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Personal care development in china updates
- 1. Personal Care Development in China Divya Ahluwalia Slide 1
- 2. Key Conclusions Personal Care manufacturers have only scratched the tip of the iceberg yet. With the projected socio-economic changes China’s beauty and personal care market will sustain a projected growth rate of 10% International manufacturers will continue to dominate the personal products landscape for the foreseeable future. The lion’s share of the personal care growth will be driven by Skin Care , followed by Hair Care and the Men’s grooming segment. L’oreal China is one of the most competitive manufacturers in China over the review period. It is well placed, in the right categories, with the right mix of offerings to take advantage of the Chinese growth opportunity. Slide 2
- 3. Defining Beauty and Personal Care Beauty & Personal Care Slide 3
- 4. A look at China’s Personal Care Market 50000 70000 90000 110000 130000 150000 2004 2005 2006 2007 2008 2009 Market Size of Beauty and Personal Care China (2004-2009) RMB Million Skin Care 36% HairCare 16% Premium Cosmetics 12% Oral Care 11% Bath and Shower 9% Color Cosmetics 7% Others 9% Breakdown of the Beauty and Personal Care Market 2009 Over 60% of the value sales is still contributed by basic products (haircare, oral, skincare ) SkinCare is the largest, with over 36% of the value contribution. Beauty and Personal Care Market has grown at 11.3% to reach RMB 142,132MM Source: Euromonitor Statistics 2009 Slide 4
- 5. ..reveals the dominance of foreign brands 0 2 4 6 8 10 12 14 16 18 20 P&G L'oreal Unilever Shishedo Amway Shanghai Jahwa Key Players Market Share 07-09 2007 2008 2009 9.7% 4.9% 4.9% 4.0% 1.7% 17.2% Slide 5
- 6. Projected socio-economic changes The disposable income will increase by 50% from USD 1600 to USD 2500 in 2013 By 2013 China’s urban population will grow by 200 million people. Its Urban population will almost match its rural population. The outlook of the rural consumer on their economic future is optimistic. Their willingness to spend increased dramatically—from 41% to 64% China Annual Disposable Income 2003-2013 Source: Euromonitor International and Nielsen Consumer Confidence Survey 2010 Slide 6
- 7. ..will continue to drive healthy growth between 2010-2014 100000 120000 140000 160000 180000 200000 220000 240000 2010 2011 2012 2013 2014 Forecasted Size of Beauty and Personal Care China (2010-2014) in RMB… Projected CAGR of 10.1% to reach a market size of RMB 229, 978 MM Source: Euromonitor Statistics 2010 Skin care will be the largest absolute growth driver. Hair Care, color cosmetics and men’s grooming will make significant contributions as well. 7 0 5000 10000 15000 20000 25000 30000 35000 Skin Care HairCare Color Cosmetics Mens grooming Oral Care 2009-2014 Absolute Growth: Top 5 SectorsRMB Million Slide 7
- 8. A deep dive into Skincare 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 L'oreal P&G Shishedo Unilever % Retail Value Share by Company (2005-2009) 05 Share 06 Share 07 Share 08 Share 09 Share 40% of the market is controlled between L’oreal, P&G and Shishedo 0 10000 20000 30000 40000 50000 60000 2004 2005 2006 2007 2008 2009 Skin Care Category Size (RMB Million) Source: Euromonitor International 2010 SkinCare Briefing Slide 8 The category recorded a 11% value growth to reach RMB 53,514MM
- 9. Factors driving growth in 2009 Technological Breakthroughs: The “gene repair” concept pushed by Olay Pro X in Mass and Lancome Genifique in the premium channel. Premiumization of Mass: Overall prices continued to rise in Mass with brands like Olay launching more expensive lines such as Olay Pro-X. Growth in Premium skincare: Premium cosmetics continued double digit growth making up 22% of the total value sales. Consumers showed strong loyalty towards premium brands. Continued penetration increase: Relatively newer formats such as toners and anti- agers continued to attract new consumers/upgrade consumers fuelling category growth 9 Source: Euromonitor International 2010 SkinCare Briefing Slide 9
- 10. L'Oreal's success in SkinCare : its pyramid strategy RMB 10-30 Sold through distributors RMB 50-100 Supermarkets & Hypermarkets RMB 180-260 Drugstores/Chemist RMB 110-250 Supermarkets RMB 500-700 Department Store MiniNurse Garnier L’oreal & Vichy L’ancome Slide 10
- 11. …with a forecasted CAGR of 10% 30000 40000 50000 60000 70000 80000 90000 2009 2010 2011 2012 2013 2014 Forecast Sales of SkinCare (2009-2014)RMB Million Skin Care in China is the engine of global skincare As Chinese skincare habits become more sophisticated sub-categories such as anti- agers, facial moisturizers and masks will grow. Men’s skin care will fuel growth driven by shifting consumer attitudes. Premiumization will be a dominant trend given new launches from premium brands and but also uptrading from Mass brands “Back to nature” will gain popularity. Higher disposable incomes and better awareness of natural beauty and personal care products Slide 11
- 12. 0 5 10 15 20 25 30 35 40 P&G Unilever Bawang L'oreal % Retail Value Share by company (2005-2009) 2005 2006 2007 2008 2009 A deep dive into Haircare P & G and Unilever dominate- accounting for 47% of total value sales Source: Euromonitor International 2010 Haircare briefing 0 5000 10000 15000 20000 25000 30000 2004 2005 2006 2007 2008 2009 Hair Care Category Size - ChinaRMB Million The category recorded 9.4% value growth to reach RMB 26,208MM Slide 12
- 13. Factors driving growth in 2009 Shying away from 2-in-1 products: Shampoo sales were robust as consumers moved away from dual function products to single format products. Sophistication of haircare routine: Conditioner sales increased 22% as consumers moved beyond basics to more sophisticated steps such as conditioning and styling. Hair Colorants : Modest growth compared with shampoo and conditioners. Driven by Chinese consumers increasing propensity for fashion and hair color. Slide 13
- 14. P&G’s Hair Care model –Addressing key need states with a broad portfolio Key consumer needs in China Importance Dandruff 1 Hair Fall 2 Damage Control 3 Shine 4 Longer/Stronger 5 Heads & Shoulders - Antidandruff position Pantene- Damage Repair position Rejoice- Unbelievably soft and smooth position Slide 14
- 15. Implications of Unilever buying Alberto-Culver Hair Care -Alberto Culver is the six largest hair care manufacturer with brands such as Tresemme and Nexus -The company sources 75% of its revenues in mature Western markets - Allows Unilever to crack the North America hair care market and launch new salon brands in Latin America solidifying its leadership position there. Skin Care -Alberto Culver also owns Simple – a mass brand with a natural/ organic positioning. -Simple gives Unilever a presence in the attractive high growth category of natural skin care. The brand can be leveraged in both developed and emerging market because of its mass price point. Slide 15
- 16. …with a forecasted CAGR of 8.7% The continued growth drivers of Hair Care Conditioners will continue its momentous growth trend as consumers become increasingly sophisticated in their hair care routines. Men’s hair care will be a thriving sub- segment. Attract investment from both international and domestic players. 15000 20000 25000 30000 35000 40000 45000 2009 2010 2011 2012 2013 2014 Forecast Sales of HairCare (2009-2014) Source: Euromonitor International 2010 HairCare Briefing Shampoos are also expected to grow at 9% as basic necessities become affordable to more people, with rising incomes Slide 16
- 17. A deep dive into Bath and Shower Source: Euromonitor International 2010 Shower Care Briefing 0 2000 4000 6000 8000 10000 12000 14000 16000 2004 2005 2006 2007 2008 2009 Bath & Shower category size – ChinaRMB Million 0 5 10 15 20 25 30 P&G Shanghai Jahwa Unilever Amway % Retail Value Share by company (2005-2009) 2005 2006 2007 2008 2009 The category recorded a 4.1% value growth to reach RMB 14,286 P&G dominates the category. Local player Shanghai Jahwa outperformed Unilever to occupy second position Slide 17
- 18. Factors driving growth in 2009 Frequent consumer giveaways: Given the low category involvement, promotions often drive consumer choice. Manufacturers drove preference with ‘buy one get one free’ promotions driving sales volume. Transition to more expensive formats: Looking for higher-order benefits such as moisturization and long-lasting fragrances consumers prefer the shower gel format to basic soap. Growth in Intimate washes: Intimate washes value sales jumped up 12% given increasing health awareness. Growth in liquid hand soap: Perceived more efficacious than bar soap at killing germs liquid soap is garnering preference with consumers esp. since the outbreak of the H1N1 flu. Slide 18
- 19. …with a forecasted CAGR of 5.1% The continued growth drivers of Bath and Shower Consumers will abandon soap in favor of the more expensive format – shower gels. Higher-order benefits will emerge – whitening, firming, pampering, moisturizing Male targeted bodywashes with more masculine and long-lasting scents will continue to pop up Intimate washes will continue its momentous growth driven by manufacturer advertising and heightened health awareness . 10000 12000 14000 16000 18000 20000 2009 2010 2011 2012 2013 2014 Forecast Sales of Bath & Shower Care (2009-2014) RMB Million Slide 19
- 20. Consumers preferred shopping destination : Modern Retail Share of modern trade increased by 3% ..to reach 64% of the total trade in China Slide 20 Source: Global Nielsen News –Consumer
- 21. With hypermarkets commanding the highest share of wallet Hypermarkets drive modern trade growth with penetration increases Over 90% consumers claiming to use it within the last month Slide 21 Source: Global Nielsen News –Consumer
- 22. SWOT – P&G China StrengthsWeakness ThreatOpportunities L’oreal China: Increased competitive pressure from L’oreal esp. with its entry into Mass hair Men’s skin care : P&G needs to target the potential of this dynamic sub segment. It has already launched Olay for Men Lack of a premium skincare brand : Olay remains primarily a Mass brand. As consumers trade up to more prestigious brands Olay runs the risk of losing consumers. Tapping into local distribution networks: The distribution network beyond urban areas remains localized and fragmented. Need to manage the networks to gain a significant share in rural areas Well positioned for growth : Skin and Hair Care – the two large growth categories accounted for 65% of its sales in 09. First mover advantage: Extensive market knowledge as the first mover into the market. Slide 22
- 23. SWOT –L’oreal China StrengthsWeakness ThreatOpportunities Poised for growth: L’oreal is strategically positioned in the #1 or #2 spot in all the growth driving segments -Skin Care, Men’s skin care. Flexible Brand Portfolio: A range of brands at different price points, available through a variety of retail channels gives it the flexibility to appeal to a broad spectrum of consumers. Local distribution networks: The distribution network beyond urban areas remains localized and fragmented. Need to manage to gain a significant share in rural areas . Mass Hair Care: L'Oreal is a recent entry into mass hair care. It needs to maximize the potential of this launch and strengthen its presence in the channel. Piggy back on skin care distribution network: To push its mass hair care deeper in the market quicker 23 Shishedo China: A formidable competitor in Skincare. Has adopted an aggressive strategy launching 2 different brands in 2 channels and will enhance its distribution Network to penetrate deeper in the market Slide 23
- 24. SWOT –Unilever China StrengthsWeakness ThreatOpportunities Leveraging emerging markets expertise: Proven knowledge of tapping into other emerging markets – establishing strong distribution networks, developing products for low income consumers are all lessons Unilever can successfully leverage in China. Drive Product Sophistication: Key categories (Hair Care & Shower) are getting increasingly sophisticated and product development will be key to staying ahead Positioned for an ‘untapped’ opportunity: Its brands are targeted at the mid - low end of the market. Given the massive untapped lower tier market Unilever should enjoy dynamic market growth. Leaders in male hair care: First to market with a men’s shampoo with Clear For Men. Slide 24 Competition steps up the heat: Competitors are challenging its position through product sophistication -shampoo with color protection properties. Thus these categories are no longer basic areas as technology is catching up.
- 25. SWOT –Bawang China StrengthsWeakness ThreatOpportunities Narrow product line: Compared to the international giants the product line is narrow and revenues highly dependant on hair care Well covered channels: One of the strongest distributions with a multi-channel strategy to service from large chain retailers to Mom and Pop shops. Sales representatives secure new channels and ‘Bawang Flowers’ promote the brand at the in- store level. Multinational Players: Global competitors continue to pose a threat given their marketing muscle and financial resources. Chinese herbals , a growth segment: A Euromonitor study suggests Chinese herbal shampoos, is likely to attract more consumers in the coming five years . Lowered consumer confidence: The SFDA warning on exaggerated claims after bad PR on high dioxane levels may weaken consumer confidence in their products. Slide 25
- 26. In closing, the key conclusions Personal Care manufacturers have only scratched the tip of the iceberg yet. With the projected socio-economic changes China’s beauty and personal care market will sustain a projected growth rate of 10% International manufacturers will continue to dominate the personal products landscape for the foreseeable future. The lion’s share of the personal care growth will be driven by Skin Care , followed by Hair Care and the Men’s grooming segment. L’oreal China is one of the most competitive manufacturers in China over the review period. It is well placed, in the right categories, with the right mix of offerings to take advantage of the Chinese growth opportunity. Slide 26
Hinweis der Redaktion
- The dominance of foreign brand is based on 3 factors – Chinese consumers trust of safety and quality of foreign brands, the ability of these brands to project upward movement and prosperity and the marketing capabilities to appeal to consumers emotions The lion’s share of this large/momentous/exponential growth the sector will experience will be driven by Skin Care. Hair Care and the Men’s will take the 2nd and 3rd places respectively
- We will deep dive into three big segments of the Beauty and Personal Care space – Bath & Shower, Hair Care and most importantly Skin Care. But the earlier stats you will see will be the entire category comprehensive.
- 60% in basic products – which goes to show that the market is still in its infancy. The spread is much more even in mature markets with a greater proportion of sales taken by ‘non-essential items’ like color cosmetics, fragrances etc…This presents an opportunity for manufacturers to trade up from a routine that mostly involved basic cleansing
- The top 5 positions are occupied by international names with p&g at 17% Som followed by L’oreal at almost 10%. The only local company to feature in the Top 10 is Bawang with the bulk of its operations in the Chinese hair care market. L’oreal has had an impressive growth because its nabbed the leadership position in the biggest and most dynamic sub category –skin care and it also has leadership of the color cosmetics market dominance of color cosmetics (with 33% share of market) while P&G’s performance is relatively negligible there.
- This is one part driving growth as more consumers have disposable income in excess of their basic necessities and increasing proportion is available to spend on beauty and personal care Net net we are seeing economic growth filter down and a higher propensity to spend – more money beyond the basic necessities they are likely to spend on beauty and personal care products. However, the rural consumer still remains a very important part – at half the population and if we look at them their willingness to spend has gone up
- -This glorious growth contrasted to the abysmal rates that are expected in the West illustrates manufacturers absolute need to win in China to won overall.
- Having established that Skin Care and Hair Care will be one of the largest growth drivers for China we will now take a deeper look into each of those segments. Skin Care dominates value sales in China because of what I term ‘visual culture’ – intense appearance conciousness and a desire to project a more confident, beautiful and favorable u to the world. The widely held perception that pale especially facial skin, equates to beauty. Per capita spend on skin care was USD5 in 2008, five times higher than the per capita spend on most other categories. L’oreal is the market leader with an 15.7% share and it took the lead from P&G as the premier skin care company in 2008. Shishedo though a number 3 player is a formidable competitor – it has announced x,y,z esp. Also it is the belief of the Chinese consumers that their skin is closer to Japanese skin and that Japanese products will work better on their skin. An increasingly aging population in China (needs substantiation) particularly in Tier 1 cities consumers interest in age-defying products will strengthen
- -Premium channel accounted for 22.4% of value sales up from 21.8% @ technological breakthroughs. Lancôme was revived with the launch of the much publicised Genifique –based on 10 years of research designed to reactivate youth genes
- MiniNurse was an acquisition by L’oreal in 2003 L’oreal adopts a multi brand strategy covering a wide range of price points and distribution channels. It offers a full range of products covering from low to high end, urban to rural consumers across the country allowing it to maximize its share by offering tailored products for different consumers. Diversity in products, branding, and sales distribution all contribute to L’Oréal’s success in cornering the beauty and cosmetic market in China today. Vichy: Mid to high income urban consumers looking for more scientifically driven products. L’oreal is sold both through Supermarkets and Department Stores
- Skincare in China is expected to reach 85billiom RMB by 2014. As Y increases more consumers will have access to facial moisturizers and anti-agers. In cities as the market becomes flooded with offerings facial moisturizers and antiagers are being segmented by age group potentially bringing in even younger consumers @ Men: Value added products such as skin-whitening products, men’s facial masks, anti-wrinkle will continue to drive attention from leading players like L’oreal China and Shishedo China @ Premiumization: the one category where price is used as a proxy for efficacy. Manufacturers jump up the pricing by adding interesting features based on breakthrough technology. Mass brands will continue to trade up folks and create a bridge between Mass and Prestige called Masstige
- p&g controls the category with a 34% total hair care sales mostly driven by its dominant position of shampoos Unilever China saw value increase to 13% (up one percentage point) in 2009 – investment and launch of the men’s hair care brand Clear in China. -L’oreal saw momentum behind its mass targeted hair care brand L’oreal Paris which was recently introduced in 2010.
- -conditioners grew at 22% shampoos at 12% -colorants are a very small category size – about 9% of the size of the shampoo sales grew at a CAGr of 9.6%
- P& G offers a broad based portfolio of brands addresses the key Chinese consumer needstates in Hair Care. The top three brands in the market are all owned by P&G. -Head and Shoulders in the expert in Anti-Dandruff which is the #1 desire when it comes to hair. Heads and Shoulders recently launched Heads and Shoulders for Men which is also increasingly successful. Heads and Shoulders is the market leader with 12.2% of the market share -Rejoice shampoo uses "confidence from softness" across all price tiers but interprets "confidence“. i.e. that the beauty of your hair will be noticed by other people. - Pantene comes in 3rd with a 8.2% SOM with a position in hair damage repair Brand Strategy: Rejoice benefits from its low price and extensive distribution, Head & Shoulders is the leading anti-dandruff shampoo brand, while Pantene has successfully established itself as a brand focused on treating damaged hair. However
- Tresemme and Nexus are unique in that they are salon brands but are available through drugstores at a resonable price. It would be attractive to Latin American consumers who like value for money Simple is mostly present in UK but has some level of global operations. - Natural/Organic is one of the hottest trends in skin care in the west and a niche but emerging trend in the east.
- Haircare will also continue its ascent although more modestly with a 8.7% CAGR to reach 39.7 Billion RMB Drivers of haircare increase are simpler to understand with more affordability driving shampoo sales, sophistication of routine continuing the growth of conditioners and gender specific haircare –male haircare driving growth
- -With Safeguard and Olay as its two focus brands. Net net its share has not increased since 2005 staying static at 25% To further solidy its leadership position P&G has also launched Camay in the mid to high end of the bath segment
- -Intimate washes :according to government statistics more than 1/3rd chinese women suffer from vaginal infections. Thanks to increasing product education, marketing and rising health awareness, more and more consumers are using intimate washes for cleansing and preventive purposes Washes are preferred bcos they are mild, non-irritating and maintain the skin’s natural ph balance - Liquid hand soap: recorded a 12% growth
- Format transition will yeild a CAGR of 8.3%
- it appears to be small in absolute amount it is the highest growth recorded of any other Asian country. China alone accounted for over 100,000 new stores or more than 60% of the total new store investment and equivalent to a 1000% increase in a 10 year period.
- -There is SK II but the share in the market remains small at 0.4% @ Distribution - The dramatic difference between urban and rural markets in China has posed great difficulty to increasing penetration in rural markets. As a result, although highly interested in rural markets, the company saw no substantial progress here in 2009. @ SKII - some people say still has not recovered from some of the bad press over alleged contamination of its products back in 2006 in China
- L’oreal: Together with its Biotherm Homme brand, the company took 32% of men’s skin care value sales in 2009. In Skin Care it already has the lead and has now launched a mass hair care ranhe @ opportunity: projected to grow by almost US$2 billion over 2009-2014, which the company can explore for growth potential. @ distribution: emerging markets tend to have undeveloped retail infrastructures, and consumers tend to rely on channels such as kiosks for daily supplies. Access to traditional retail channels is key to success in emerging markets. Success in emerging markets largely depends on how well a company can access low-income consumers through affordable products and good distribution. Hindustan Unilever was a pioneer in introducing shampoo sachets at a low-price point to make its products accessible to low-income consumers. Unilever's shampoo sachets proved very popular, prompting greater shampoo usage amongst low-income consumers, a strategy L'Oréaladopted also for Garnierin Thailand
- (Ranks 2nd in hair care and third in bath and shower) -for eg. Opportunity – Unilever was a pioneer in launching sachets for shampoos and detergents at lower price points to make such products affordable to low-income consumers. This has been a great success. Weakness: Looking for relaxation or whitening from the shower or shampoos that don’t erode hair color etc.
- (Opportunity Bawang : currently holds a 14% share of market-look at Euromonitor. Bawang will likely be the biggest beneficiary ) Bawang has developed one of the strongest distribution channels for personal care products in China. It has adopted a multi-channel strategy with 3,000 staff managing three types of channels. A direct retail channel for large retailers such as Walmart and Carrefour. A large distribution channel for regional network retailers such as Lianhua and Wumart. A small distribution channel for mom & pop shops in lower-tier cities and towns and rural areas. Rather than waiting for distributors to bring in orders, Bawang relies on its sales representatives to explore new business with retailers—Bawang employs 6,500 “Bawang flowers” and 1,500 “Wind flowers” (female in-store brand representatives for the Bawang and Royal Wind brands) to promote the brands at the shop level, as well as 1,300 sales representatives to secure new channels. With distributors responsible only for transporting products and payment collection, Bawang has full control over it channels. As a result, it has strong influence on the display of its products in stores—a critical factor in attracting consumer interest. - In the opportunity section also mention that more and more brands like Rejoice are launching their own lines of Chinese Herbal ingredient Shampoos and Conditioners
- - Consumers trust the foreign products more, better branding and marketing strategies to appeal to consumers emotions