Russia Country Market
Insights and Opportunities
Cosmetics & Toiletries Sector
Overview: The Russian cosmetics and toiletries market has been experiencing steady growth and has been one of the fastest growing industry sectors in Russia during the last decade, with growth of 10-15% prior to 2008. According to L’Agence de Lux, in 2008, the total value of the Russian cosmetics and toiletries market was approximately $9.3 billion. However, because of the global economic slowdown and the impact it had on Russia in 2009, the market is estimated to have contracted by approximately 10%. 53% of the market consists of imported products.
According to the Aginsky Consulting Group, the largest market segments of the Russian cosmetics and toiletries sector are: hair-care (18%), make-up (17.7%), skin care products (13.3%), perfumery (12%) and bath products (10%). Anti-aging, anti-blemishing, curative cosmetics, spa, pedicure and manicure products are also fast growing subsectors in the cosmetics industry. Russians spend a significantly higher portion of their income (12%) on cosmetic products than do their overseas counterparts.
Domestic manufacturers have a 47% share of the mass-market and middle-market brands. Major manufacturers like Kalina, Nevskaya Kosmetika, Svoboda and Faberlic produce both mass-market and higher-end skin care products, which are considered on par with western luxury market quality standards. The competition between foreign and local manufacturers in the mass-market and middle-market segments is intense. Generally, foreign producers outpace local ones in the use of new technologies in the manufacturing process and larger marketing and advertising budgets.
The market recently experienced profound changes in distribution with retailers becoming the key players in the market versus distributors. According to L’Agence de Lux, cosmetics and toiletries distribution channels include: Cosmetic retail chains (30%); Department stores (25%); Direct sales (20%); Pharmacies (10%); Outdoor markets (10%); and Internet-sales, concept-stores (5%).
Distributors are shifting their business from developing wholesale trade to expanding retail chains. Specialized retail chains such as L’Etoile, Ile de Beaute and Ives Rocher, with outlets in all major Russian cities, are showing the fastest growth rates.
The assortment of products in retail chains has changed, too, with middle-market and mass-market brands complementing exclusive products. The share of mass-market products in retail chains has grown to 20%. An additional channel for mass-market and middle-market brands, as well as for curative cosmetics, is pharmacies, especially pharmacy chains. Russian consumers perceive cosmetics sold through pharmacies to be safer and more effective.
A new and recent trend in market development is a shift in the overall market share from Moscow to the Russian regions. Currently, the ratio between large cities and regional cities is 50/50. This is especially true in cities with a population of over one million and where there are a substantial number of people with high purchasing power.
The last several years have been characterized by a rapidly growing demand for high quality and customized cosmetic products. Both foreign and local manufacturers have succeeded in creating awareness and educating consumers about different skin and hair types, as well as the advantages of using a full range of skin and hair products.
Because of the economic downturn, however, while consumers continue to spend money to make their skin look better, visits to spas and beauty salons are becoming less regular; thus, there is a growing demand for professional products for home use. When the ruble depreciated in late 2008/early 2009, prices for imported cosmetics and toiletries increased by 30-40%. This intensified demand for mass-market products with a combination of affordable price and good quality.
Opportunities: The best sales prospects for U.S. export includes the following categories: make-up, skin and hair care products in all market segments, professional skin care products for home use, spa products and treatments, beauty and hair salon products and equipment, anti-aging cosmetics, natural cosmetics, curative and professional products, manicure and pedicure products, and cosmetics for men and children.
The total current value of the Russian beauty products market is approximately $8.4 billion with 53% of the market consisting of imported products. Russian consumers traditionally trust foreign brands more than local ones because they guarantee consistent quality. According to industry specialists, the future of the Russian cosmetics and toiletries market is in niche marketing and narrow customization. Given intense competition between foreign and local manufacturers, especially in the mass-market and middle-market segments, the cost of entering and developing the market is now higher.
Success will depend on larger investments in advertising, marketing and promotion, including participation in specialized trade shows. U.S. manufacturers can improve their market visibility by offering exclusive cosmetic products and by employing qualified agents/distributors. Price continues to be the most competitive factor limiting export opportunities. U.S. producers may consider opening a representative office to conclude agreements with retailers directly or establishing manufacturing facilities in Russia and partnering with local companies to make their products more competitive.