural” in their names.
• Implemented by China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), the Instruction for Use of Products of Consumer Interest – General Labeling of Cosmetics (消費者使用説明- 化妝品通用標簽 ) was effective from July 2010.
– Cosmetics companies are required to display detailed information
such as ingredients, expiry date etc on the labeling.
20
• Chinese tourists spent a fairly large proportion on shopping (32%), as compared to food (12%) and accommodation (11%). Cosmetics are top on their buying list.
• With increasing income, Renminbi appreciation against US dollar and easing travel restrictions, many Chinese consumers shop forcosmetics products abroad.
• Luxury cosmetics products in mainland are generally more expensive than that in overseas markets. Currently, a consumption tax of 30% is levied on luxury and high-end cosmetics in China. Mainland tourists like to travel abroad to purchase cosmetics due to cheaper price and more product varieties.
• Please refer to our newsletter China’s Outbound Tourism : “http://www.lifunggroup.com/eng/knowledge/research/china_dis_issue75.pdf” for more information.
Buying cosmetics products abroad is popular
21
• Multi-functional products (e.g. color cosmetics with skincare function, BB Cream etc.) are gaining popularity.
• More players now try to incorporate advanced biotechnologies in new product developments, e.g. sulphate-free shampoo.
• Kids’ cosmetics market is still underdeveloped. Major players include Frog Prince (青蛙王子), Coati (小浣熊), Mentholatum, Yumeijing (鬱美淨) and Johnson & Johnson.
Other trends to watch
23
Background
• The China National Commercial Information Centre (CNCIC) conducts monthly survey to around 200 major department stores* in China to study the performance of different cosmetics sub-sectors.
• In this newsletter, performance of 5 sub-sectors is examined: – Shampoos and conditioners
– Other hair care products
– Skincare products
– Color cosmetics
– Fragrances
*Note: It is noteworthy that the CNCIC data covers sales in major department stores only. Retailers of other formats such as specialty stores are growing in popularity. The actual overall market share of cosmetics brands may deviate from the CNCIC data.
24
China’s cosmetics market is relatively concentrated
• Top 10 players in the 5 major sub-sectors achieved over 70% of the market share in department stores in 2009.
• Top 10 players in the shampoos and conditioners sub-sector achieved more than 95% of the market share in 2009.
Source: China National Commercial Information Centre (CNCIC)
Market share of top 10 brands of selected sectors, 2009
95.19
71.8279.85
70.70 72.10
0
10
20
30
40
50
60
70
80
90
100
Shampoos and
conditioners
Other hair care
products
Skincare products Color cosmetics Fragrances
Sh
are
of to
tal sa
les v
alu
e (
%)
25
Performance of selective product sectors
25.24
20.41
17.68
10.12
6.88
0 5 10 15 20 25 30
Head & Shoulders 海飛絲 (P&G)
Pantene Pro-V 潘婷 (P&G)
Rejoice 飄柔 (P&G)
Slek 舒蕾 (C-Bons Group*)
Bawang 霸王 (Bawang International)
Share of total sales value(%)
Shampoos, conditioners and 2-in-1 conditioning shampoos: share of total sales value, 2009
*Beiersdorf acquired 85% stake in C-BONS Hair Care in 2007.
Source: CNCIC
17.95
12.48
11.04
10.31
6.37
0 2 4 6 8 10 12 14 16 18 20
Youngrace 溫雅(Youngrace Cosmetics Group)
Decolor 迪彩(Guangzhou Decolor Cosmetics)
Maestro 美濤(C-Bons Group*)
L’Oréal 歐萊雅 (L'Oréal )章華(Savol)
Share of total sales value (%)
Other hair care products (colorants, hair mask & styling agents): share of total sales value, 2009
26
Skin care products: share of total sales value, 2009
Source: CNCIC
Performance of selective product sectors (Cont’d)
19.02
17.98
16.22
7.96
5.31
0 2 4 6 8 10 12 14 16 18 20
Olay 玉蘭油 (P&G)
L’Oréal 歐萊雅 (L'Oréal )
Aupres 歐珀萊 (Shiseido)
Lancôme 蘭蔻 (L'Oréal )
Estée Lauder 雅詩蘭黛 (Estée Lauder)
Share of total sales value (%)
27.20
12.62
6.13
5.79
4.87
0 5 10 15 20 25 30
Maybelline 美寶蓮 (L'Oréal )
L'Oréal 歐萊雅 (L'Oréal )
Aupres 歐珀萊 (Shiseido)
Christian Dior 迪奧 CD
(Christian Dior (China) Fragrance &
Olay 玉蘭油 (P&G)
Share of total sales value (%)
Color cosmetics: share of total sales value, 2009
27
Facial cleanser for men: share of total sales value, 2009
Source: CNCIC
Performance of selective product sectors (Cont’d)
38.31
16.02
14.30
13.16
6.03
0 5 10 15 20 25 30 35 40 45
Nivea 妮維雅(Beiersdorf)
Bioré 碧柔(Kao)
L’Oréal 歐萊雅 (L'Oréal )
Mentholatum 曼秀雷敦 (Mentholatum)
TJOY 丁家宜 (Nanjing Jianong Chemical Co Ltd)
share of total sales value (%)
19.75
16.08
9.24
6.81
5.07
0 5 10 15 20 25
Chanel 香奈兒 (Chanel SA)
Christian Dior 迪奧 CD
(Christian Dior (China) Fragrance & Cosmetics)
BOSS (Hugo Boss AG)
Burberry 巴寳莉 (Inter Parfums)
Lancôme 蘭蔻 (L'Oréal )
Share of total sales value (%)
Fragrances: share of total sales value, 2009
Foreign cosmetics enterprises and their major brands in China
Company Name Brands L’Oréal 歐萊雅 L’Oréal Paris 巴黎歐萊雅
Garnier 卡尼爾
Maybelline New York 美寶蓮紐約
L’Oréal Professional 歐萊雅專業美髮
Kérastase 卡詩
Lancôme 蘭蔻
Biotherm 碧歐泉
Helena Rubinstein HR 赫蓮娜
Kiehl’s
shu uemura 植村秀
Giorgio Armani 喬治 阿瑪尼
La Roche-Posay 理膚泉
Mininurse 小護士
Yue Sai 羽西
Vichy 薇姿
Matrix 美奇絲
Skinceuticals
P&G 寶潔 Head & Shoulders 海飛絲
Rejoice 飄柔
SK-II Pantene 潘婷
Olay 玉蘭油
Vidal Sasson 沙宣
Clairol Herbal Essences 伊卡璐
Wella 威娜
Camay 卡玫爾
Shiseido資生堂 Shiseido 資生堂
Shiseido Men資生堂男士
Clé de peau beauté 珂麗柏蒂
Revital 悅薇
UV White 優白
Anessa 安熱沙
Aupres 歐珀萊
Supreme Aupres 思魅歐珀萊
Urara 悠萊
Elixir 怡麗絲爾
Elixir Superieur怡麗絲爾優悅活顏
Melanreduce 臻白無瑕
Asplir 愛泊麗
Whitia 白娣顔
Selfit 珊妃
UNO 吾諾
PF-Cover 無瑕修顏
DQ 蒂珂
Shiseido Eudermine 紅色蜜露
Za 姬芮
Aqua Label 水之印
Be 彼嘉
Aquair 水之密語
Perfect 洗顔專科
Kuyura 可悠然
Super Mild 惠潤
Maquillage 心機彩妝
Tessera 欣香
Hand Cream 美潤護手霜
Handasui 肌水
Tsubaki 絲蓓綺
Pure & Mild 泊美
Shanghai Bouquet 上海花漪
Qi 綺怡
Zen 世紀禈香氛
Unilever 聯合利華 Vaseline 凡士林
Lux 力士
Dove 多芬
Hazeline 夏士蓮
Pond’s 旁氏
Clear 清揚
Rexona 舒耐
Johnson & Johnson 強生 Clean & Clear 可伶可俐
Neutrogena 露得清
Johnson’s Baby 強生嬰兒
Dabao 大寶*
Johnson’s body care 強生美肌
Estée Lauder 雅詩蘭黛
Estée Lauder 雅詩蘭黛
Aramis 雅男士
Clinique 倩碧
M.A.C. 魅可
La Mer 海藍之謎
Bobbi Brown 芭比波朗
Tommy Hilfiger 唐美希緋格
Donna Karan Cosmetics 唐娜凱倫
Beiersdorf 拜爾斯道夫
NIVEA 妮維雅
Nivea for men
La Prairie 莱珀妮
Eucerin Florena
C-Bons Hair Care**
Slek 舒雷
Sdew 風影
Hairsong 順爽
Maestro 美濤
Kanebo 佳麗寶 Impress 印象之美
Lunasol 日月晶采
Sui sai 水之璨
Coffret D’or 金炫光燦
Blanchir Superior 馥蘭哲兒極致系列
Aqua 雅呵雅
Aqua Sprina雅呵雅絲睿
Freeplus 芙麗芳絲
Kate Dew Superior 潤活極致系列
Kao 花王 Kao 花王
Bioré 碧柔
Men’s Bioré碧柔男士
Sofina蘇菲娜
Asience 亞羨姿
Sifoné 詩芬
Feather 花王飛逸
Kosé高絲 Kosé 高絲
Beauté de Kosé美諦高絲
Prédia 貝締雅
Sekkisei 雪肌精
Sekkisei Supreme雪肌精 Supreme
Refine 萊菲
Esprinque Precious Junkisui 純肌粋
Seikisho清肌晶 白澄
Avenir 艾文莉
Recipe-O 蘭哲歐
Junkisei 潤肌精
White St 妍哲
Nature & Co. 娜蔻
Moisture Skin Repair Astalution Grandaine葛倫黛娜
* Johnson & Johnson has completed the acquisition of Beijing Dabao Cosmetics Co. Ltd. in
2008.
** Beiersdorf acquired 85% stake in C-BONS Hair Care in 2007.
Source: Li & Fung Research Centre and respective company websites
Domestic cosmetics enterprises and their major brands in China
Company Name Brands Shanghai Jahwa Co Ltd 上海家化集團
Maxam 美加淨
Chinfié 清妃
Herborist 佰草集
ShanghaiVive雙妹
Gf 高夫
Liushen 六神
Cocool 珂珂
Sichuan Jahwa Cortry Cosmetics Co. Ltd* 四川家化可采化妝品股份有限公司
Cortry 可采 LiveliCutee 伶采
Jiangsu Longliqi Group Co Ltd 江蘇隆力奇集團 Longliqi 隆力奇
Yuzhibao 浴之寶
Evergreen 雅妍
YaFei 婭妃
Dragon Beauty 龍美人
Arche Cosmetics Co., Ltd 廣東雅倩化妝品有限公司 BNS 繽麗
Ariar 清逸
Cathy 佳雪
Effi 玉麗
Airiny 維鮮
Zhuhai Sunrana Cosmetics Co. Ltd 珠海姍拉娜化妝品有限公司
Sunrana 姍拉娜
Bawang International 霸王國際集團
Bawang 霸王
Herborn 本草堂
Men’s Bawang 霸王男士
Royal Wind 追風
Shanghai Huayin Commodity Co Ltd 上海華銀日用品有限公司
Bee & Flower 蜂花
Guangzhou Houdy Cosmetics Co Ltd 廣州市好迪化妝品有限公司
Houdy 好迪
Sincir 信婷
Coian 可靚
Tongle 童樂
Guangzhou Decolor Cosmetics Co Ltd 廣州市迪彩化妝品有限公司
Decolor 迪彩
Luxe-Lotus蓮尚
Enevous 伊儂華
Crystal晶彩
Lotuses 千蓮薈
Nenuph 藍蓮花
Foshan Shunde Modern Health Care Products Co Ltd 佛山市順德現代保健用品有限公司
Xian Dai 現代
Shanghai Savol Health & Cosmetics Co Ltd 浙江章華保健美髮實業有限公司
Savol 章華
Nanjing Jianong Chemical Co Ltd 南京珈儂生化有限公司**
TJOY** 丁家宜 植物純萃
TJOY for men 丁家宜
Lafang Group 拉芳集團 Lafang拉芳
Raclen 雨潔
Scenty 現代美
Bétrue繽純
Sunfeel 聖峰
Mese美多絲
*Shanghai Jahwa has acquired 51% stake in Cortry in 2008.
** Coty has agreed to acquire TJOY in 2010 and is expected to close in January 2011.
Source: Li & Fung Research Centre and respective company websites
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