the cosmetic sector in india profile 2009
TRANSCRIPT
The Cosmetic Sector in India Profile 2009
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1. India – Brief Profile
India is a large country with total area of 3.28 million sq.km., sharing land border with six countries, and a long coastline of 7,000 km. The country is a federation of 29 states and 6 union territories (administrative units).
India’s total population is 1.17 billion, growing at 1.54% per annum. The overall literacy level is 59.5%. There are 14 officially recognized languages. Hindi is the most used language. English is widely used in business as well as in everyday life.
India is among the fastest growing economies in the world, with average GDP growth rate of 8.8% 2003‐04 to 2007‐08. Under unprecedented global economic conditions in 2008‐09 where many countries have registered negative growth Indian economy is among the fastest growing, with growth rate for 2008‐09 estimated at around 6.7%.
The business regulatory environment is fairly open, and follows free‐market competition principles. All quantitative restrictions on trade were removed in 2001, except for a few highly sensitive goods.
India is a unique market on accounts of its diversity in age, income, and urban‐rural demographics.
Age‐group distribution: India is a very young nation with 85% of its population below the age of 45 years, and 55% of its people below the age of 25 years of age. Young adults, the group between 20‐35 years, represent nearly 25% of the consumer base in the country, drive the lifestyle trends.
Urban‐Rural distribution: Nearly 32.3% of India’s households are in urban areas. Nearly 38% of urban households are in middle and higher income strata, while only 14% of rural households have similar income levels.
Income Classification: The real consuming class of 300 million people outnumbers several of the world’s largest markets in terms of market potential. Of these, around 150 million people (2 million very rich and 30 million rich households)
represent the consuming potential, particularly for lifestyles goods and services.
Cities: Mumbai, Kolkata, Delhi, Hyderabad and Chennai are the most populated and wealthiest cities, closely followed by Bangalore, Ahmedabad, Pune, Vadodara and Kanpur. The top seven cities Mumbai, Delhi, Chennai, Kolkata, Hyderabad, Ahmedabad and Bangalore together have over 6 million homes falling in the upper socio‐economic strata.
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2. India’s Cosmetics Sector
2.1 Market Size
The total personal care market in India was estimated at 2.3 billion Euros in 2008. Of this, almost two‐thirds is constituted daily hygiene product categories, namely personal wash (soaps etc.), oral care (toothpaste and powders) and shampoos. Excluding these three categories from the personal care market, the size of Indian cosmetics market is estimated at 750 ‐ 800 million euros. Skin care is most important category in value terms, followed by hair dyes/colours and colour cosmetics. Men’s grooming products, which includes skin care, hair grooming and deodorants / perfumes for men, is also emerging as a significant segment in the Indian cosmetics market.
Personal Care Market Segments, by Value
2.2 Principal Market Segments
Keeping in view the cosmetics portfolio, the relevant market segments in the Indian cosmetics products market are briefly described below.
Skin and Body care products: skin care is a crowded market, estimated at about 350
million euros, and has been growing up at 12‐13% per year, with Fairness products having a major share of the pie in sales, both by value and volume. Traditionally fairness products were targeted towards women consumers, but in recent years the usage among male consumers has increased significantly, accounting for nearly 25% of the fairness cream usage across the country and the figure is growing.
Skin Care Products – sub segments Category %
Volume % Value
Antiseptic Creams 14 13
Astringents 1 1
Calamines/Foundations 2 6
Cold Creams 13 8
Fairness creams/lotions 48 56
Moisturizing Creams/lotions 17 11
Snows 1 Neg.
Vanishing Creams 4 5
Total 100 100
Moisturizing creams, Cold creams and Antiseptic creams are the other important categories within the skin care segment. The premium skin care products market is around 22% of the total skin care market.
Cold Cream and Moisturizing lotions are most consumed in the cold parts of North and East India. The cold cream market is pegged around 30 million Euros. The moisturizing creams and lotions segment, closely related to the cold cream segment, is around 38‐40 million Euros in market value.
Hair Dyes and Colours: The hair colour market has transformed in the recent years, from a purely black dye‐based segment to a range of user‐friendly applications in a variety of colours. The total hair colour industry in India is estimated to be around 115 million Euros ‐
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retail users 80 million Euros and professional segment – 35 million Euros.
Colour Cosmetics: The Indian market for colour cosmetics is around 70 million Euros. Various factors such as higher disposable income and influence of latest western fashion trends have increasingly contributed to the growth of the industry, despite the impact of the economic slowdown in India.
Men’s Grooming Products: Spending on men’s grooming products is growing fast, and expected to rise from the present level of 220 million Euros to about 300 million Euros by 2012. Besides shaving products, the fastest growing segment of the male personal care market is toiletries.
Fragrances and Deodorants: The fragrances and deodorants market in India is around 50 million Euros, of which deodorants are 38 million Euros, and perfumes around 12 million Euros. There is a large grey market estimated to be around Euros 16 million. The organised market in deodorants is estimated at 20 million Euros, of which sprays account for 95%, although roll‐ons are becoming popular too. The penetration of deodorants and perfumes is less than 1% even in the urban market. A unique aspect of the perfume market is that almost 60% of the market is for gifts.
An average annual growth of 15% has been estimated for the prestige fragrance brands segment for the next few years.
Herbal Products: In the last decade, there has been a renewed interest in herbal cosmetics and personal care products, especially in the skin care segment with the growing belief that chemical‐based cosmetics are harmful. Shehnaz Hussain, Biotique, and Lotus Herbals
are the leading players in this segment estimated at about 90‐100 million Euros.
Professional Products: The professional beauty care market is still substantially unorganized in India. There are 75,000‐80,000 beauty salons in towns with over 1 million population, of which more than half are in the “home” segment, which means they are run by an individual, mostly from the home.
2.3 Urban Personal Care Habits and Attitudes
Per capita consumption: As per ASSOCHAM‐ an industry body‐ the per capita consumption of cosmetics in India is less than 0.5 Euros as compared to 26 Euros in Hong Kong, 7.8 Euros in Japan, and 1 Euro in China.
The average expenditure on personal care and cosmetics products is Rs 500 (8 Euros) per month by men, and between Rs 500 to Rs 1000 (8‐16 Euros) per month by women.
Urban India leads in consumption, with about two‐thirds of all personal care products by volume, and more than four‐fifths of the cosmetics segment. However, many companies are now targeting rural areas to increase volume sales in categories like lip‐sticks and nail polish.
Essentiality Perceptions: Shampoo and hair oil are perceived to be the most essential products, followed by face wash and fairness creams. New product categories, such as anti‐ ageing and anti wrinkle products, are perceived as non‐essential, luxury products. To an extent, liquid soap and sunscreen lotions are also perceived as non essential products.
Consumer Buying Behaviour: The neighbourhood general store continues to be the most popular purchase location for
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personal care products in India. Interestingly, chemist shops/ pharmacies are also emerging as important purchase points. Department stores and women’s boutiques are emerging as new settings in urban areas. Word of mouth, friends, window‐shopping, visits to shops etc. are sources of information about new products. Frequency of purchase is as and when required and also impulse buying is done for perfumes and premium segment products.
However, consumer behaviour towards lifestyle products is changing rapidly. As per “Global Consumer Confidence Index” Survey 2007 conducted by A.C. Neilson in 47 markets across Europe, Asia Pacific, North America and the Middle East, the Indian consumers emerged on top for the fifth time in the row.
2.4 Competitive Landscape
The sector is highly dispersed, with close to 100 organized players, including multinationals.
There are three principal types of companies in the organized sector ‐ foreign owned/ international companies, large indigenous companies and small/medium companies. In addition, there is a very large unorganized sector comprising of hundreds of micro/ cottage scale enterprises, spread across the country, thriving on products based on traditional and local recipes.
Stiff competition has resulted in an increase in the range of new products being introduced for newer application concepts in the last few years. However, low and medium priced categories/ variants account for almost 85%‐90% of the cosmetics market in terms of volume.
Leading International Companies: International players dominate the Indian personal care and cosmetics market. Some of the important international players in the Indian cosmetic market are Unilever (Hindustan Unilever Limited), L’Oreal India, Revlon, La Prairie Switzerland and Sheseido Japan. Oriflame and Amway are the leading international companies in the space of direct marketing space. Recently Los Angeles‐based Jordana has tied up with North India‐based Glanor to launch its products in India. L’ Oreal has added a new division, to take on skin care category with Vichy range of products. Estée Lauder too has started making their presence felt in the Indian market, since taking a minority stake in Forest Essentials, which specializes in Ayurvedic products and is the leading spa brand in India.
Some of the popular Italian brands in India are Ferrari, Canali, Versace, Salvatore Ferragamo, Bvlgari, Pupa, Dolce & Gabbana, Max Mara, Clarins Paris, Patricia Milton and Deborah.
Leading Indian Brands
There are a number of home‐grown Indian brands, which have created their own niches in specific categories. Some of these are CavinKare, Emami Ltd, Ayur Herbal Cosmetics, Biotique. Others such as Himalaya, Shahnaz Hussain, Godrej, Paras, Dabur, Marico also have national presence in their respective categories. New entrants are Wipro and P&G.
2.5 Factors influencing demand in India
The rapid demographic transition, burgeoning demand, rising affluence and more working women are key drivers for rapid growth in the beauty and cosmetics sector in India. With per capita cosmetics spend of Euro 0.44 per year, the Indian market offers a huge opportunity
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to international beauty cosmetics companies, for whom markets around the world are saturating.
Recommendation of friends who are users and the beautician, brand name, suitability for need, ingredients, price, benefits, TV Commercials, discount schemes, attractive packaging, media presence etc. are some of the decision making factors.
2.6 Projected Market Size
The overall growth of the personal care products sector in 2008 was about 10%, while the cosmetics sector grew at a higher rate of about 15% per annum. The Industry foresees a steady growth rate for the next 5 years driven by increased product usage intensity and wider market coverage, with increasing penetration in rural areas.
The segment wise average growth rates reported for the last five years are as follows.
Segment wise growth rates
Category Growth rate
Skin Care 15%
Hair Dyes & Colours 15% Colour Cosmetics 15% Men’s Grooming 12%
Deodorants & Perfumes 30%
Based on the current growth trends, the market size of cosmetics sector is projected to increase from 800 million Euros in 2008 to about 1.45 billion Euros by 2012.
Given the higher growth rate in the deodorants / fragrances segment, its share in the cosmetics market is likely to increase from 6% in 2008 to 10% in 2012.
Projected Market for Cosmetics in India
3. Trade and Distribution
3.1 Distribution Structures
The traditional distribution model in cosmetics is a multi‐tiered structure consisting of regional or zonal distributors, C&F agents, stockists and retailers.
Of late, new distribution models, especially multilevel marketing, direct selling and on‐line marketing have been introduced in several personal care segments. Increasingly, companies are adopting different distribution networks for rural and urban areas given the stark difference in logistic needs and the off take levels.
However, the three principal players in the distribution structure for cosmetics and personal care products are distributors, retailers and import agents.
Distributors: Distributors are the principal link between retail outlets and the brand within the city/region. On an average, a distributor services 400 to 450 retailers. The distributors’ sales staff is responsible for managing supplies to retail outlets.
Retailers: Retailers generally receive supplies from distributors or sub‐distributors appointed by companies. Retailers often carry more than one brand ‐ average 3‐4 brands of each product category, except in the case of single brand outlets.
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The average size of the retail outlets is 750 sq.ft. (ranging between 100 sq.ft. to 7,500 sq.ft.). The frequency of supply ranges from 7 to 15 days depending upon the size of the retail outlet. As per industry norm the retailers expect a credit of 7 to 15 days against supplies.
Import Agents: The creation of this tier is partly on account of regulations that prohibit foreign investment in India in domestic distribution or retail. The role of importers includes obtaining government approvals, handling customs clearance procedures, appointment of distributors, stockists and retailers; pricing decisions; training of sales staff, promotion campaigns, etc. The role depends to a great extent on the category and product in consideration.
Retail presence of Cosmetics across various formats
3.2 Organized Retail
India has a highly fragmented retail industry: the highest density of retail outlets in the world (5.55 per 1000 population) but the lowest per capita retail space in the world (2 sq.ft. per 1000 population). Organized retail in India presently accounts for 4‐5% of total retail, but is growing rapidly and is expected to reach 35% by 2015.
Organized retailing in India, has already witnessed emergence of a large number of formats, like Malls, Exclusive Brand Outlets, Multi‐Brand Outlets, Department stores, Specialty stores, Supermarkets, Hypermarkets, Discount stores, Convenience stores, Franchise Stores which are often overlapping in size, structure and value proposition. Some of the leading retailers in India are Shopper’s Stop, Reliance Retail, Dabur India,
Aditya Birla group, Pharma retailing and duty free shops at the international airports.
Beauty Salons/Spa: Many beauty care companies like Lakme‐Lever, L’Oreal, Godrej, Emami, Lotus, Ayur Herbals, Shahnaz Hussain etc. as well as many health clinics either have ventured into or are planning to start their own retail operations. Some players in beauty services like Vandana Luthra Curls & Curves (VLCC), Lakme and Health & Glow are growing at 40% to 50% per year.
Beauty Salons / Spas can be exclusive (Lakme, L’OREAL, Fitt Plaza), non‐exclusive or based on a partnership model.
3.3 Advertising and Marketing Spends
The major Indian advertising media are television, newspapers and magazines, radio, business publications and billboards. Majority of ad spends of FMCG companies go to television. The rest goes to outdoors, merchandising like danglers, posters, wall painting, print and radio. Radio is also emerging as an important medium, particularly after introduction of private FM channels.
• Personal Care industry witnessed 23 per cent rise in TV advertising during 2007 compared to 2006.
• Personal Hygiene segment garnered a high share of 43 per cent of overall Personal Care industry advertising on TV during 2007.
Personal Care Sectors share in overall TV Advertising in 2007
• 'HUL' leads in the Personal Care industry advertising on TV during 2007.
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• During 2007 Personal Care industry accounted for 18 per cent share of overall TV ad pie.
• Personal Care industry saw maximum advertising of 43 per cent under 'Personal Hygiene' segment followed by 'Hair Care' and 'Personal Healthcare' segment with 26 per cent and 16 per cent share respectively during 2007.
4. Regulatory Environment
4.1 Foreign Investment
• Foreign direct investment (FDI), including upto 100% equity holding, is allowed in cosmetics and personal care products (except laundry soap.)The approval is automatic and requires only a filing of the investment details with the Reserve Bank of India.
• FDI in retail Trade is presently allowed only for single brand product retailing ‐ up to 51%. However, foreign investment up to 100% is permitted for Wholesale/ Cash & Carry trading, and trading for exports.
• The Government of India is reviewing the policy on franchisee arrangements between Indian and overseas companies.
• All foreign companies having existing previous joint venture/ technology transfer/ royalty agreements, require prior approval before setting up another venture in the same field.
All foreign investments are fully repatriable for both profit as well as principal, subject to payment of applicable Indian taxes and obtaining due clearances from the Reserve Bank of India.
Technology Agreements
• Foreign technology agreements, including licensing rights, lump sum payments and royalty payments are allowed on an automatic approval basis provided the value of the lump sum does not exceed US$ 2 million, royalties do not exceed 5% of net domestic sales or 8%
of FOB exports, and the total value of payments over a seven‐year production period is below 8% of the total revenues of the company receiving the knowhow.
• Foreign companies are also entitled to receive royalties on account of licensing fee, brand name rights, etc., upto 1% of net sales from their Indian subsidiaries or joint ventures even without a technology transfer agreement, on an automatic approval basis.
4.2 Taxes and Duties
• Import of cosmetics products in to India; attract Import Duty @ 34.13%.
• Corporate Income Tax for Companies incorporated in India: 33.36% including surcharge and cess.
• Dividend Distribution Tax: 14.025% including surcharge and cess
• Value Added Tax: This is a turnover tax applying on sales, and varies state to state ‐ 12.5% in Delhi.
4.3 Regulations specific to the sector
The specific regulations for imports of Cosmetics products in to India are laid down in The Drugs and Cosmetics Act and Rules, issued by the Department of Health, Ministry of Health and Family Welfare, Govt. of India. The key features are summarized below:
• Procedure for Imports
All consignments of cosmetics to be imported have to be accompanied by:
o Invoice or Statement showing Name and quantities of each article of
cosmetic included in the consignment Name and address of the manufacturer Name and address of the consignee /
importer in India, alongwith the Importer Exporter Code (IEC) number.
o Declaration by the manufacturer or importer that the cosmetics comply with
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the provisions of Chapter III of the Drugs and Cosmetics Act and Rules.
o Test reports as per corresponding Indian Standards laid down by the Bureau of Indian Standards (BIS).
• Restrictions on import of cosmetics
Cosmetic products containing Dyes, Colours and Pigments other than those specified by the Bureau of Indian Standards (IS: 4707 Part 1) and Schedule Q, are not permitted to be imported. Also, imports of cosmetics containing hexachlorophene, Lead or Arsenic compounds, mercury compounds are not allowed.
• Labelling and Packaging
Products imported into India in retail packing require an Indian importer(s) to be registered with the concerned authorities.
The most important role of the importer is to ensure compliance with the import regulations dealing with packaged consumer goods, which involve labelling requirements and the declaration of the maximum retail price on each pack. Invariably, this is done after the consignments arrive in a customs‐bonded area before clearance.
Packs should also bear the name of the importer and any other mandatory information under Indian laws.
For some products, it is mandatory for the foreign manufacturer to have specific approvals under Indian national standards.
• Registration for Import of Cosmetics products
Foreign manufacturers are required to apply for registration (directly or through their authorized agents in India), along with product samples, formulation, details of production facilities/ process, product ingredients, and analysis reports.
Although the registration process is mandatory for ‘drugs’ and not cosmetics, according it is advisable for foreign companies to obtain product registration before exporting to India. This helps in smooth custom clearances.
According to the importers, the process of product registration is fairly simple, inexpensive and takes only 2‐3 weeks.
• Import of Samples in to India
Italian companies wishing to bring in samples of their products to India for display, demonstration at exhibitions/conferences, can do so, through courier or as a cargo shipment, for which the following documents are typically required:
- Commercial Invoice - Packing List - Product Catalogues - Shipper’s Letter of Instruction - Declaration of purpose and that the
products are not for sale in India The standard import duty rate is applicable on imports of samples as well.
5. Business Prospects for Italian Companies Favourable Market Factors: The personal care and cosmetics market in India is growing at a steady rate and the growth is expected to continue in the coming years as well. Indian consumers are well exposed to international brands both in the premium segment as well as in the mass market segments, resulting in high market acceptance for new international brands. India’s economic growth and rise in disposable incomes makes it among the fastest growing consumer markets in the world.
Entry Barriers: There are no major entry barriers for a new personal care / cosmetics brand entering India, given the fairly open regulatory regime both for trading and manufacturing. However the process for registration can be sometimes cumbersome, particularly for small and medium sized Italian companies.
Indian consumers are highly brand loyal, particularly for the functional hair care and skin care products. Therefore, establishing brand
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credentials with the target consumer segments is the most important challenge for a newcomer, and can be resource intensive.
Diverse regional habits and preferences in cosmetics products may affect business plans of new entrants targeting nation‐wide sales.
A significant presence of the unorganised sector in the Indian market, which essentially thrives on low priced mass market products, offers stiff competition to new international players targeting the segment.
6. Pointers for Strategy
6.1 Product Category Selection
The Indian market is largely for basic and essential personal care products like hair oil, shampoo and beauty creams (fairness creams, cold creams, etc) are the most important categories. Therefore a presence in these mainstream segments is essential to develop a national brand in personal care. However, it is also important to have a wide product portfolio (hair colours/dyes, colour cosmetics, talcum powder etc.) to optimize the cost and effort of establishing itself in the Indian market. It is important for a new entrant to offer a new / unique benefit in order to establish a niche for itself.
Skin care: Fairness (Whitening) products constitute a large share of the market in India. Also advanced skin care products are also gaining acceptance among up‐market consumers.
Colour cosmetics: Although the market is fragmented and small, nail and lip care are interesting and less‐complicated entry points for a new brand, especially in the OTC channels. This is also because brand loyalty levels for nail enamel and lip sticks tend to be lower than in skin care.
Hair colours and dyes: Range of colours, long lasting effects are the most sought after features.
Men’s grooming products: There are also opportunities for niches in men’s skin care,
especially in moisturizing lotions, facial essence and whitening creams.
Natural/ herbal products: emphasis on heritage / natural / traditional products, natural ingredients like olive oil.
Customization and Adaptation of Products
Local adaptation needs to manifest in communications, language, promotions, selection of brand ambassadors, and in the product attributes themselves. Several global brands have had to change their global practice to succeed in India: for instance, L’Oreal rewrote its ad campaigns using Indian models, to promote unconventional hair colours. Use of natural and herbal ingredients, based on age‐old traditional recipes, has been well‐exploited by several brands.
Unmet Consumer Needs: The following are the important unmet needs of consumers, identified in an Ace Global survey:
- Products for tackling skin pigmentation - Solution for dark circles around eyes. - Avenues for gaining knowledge /
consciousness about skin needs such as anti pigmentation, anti wrinkle, fairness.
Small Pack size: Given the price‐sensitivity of the Indian consumer, many cosmetic and toiletries companies launched their products in smaller, and more affordable pack sizes to drive trial.
Gift Packs: Since premium cosmetics are popular as gift items, it may be worthwhile to introduce special gift packs, including hampers containing a combination of products.
6.2 Brand Positioning
History and parentage is an important reinforcer for new international brands being introduced in India. Success of European brands in India is to an extent because traditionally, Europe is considered the face of fashion and beauty.
The best bet for new international players is to introduce a wide range of basic, moderately priced
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products with an extra dimension or feature, without being positioned as a premium brand.
The positioning for premium Italian products could be to offer a holistic beauty treatment, which extends beyond specific benefits.
For professional products, there is a niche market for advanced solutions, involving intensive and multiple sittings.
6.3 Geographical Focus
Mumbai is considered the most appropriate city to launch a new cosmetics brand, for the following reasons:
• commercial capital of India, with largest concentration of business families and overall high disposable incomes
• fashion capital of India, which makes it a front runner and trend leader in the beauty/fashion
• home to Bollywood, the glamour world of films and film personalities, the highest spenders on personal care, and role models for the masses
In addition to Mumbai, Delhi NCR, Chennai and Bangalore are also important markets, given the large corporate working class and also a predisposition to indulgence in personal care and fashion.
Therefore, while a new player should begin with launch in one city, it should plan to expand its market coverage to all class 1 cities within the first two‐three years of launching in India.
6.4 Distribution
Going by the model successfully used by other international brands, Italian companies planning to enter the Indian market should consider tying up with an Indian Importer‐Distributor, for handling all import related formalities, and managing the logistics, retail network and promotion.
Another emerging option is to tie‐up with major retail chains, to have an exclusive or preferential presence across their retail outlets. While this
route promises scale and reach, the margins tend to be lower.
6.5 Business Structure Options
An Italian company entering the Indian market has the options of either setting up a joint venture or subsidiary in India, or to appoint an Indian agent for its operations in India. In case there is no plan for manufacturing in India, setting up a subsidiary or a joint venture is not recommended.
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