Cosmetics sector to see pickup in sales as firms line up budget brands
The $10 billion market is estimated to grow at a 10% compounded annual growth rate to $17 billion by 2020
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Makers of beauty products and cosmetics expect their India sales to pick up as they line up budget brands, focus on cosmetics and create herbal offerings for the country in the backdrop of a slowdown in China.
“In the last three years, the sector grew in high single digit at an average of 7-8%. However, in the last six months, growth has improved and the estimated growth for calendar year 2015 is 9%,” said Jean-Christophe Letellier, managing director, L’Oreal India Pvt. Ltd, adding that he expects India to become one of the fastest growing beauty and cosmetics markets in the world with a growth rate of 11-12% for the next three years.
Beauty and hygiene is a $10 billion market and is estimated to grow at a 10% compounded annual growth rate to $17 billion by 2020, according to a February report by the Indian Beauty and Hygiene Association (IBHA), Bain and Co and Google India.
L’Oreal targets to grow at twice the market rate, said Letellier, whose confidence stems from low inflation, better economic growth and underlying trends of demographic dividend, digitalisation and rurbanisation.
The Indian economy which is estimated to have grown at 7.6% in the year ended 31 March 2016 also benefits as China, the world’s second largest economy is slowing down faster than expected.
“Beauty players are strengthening their focus here,” said an October report by Euromonitor International which estimated India outpacing China’s growth in a number of beauty categories like colour cosmetics, hair care, men’s grooming, fragrances and deodorants at a compounded annual growth rate of 10-14% during 2014-19.
Moreover, companies have also tweaked their strategies to focus on budget brands. Modi Revlon Pvt. Ltd, a joint venture between the Umesh Modi Group and Mundipharma Group of Switzerland along with Revlon of US, is focusing on Color Rich, its value brand launched in 2014 for growth.
“Brands like Color Rich have a wider scope and potential to scale from its current 1,500 outlets to 50,000 in three years,” said Umesh Modi, chairman, president and chief executive officer (CEO), Umesh Modi Group. He claimed that the distribution reach of Color Rich has already exceeded that of Revlon which is now available at 1,300 outlets.
Even global majors such as US beauty giant Estée Lauder, which was earlier focusing on skin care, one of its largest categories globally, have now adapted to the Indian market, shifting its focus to makeup. “The makeup category is bigger than advanced skin care in the country,” said Govind Shrikhande, managing director, Shoppers Stop. He said that because India is a young country in terms of its demography and still new to the entire skincare culture, the adoption of beauty is starting out with the makeup category.
To be sure, India is not an easy market. Shiseido India Pvt. Ltd, a wholly-owned subsidiary of Japan’s $6.7 billion cosmetics major Shiseido Group which launched premium brand Za from the House of Shiseido in 2014, withdrew from India last year, finding the market challenging. Others like L’Occitane, a French beauty brand known for its natural skincare and beauty products, has shut a few stores after expanding rapidly three years ago. It now has 13 stores, down from 18 two years ago.
“For premium brands, the retail platform is limited to presence within a few department stores and for standalone (stores), the rentals are too high,” said Tony Thin, CEO, Beauty Concepts Pvt. Ltd, a distributor for brands like Bvlgari, Salvatore Ferragamo, Hermes and Lalique in India.
As such, even within makeup, it is categories like lipstick, face powder compact and eye pencil that do well as compared with categories like foundation and mascara which are big segments globally, said Biju Anthony, head of marketing, Baccarose Perfumes and Beauty Products that markets fragrances, skincare, nail care and cosmetics in India besides manufacturing Chambor products in the country.
Meanwhile, ayurveda and herbal brands are finding high acceptance. Forest Essentials, in which beauty behemoth Estée Lauder Companies Inc. has a minority stake, and Kama Ayurveda are also fast expanding. For instance, Kama Ayurveda which had over 15 stores in Delhi opened its first store in Mumbai about a year ago has now got three stores in the city with plans to open more.
Technology adoption will also aid the sector’s growth.
“In the past couple of years, while the consumer packaged goods sector saw a slowdown, the e-commerce market has been growing and we have been able to capture some of that growth,” said Falguni Nayar, former managing director of Kotak Mahindra Capital Company, who has started an online beauty commerce site, nykaa.com. The portal is in talks with Australian and Korean skincare brands interested in entering India through the online route.