Global Cosmetics Industry Prospects 2009 Euromonitor 08 09

Cosmetics & Toiletries-Prospects
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Global Cosmetics and Toiletries: Industry Prospects for 2009 and Beyond
August 2009
1
Global Snapshot
Regional Overview Category Review Channel Analysis Competitive Environment Global Prospects Appendix
2
Global Snapshot
Key Findings
Buoyed by continued strong growth in emerging markets, the global cosmetics and toiletries market suffered but a slight slowdown in 2008 despite a full fledged global recession by the end of the year. The leading markets of the US and Japan saw declines that will persist over the forecast years. Elsewhere, the effects of the recession on CT spend, will be far more evident in 2009. Growth of only 0.7% in real prices is forecast for the global CT sector in 2009, driven by skin care and men's grooming products. Consumers are sacrificing luxury brands for mass or masstige alternatives and premium cosmetics are bearing the brunt of the economic downturn. In 2009, consumers globally are expected to reduce their premium CT spend by 1.3%, while hair care will be the only category to see negative growth (-0.3%). Against the backdrop of tightened consumer purses, resilient and dynamic sectors are being skin care (antiagers), men's grooming products (undeveloped sector with untapped opportunities), sun care (education and rising awareness of anti-ageing benefits), baby care (high population growth and rising incomes in emerging regions; unwillingness to sacrifice on baby needs by parents in developed markets) and deodorants (as replacement for fragrances). By 2010, all categories as well as premium, will see renewed expansion. Despite being less dynamic than other categories, hair care, fragrances and colour cosmetics, will be key contributors to global absolute value growth over the forecast period, by virtue of sheer size. Skin care, on the other hand, will be of critical importance, being both amongst both dynamic as well as the largest category. The Asia Pacific region, excluding Japan, and Latin America are the key growth markets of the future, particularly, BRIC countries, China, Brazil and India. Success strategies for international manufacturers will need to incorporate geographic expansion and product share gains in key categories such as skin and hair care markets and China and Brazil, while laying the seeds in "frontier" markets with highest potential. The CT consumer base is increasingly sophisticated and global. It is both keen on preventing ageing through scientific progress, and ethically and environmentally conscious. To succeed, manufacturers thus also need to invest in efficacious, technologically advanced formulations, as well as be innovative in their marketing/packaging, addressing consumer concerns and adding clear value/benefits to their purchases.
3
Global Snapshot
Key Industry Issues

Demand is on the rise for technologically advanced formulations that are positioned on the boundaries of cosmetics and drugs (cosmeceuticals). These products are often seen as alternatives to surgery and include both facial anti-agers as minimallyinvasive treatments such as "Botox." Consumer perceptions of luxury are changing. Luxury is an enriching personal experience and no longer a premium price-tag. Beauty masstige items can now become affordable luxuries (at "mass prices") in a tough economic climate. They are positioned across the whole product spectrum.
Beauty is merging with health and well-being and becoming more holistic not just internal appearance but also physical and spiritual well-being. CT products are taking new forms from jars to foods. Interest in nutricosmetics and functional foods is complementing the traditional beauty industry.
The economic downturn is making shoppers more value conscious. The "at home" beauty care market is benefitting as a cheaper substitute to costly out-of home services such as salons/spas (hair colorants, perms/relaxants, depilatories, nail polish), or dentist visits (teeth whitening and professional oral hygiene kits).
Consumers are increasingly concerned about the safety and purity of products they consume, as well as their effect on the environment. Products that have claims of being "natural", "organic" and/or eco-friendly are growing in popularity across regions, and becoming mainstream. Greatest impact is on baby and body skin care, and bath and shower. The organics trend is also spreading to products where efficacy has been a priority, such as facial skin care, hair care and colour cosmetics.
4
Global Snapshot
Industry Growth Shielded from Late Arrival of Recession

Growth in the global cosmetics and toiletries market slowed to 5% in 2008, from 6% in 2007, on increased price sensitivity among consumers. Already in 2008 there were sharp declines in selected leading countries and categories such as North American fragrances and Japanese skin care and colour cosmetics. There was, however, offsetting buoyancy in emerging markets due to their relative immaturity, and also because the effects of the global credit crunch were felt with greater delay there than in developed markets. The full brunt of the global recession will be felt from 2009 onwards. In many countries, media coverage of the economic slowdown only gathered speed during the second half of the year, meaning that prior to that consumer spending was largely in line with that of previous years. As the bear market mentality set in among consumers, however, many beauty product manufacturers posted fourth quarter results that were far lower than those of the same period the previous year. In 2009 the effects will be far more evident as growth of only 0.7% in constant terms is forecast for the declines in premium sales. Western European premium sales (34% of global) grew by 3% in 2008 versus 5% in 2007, but they will fall by an estimated -0.3% in 2009. As a result, global premium CT sales are expected to contract by -1.3% in 2009. Global CT Performance 2003-2008
400,000 US $ million 300,000 200,000 100,000 0 2003 2004
Total CT
7 5 4 3 2 1 0 2005
Premium CT
2006
% CT growth
2007
% premium growth
2008
% value growth 5
Global Snapshot
Categories' Resilience Varied Markedly Across Regions

Deodorants and baby care were the best performers globally in 2008 with growth rates of 8% and 7% respectively. These two sectors, along with bath and shower, were also the only ones to outperform their percentage rise of the previous year. Latin American's love for scents underpinned strong growth in deodorant roll-ons and sprays. Unwillingness by parents to give up quality on their children's products together with increased purchases for adult consumption (baby lotion) boosted baby-care products demand. Premium cosmetics and toiletries bore the brunt of the impact of decreasing consumer confidence and disposable income and rising unemployment rates. The category's growth rate more than halved to 2% in 2008, as consumers sacrificed luxury brands for mass or masstige alternatives. While global skin care spend slowed to 5.5% growth (7.1% in 2007), nourishers /anti-agers remained star performers, expanding by 9.7% or only 0.6 percentage points less than in 2007. This adds substance to the belief that most consumers will sacrifice on many other fmcg's before they will alter their facial care routines. Other resilient sectors included under-developed men's grooming (-0.3 or +6.1% in 2008), and sun care that despite declining 1.3 percentage points, remained the most dynamic sector over the 2003-08 review period. Though global hair care spending decelerated by 1.3 percent points and was the slowest growing category, the sheer magnitude of this relatively mature sector determined it was the second largest contributor to absolute value growth during the review period.
Global Sales by Category

60 40 20 0 12 8 4 0 % value growth 6 80 US$ billion 16
Sales (2008, US$bn)
% change 2007-08
% change 2006-07
Global Snapshot
7
Regional Overview
Leading Regional Markets in Retreat

Economies with advanced, integrated credit markets are suffering the brunt of the current economic downturn. It is these countries that also enjoy the highest per capita consumption of cosmetics and toiletries, are mature, sophisticated and price sensitive, and are being hardest hit, as consumers curtail overall expenditure. Though Canadians showed unwillingness to cut back in their personal care regimens, the overwhelming incidence of the US within North America, resulted in an estimated -2.4% decline in the region's CT market in real terms (-0.4% in current prices) during 2008. Americans of all income levels began tightening their belts, leading to massive discounting even in premium cosmetics (never seen before). The region's CT market is projected to contract by a cumulative 1.7% over the next five years. In all, half of CT world sales are in leading markets that will contract or stagnate during the forecast period. CT sales in Japan fell -1.4% in 2008 as consumers reduced premium cosmetics purchases. Japan accounts for 40% of Asia Pacific's CT market, causing a sharp slowdown there over the next five years. For the largest five countries that together account for three quarters of the West European market, CT sales will either contract or come to a near stand-still over the forecast period.
CT Regional Performance
120 2008 US$ billion 100 80 60 40 20 0 -1.0 Australasia -0.5 0.0 0.5 1.0 1.5 2.0 Eastern Europe Middle East and Africa 2.5 3.0 3.5 4.0 4.5 5.0 North America Western Europe Asia Pacific Latin America
2008-13 CAGR
Bubble size represents US$ value sales in 2008
Regional Overview
Emerging Economies Lead Industry Prospects

Asia Pacific will emerge the global driver of economic recovery. Excluding Japan, annual CT 2008-2013 sales will grow 5.2% on average, spurred by brisk demand for skin care (and sun care), the largest and most dynamic category, followed by hair care (2nd largest). CT sales in China and India (55% of AP-ex Japan), have slowed but projected 5 year CAGRs are above 7%, offsetting weakness in Taiwan, and South Korea. Latin America was the most dynamic market in the review period, contributing 30% of global absolute growth in CT spend. Declines in hair care spend in the saturated markets of North America and Western Europe, were offset by strong growth in Latin America thanks to increased penetration of conditioners and colourants that are increasingly popular with teens and young adults. CT value sales in several Eastern European markets should decline in 2009, however, the two largest, Russia and Poland will expand by slightly over 1%, and the entire region begin recovery in 2010. Spend by category is fairly spread in Eastern Europe. Skin care (20% of CT spend), hair care (18%), fragrances (17%), and colour cosmetics (13%) are the key sectors by size and absolute growth. Russians are very designer oriented in fashion, however, premium cosmetics spend that takes a greater share of CT spend in Eastern Europe than in other emerging markets (14.9% CAGR 2003-08), is set to slow markedly. Per Capita Expenditure by Region
250 % growth
200
US$ 150 100 50 0 Asia Pacific Eastern Europe Latin America Middle East Africa North America Western Europe
14 12 10 8 6 4 2 0 -2
Per capita CT spend (2008, US$) % Change in CT Spend 2007-08 % CAGR in CT spend 2008-13
Note: 2007-08 % change figures are in current prices, whereas projected CAGRs are in real prices that exclude inflation. Eastern Europe, Latin America and Middle East Africa's 2007-08 % change figures contain significant inflation.
Regional Overview
Premium Cosmetics: Time to Buckle Up

Premium cosmetics grew by 2.2% in 2008 as they bore the brunt of the effect of falling consumer spending. By product, most growth was in baby care and sun care. Three product segments make up a huge 84% of premium cosmetics: skin care, fragrances, colour cosmetics. By geography, growth focused on Latin America and Eastern Europe. Two regions make up 65% of premium cosmetics: Western Europe, Asia. In Asia, baby care grew 35% in 2008, but from a low base. Strikingly, sales already fell meaningfully in every single product category in the US (incl. sun care) in 2008, and further significant negative growth is likely in 2009/10. Going forward, sector growth will be pressurised as reduced disposable income leads consumers to trade down to varying degrees. This will affect primarily basic cosmetic and toiletries products, but will also affect the premium market. Market leaders Este Lauder and L'Oral will face an increasingly fierce competitive environment across all premium product categories, though certain lines should hold up better than others. This is due to the fact that they are easier to market and 'glamour' helps to justify a premium positioning: skin care (even high-priced face creams should benefit as 'eternal youth' is priceless), and sun care (sun protection, cancer prevention, premature skin-ageing).
Premium Cosmetics % Growth by Region 2008

14% 12% 10% 8% 6% 4% 2% 0% -2% -4%
Brand loyalty is generally high in premium cosmetics, though firm separation from the mass market remains critical in order to preserve product pricing. Premiumisation will continue to be an important global trend over the longer term. Premium brand sales constituted 22% of the global market in 2008. Key sector drivers include improved wealth in developed and emerging economies, a growing middle class in BRIC, further value-adding product enhancements via R&D, the launch of new and highly priced products (niche markets, especially in Western Europe), and increased availability through select mass channels.
10
Regional Overview
North America and Western Europe Suffer Hardest

The CT market in North America is forecast to decline by US$1 billion in 2008-2013, driven by US premium cosmetics (-9%), fragrances (-17%) and colour cosmetics (-6%). The West European CT market will remain flat in 2009, though France (17% share of regional CT sales) will fare worst, posting negative growth through 2011, and Germany (17% share) is expected to grow a meagre cumulative 0.9% during the forecast period. Italy, Greece, Sweden and Portugal will also decline in 2009, to recover in 2010, while the UK, the Netherlands, Spain, Norway, Finland and Turkey will show healthy growth rates. Private label has been a large beneficiary in the US (bath & shower, oral hygiene, baby and sun care) and in countries such as Germany, Netherlands, France, Spain and the UK, where major retailers show increasing sophistication in their private label offer and are expanding their ranges to include natural and organic products (Carrefour, Tesco, Sephora, amongst others).
Major branded manufacturers are responding differently across countries and sectors, as price points fall with new launches (US, premium cosmetics), or innovations in mature sectors such as hair care and skin care underpin unit price growth in the Netherlands and Germany, or greater consumer segmentation reaps aboveaverage value growth in Spain (+5 % in 2008). North America and Western Europe Performance 2003-2013
120,000 100,000 80,000 60,000 40,000 20,000 0
2003 2004 2005 2006
NA
5 4 3 2 1 0 -1 -2 -3
2007
WE
2008
2009
2010
2011
2012
2013
% NA growth
% WE growth
% value growth 11
US$ million
Regional Overview
US and Japan: Erosion in Share of World Market to Accelerate

The Japanese CT market is expected to contract by 5.1% or US$1.7 bn over the next five years, in constant value terms. Although there are pockets of growth in 'preventive' products such as anti-ageing, oral care and sun care, as well as depilatories, these are small in the overall context of the Japanese market. Consumers' trading down from premium to mass and masstige products is affecting most sectors, but the bulk of the brunt is being felt in skin-care (excepting nourishers/anti-agers), and colour cosmetics, that are also the largest sectors (42% and 20%, respectively, of Japanese CT spend), where average unit prices are declining. The US CT market is expected to be US$1.6 bn smaller by 2013, however, this will be a comparatively modest 0.6% decline from 2008. The CT mix is less concentrated than in Japan as well as fragrances and men's grooming products take a greater share of CT spend. Discounting and lower volumes in fragrances (80% are premium, and considered a luxury) will reduce the CT market an estimated US$970 mn by 2013. The men's grooming sector will be a growth driver in the US, as young men become more comfortable with grooming regimens and the idea of cosmetics lines tailored for men becomes more mainstream.
Top Five by Market Size 2003/2008/2013

USA US$ billion Japan Brazil China Germany 0 10 20 2013 30 2008 40 2003 50 60
Top 10 % Value Share 2008

Rest of World 35% Spain 3% Italy 4% Russia 4% UK 5% France 5% Germany 5% China 5% Japan 10% Brazil 8%
USA 16%
12
Regional Overview
A Diverse Environment in Asia Pacific

In 2009, Asian economies (ex-Japan) will grow their lowest since 2001, nevertheless, above 5%. Public debt has been reduced (excepting India) and foreign reserves are mostly ample. A more rapid recovery than in other parts of the world, should thus be possible as governments are better able to cope with recession through increased spending. The region remains dependent on and vulnerable to foreign investment flows. Skin care is the key sector taking up 37% of CT spend, and the share is higher in mature markets. Catering to Asian women's traditional preference for clear and pale skin, majors P&G, Amway, and L'Oral launched several new whitening skin care products during 2008. Products with whitening function are penetrating into nearly every area of facial skin care - moisturisers, cleansers, toners, face masks, and even nourishers/antiagers - as manufacturers seek to add extra benefits to basic functionality. Sales will slow sharply but the high importance of facial skin beauty will continue to make skin care the star performer of the Asia Pacific CT market (37% of projected five-year absolute growth), followed by hair care (20% of absolute growth). Developed Markets 2008
7 Market size (US$ billion) 6 5 4 180 160 140 120 100 80 60 40 20 0 South Korea Taiwan Market Size (US$ bn) HK, China Per capita C&T (US$) 13 Singapore
3
2 1 0
Per capita CT (US$)
Regional Overview
China Sees Highest Absolute Growth Potential

Around half of CT purchases in developed Asia Pacific markets (per-capita CT spend above US$120) are premium products, that will do poorly such as in Japan (US$252 CT per-capita spend) and Taiwan. In contrast, countries such as China and India, where premium product penetration is low, will see premium products outperforming mass even in the economic downturn. Broadly speaking, developing countries whose CT markets are very large yet per capita CT spend remains low, will see the greatest absolute growth. Developing Asian Markets 2008
20 18 16 Market size (US$ billion) 14 12 10 8 6 4 2 50 45 40 35 30 25 20 15 10 5 Per capita CT (US$) 14
0
China India Thailand Market Size (US$ bn) Philippines Indonesia Malaysia
Per capita C&T (US$)
Regional Overview
Eastern Europe: Nominal Growth Masking Sharp Deceleration

The cosmetics and toiletries market in Eastern Europe continued to grow a steady, rapid pace in nominal terms, but significant rises in inflation sharply eroded the real value of sales. Real growth of CT sales for the largest 15 countries (97% of Eastern Europe's CT spend) slowed to an estimated 0.9% in 2008 from just over 3% in 2007. The repercussions of the global credit crunch were felt fully in 1Q 2009 with collapsing commodity prices, exports and credit access. The region's economy is expected to contract by 4%, with slight recovery in 2010 (+0.8% real GDP growth). The downturn will be sharper in CIS states including Russia, the Baltics and Hungary. The region's recovery is constrained by inflated fiscal budgets and in some cases large current account deficits, requiring financial rescues by the IMF and government donors.
US$ billion
Eastern Europe CT Market 2008

Other Slovakia 11% 3% Hungary 4% Romania 5% Czech Republic 5% Ukraine 9%
Russia 47%
Poland 16%
Eastern Europe Market by Category

8
2008 (US$ bn) 2008-13 CAGR (%)
5.0 3.0 2.0 1.0 0.0
In 2008, CT markets contracted in Ukraine (-0.4%), Czech Republic, Hungary and Latvia, while Russia slowed down sharply. Poland, stands out as a bastion of stability, with steady, even if, low growth (+2% 2008). Romania's CT market also did well (+4% 2008). For the region as a whole CT sales will grow a modest 1% in constant prices in 2009, recovering over the forecast period, driven by Russia, Ukraine and Poland. Annual growth will average 2% over the next five years, one of the lowest amongst emerging market peers.
4 2 0
% growth
15
4.0
Regional Overview
Russia: Spend on Premium Cosmetics Set to Slow

Russian consumers stocked up on premium cosmetics as the economic crisis intensified in 4Q 2008 and the rouble continued depreciating. An acceleration of inflation supported another year of strong growth (+12%, versus 13% in 2007) for Russia's beauty and personal care market. In real, inflation-adjusted, terms, however, unit prices came under pressure and the value of CT sales slowed to a meagre 0.7% for the whole of 2008 (4% in 2007), while volumes drove market growth, with rises of 2.8% (3.4% in 2007).
During Q1 2009, consumer confidence was at a 10-year low, and various measures of productive activity (industrial, natural gas, etc.) suffered double-digit percent declines versus the prior year. Spend in premium cosmetics that had outpaced the overall CT market through 2007, will now decline in 2009 hurting perfumeries and smaller store-based beauty retailers particularly, such as recently bankrupt Arbat Prestige. Russia CT Market by Category 2008
Bath & shower 8% Oral hygiene 9% Men's grooming 9%
Other 5% Skin care 20%
Fragrances 18%
Colour cosmetics 14%
Hair care 17%
16
Regional Overview
Russia: Direct Sellers Thrive in Recessionary Market

With strong long-standing reputations, value-for-money images, and innovative marketing, direct sellers flourished during 2008. Oriflame saw sales grow by 25% and staff by 50%. Amway saw another year of record sales, up 32%. Avon launched Bond Girl 007 fragrance to coincide with the Quantum of Solace's movie premiere, with a curvy, feminine-shaped bottle and high-tech metal top, even distributed at film screenings. Active TV advertisinghighly effective in Russian consumer choiceplayed a key role for direct sellers. It is likely that buyers of premium cosmetics will look to direct sellers' masstige product ranges to reduce outlays. Russia: CT Sales Evolution (Real Prices) 2004-2013
16 14 12 10 US$ billion 8 6 4 2 0
Total CT Premium Total % y-o-y growth Premium % y-o-y growth
12 10 8 6 4 2 0 -2 -4 % growth 17
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Regional Overview
Japan: Pockets of Growth Overshadowed by General Declines

In Q1 2009, Japan's real GDP contracted by 4% quarter-on-quarter, the fastest decline since the 1974 oil crisis. Japan's recovery will be slower than in its 1997-98 recession reflecting the more severe global economic downturn currently, and Japan's reliance on exports to deliver economic growth. Consumers' move away from premium to mass/masstige is the over-riding trend in Japan. Nourishers/anti-agers, sun care, men's grooming, oral hygiene and organics should perform better than other sectors. A distinctive feature of the Japanese market versus its AP developed peers, is the leadership of national champions (Kao, Shiseido), though foreigners are making inroads with products that target untapped sub-sectorssuch as Veet's hair removers that helped Reckitt Benckiser make a 29% sales gain in depilatories in 2008or by successfully adapting top brands to local peculiarities such as L'Oral (+17% sales gain in 2008) that successfully reformulated Revitalift to suit the Japanese skin type. With an ageing population and highly sophisticated Japanese consumer, new scientifically-based age-defying products with increased efficacy, are the way forward for manufacturers. Segmentation and targeted marketing can also bear fruit as the case with Shiseido's Elixir Prior that caters to the growing 60+ female group, with packaging for easy handling, large labelling and easy-to-follow steps.
Japan CT Market by Category

16 14 12 10 8 6 4 2 0 Hair care Colour cosmetics Men's Oral hygiene Skin care grooming Anti-agers Premium CT 4 3 1 0 -1 -2 -3 % growth 2 2013 % CAGR 2003-08 % CAGR 2008-13
2008
US$ billion
18
Regional Overview
China and India Growth Engines of Asia Pacific

China's booming skin care market grew an average 18% pa over the review period, yet per capita spend on skin care was a low US$5 in 2008 versus Taiwan's US$63 and HK China's US$76. The top five players, foreign, had combined market share of 50%, and fueled value growth with diverse marketing campaigns and introductions of high potency anti-ageing products, as well as through greater segmentation of the 25-to-35s. Brands grounded in local traditions are capturing market dynamism: Shanghai Jahwa's new Herborist range of TCM-based skin care products saw 67% growth in 2008. Three of the top five brands are from direct sellers that gained share in 2008 as the economic slowdown increased jobless women-turned-direct sellers. As wealth and infrastructure investment gradually reaches the highly rural Indian population, and incomes rise in urban areas, much of the absolute growth in the Indian CT market has come from sectors that represent basic necessities (bath & shower, hair care and oral hygiene) where consumers are switching from loose, unbranded products to branded goods. The most dynamic sectors in the forecast period are forecast to be fragrances (+17% CAGR) and colour cosmetics (+20% CAGR) as more young women join the work force. China and India will account for 66% and 22%, respectively, of Asia Pacific's absolute value sales growth between 2008 and 2013, thanks to projected CAGRs above 7%. Thailand, however, with similar consumption patterns to China, will also be an important generator of CT absolute market growth (+US$820 mn). Category Share of Total CT Market 2008
40 % share 30 20 10 0 China Bath & shower India Hair care Thailand Colour cosmetics Philippines Oral hygiene Indonesia Skin care Malaysia Premium CT 19
Regional Overview
Middle East and Africa: Resilient but Not Immune

Lack of a credit/debit culture shielded consumers in MEA from the global credit crunch, and the pace of growth in CT sales actually accelerated during 2008 to a nominal rate of 10%, from 8% in 2007. The collapse of oil prices and global economic downturn, will reduce 2008-13 growth to 2.4% vs 1.8% globally. CT sales of US$13.7 billion are only 4% of the global market, the smallest region, and lowest average per capita spend (US$11.6). Saudi Arabia and UAE are expected to fare best, as surpluses from windfall oil revenues allow them to withstand the crisis. Iran, however, is expected to fare worst as reduced government subsidies (in fuel, electricity and water) bite into discretionary spend. Nigeria, with unofficial unemployment at 40%, will see a sharp reduction in its share of the CT pie. CT sales began decelerating in the mature MEA markets during 2008. Israel (US$149 per capita spend) slowed to 10-year low as discounting hit hair care and fragrances, its largest sectors, and move to masstige impacted skin care and colour cosmetics. South African consumers will be recovering from sharp increases in food, electricity and fuel prices in 2008, and CT spend will slow markedly. MEA Major Market Performance
Sales US$ mn MEA - Total South Africa Saudi Arabia Iran Israel UAE Egypt Morocco Algeria Kenya Nigeria Tunisia Cameroon Other MEA 13,736 2,396 2,174 2,045 1,088 834 600 523 327 273 255 150 78 2,992 Growth % 2008/07 9.6 11.7 11.2 6.6 2.9 13.7 8.8 7.7 7.9 9.0 5.5 11.0 4.7 11.8 CAGR % 2003-08 7.7 9.2 9.2 6.8 7.7 9.7 9.7 5.3 7.2 9.4 9.7 7.0 6.2 6.4 CAGR % 2008-13 2.4 2.4 4.4 -6.2 2.2 7.3 1.4 6.3 4.4 0.9 -1.4 6.4 2.0 3.7 20
Regional Overview
Middle East and Africa: A Region With Diverse Markets

Fragrances (66% of which premium) was the most dynamic sector in MEA during 2003-08, accounting for 20% of the absolute increase in sales. The region benefits from a deeply-rooted fragrance culture that favours premium and oriental products. Fragrances will be the largest contributor to regional sales growth during 2008-2013, followed by skin care (23% premium) and colour cosmetics (35% premium). Given tougher economic climate, well-positioned and advertised masstige products show significant potential. Iran's stellar growth of 76% in colour cosmetics in 2003-2008 masks a mixed reality of high inflation and poor border control. Smuggled and counterfeits account for 80% of the CT market. Rapid expansion of satellite TV and outreach to small cities has brought Farsi channel advertising to Iran's growing youthful population, spurring CT purchases. Colour cosmetics will continue to drive positive CT sales growth in current prices. As the UAE struggles with oil price and property market collapses, it will see 7% average forecast growth underpinned by high per capita income, a cosmopolitan population with over 60% under 25, and an expanding retail landscape. Hair care is the largest and most dynamic sector, with climate and ethnic factors supporting strong growth (+12% 08/13 CAGR) across most products. CT MEA Growth by Category
CAGR % 2003-08, current, US$ billion 12% 10%
Depilatories Bath and shower products Hair care Oral hygiene Deodorants Baby care Fragrances
8%
6% 4% 2% 0% -1%
Men's grooming products
Colour cosmetics
Skin care Sun care
0%
1% 2% 3% CAGR % 2008-2013, constant, US$ billion
4%
5%
Bubble size shows sector's share of cosmetics & toiletries market, ranged displayed: 1.20-19.3%
21
Regional Overview
Saudi Arabia: Low Per-capita Spend in Select Categories

Over the next five years, Saudi Arabia is projected to create US$525 mn in new CT sales, the largest contribution in MEA, to become the leading market by 2013. Though per capita CT intake of US$86 is high by regional standards, it is still low relative to the region's mature markets UAE and Israel. Strong underlying industry fundamentals include: high purchasing power by majority of Saudis, and steadily rising incomes; youthful growing population (2.5-3% pa); thriving religious tourism; sizable expansion plans by retailing industry; and, strong supplier-driven growth through aggressive advertising and value-enhancing product introductions. Until present the latter have supported high unit price growth. Unilever's launch of Clear for Men, capitalized on the strength of the global brand, targeting a dynamic category - men's grooming products - with an aggressive advertising campaign and wide distribution strategy. The shampoo, based on patented VitaAce that removes and prevents recurrence of dandruff, dramatically boosted the growth of the market's shampoo sector (+12% in 2008), and ended P&G's decades'-old monopoly in anti-dandruff shampoos (Head & Shoulders). In 2008, Unilever proceeded with the launch of Clear's Hair Fall Defence For Men, treating dandruff and preventing hair loss (adding benefits), the first product of its kind. Per Capita Expenditure by Category 2008
50 40 US$ 30 20 10 0 Bath & shower Hair care Colour cosmetics Men's grooming Oral hygiene Fragrances Skin care Premium Middle East and Africa Iran Israel Saudi Arabia South Africa
United Arab Emirates

22
Regional Overview
Latin America Set to Weather the Economic Storm

Share of Latin American CT Spend
Mexico 16% Venezuela 6% Argentina 6% Colombia 5% Chile 3% Peru Other 2% 6%
After the region's 2002 financial crisis, most countries (except Argentina, Venezuela) followed orthodox policies, thus Latin America is well placed to withstand the global economic downturn. Brazil, will contract in 2009 on external demand factors, but swiftly return to growth in 2010. Mexico's reliance on the US (76% of exports) will slow its economic recovery. Latin America's CT market grew the fastest globally in 2003-08 (12.3% CAGR), and in absolute terms (US$23 bn to US$52 bn). Hair care continued to dominate CT spend (23% of total). The hair care market, is relatively mature and slowing in the recessionary environment. In Brazil, rising use of progressive blow-dry in beauty salons, that requires reduced frequency of hair washing to achieve smooth and straight hair, is dampening demand for shampoos, conditioners and colourants (an estimated 65% of Brazilian women have curly or afro hair type). The increasing quality of mass fragrances (86% of total), climate and cultural factors, and innovative marketing and segmentation, will drive fragrance sales in 2008-13. In 2009, specialist retailer O Boticario, successfully launched Capricho Day&Night targeting teen girls with two fragrances that create a third when mixed, and introduced a winning Capricho cosmetics range. Direct seller Avon has developed two skin care ranges to target low-income women (Ageless Results), and middle-to-high income (mainly older) women (Avon Renew Ultimate), while adding nourishing/anti-ageing benefits to its colour cosmetics ranges.
23
Brazil 55%
Latin America Sales by Category

16 14 12 10 8 6 4 2 0 25 20 15 10 5 0 % growth
US$ billion
2008
2013
% CAGR 2008-13
% CAGR 2003-08
Global Snapshot
24
Category Review
Cosmetics Surpass Toiletries, Fragrances Post Varied Results

Consumers are far more willing to economise on toiletries than they are on cosmetics such as skin care and colour cosmetics, however, in mature markets, the slowdown in toiletries' consumption has been moderate, and less intense than that seen in value sales of cosmetics. Globally, cosmetics sectors outgrew their toiletries counterparts in 2008, as they did throughout the review period 2003-08 across all regions. In 2008, however, there was a notable major exception: Japan's cosmetics market took a sudden sharp turn, and both skin care and colour cosmetics spend declined sharply. As Japan accounts for 51% of the Asian Pacific cosmetics sector, that region's overall toiletries market outperformed that of cosmetics (5.2% vs. 3.8%). This is likely to continue as Japanese consumers are expected to restrain their consumption of skin care and colour cosmetics products and continue switching down from premium to mass and masstige alternatives. World spending on fragrances accelerated over the past five years, outpacing both toiletries and cosmetics in 2007 and in 2008, but consumer spending patterns varied across regions. Latin America, Eastern Europe, and Middle East Africa (a combined 40% of global spending on fragrances) saw double-digit growth in both mass and premium products. Mass fragrances in Latin America (20% of the global fragrances market) rose by nearly 15% in 2008. At the other end, North America (16% of world fragrance sales) saw a 4% decline, that region's worst performing sector due to record discounting across both mass and premium fragrances.
Regional Shares of Major Category Groups 2008

Toiletries
Cosmetics Fragrances 0% AP 25% AU EE 50% LA MEA 75% NA 100% WE % CAGR
Regional 2003-08 CAGR (%)

16 14 12 10 8 6 4 2 0 -2 World AP AU EE LA MEA NA WE Toiletries Cosmetics Fragrances 25
Category Review
Skin Care Dominates Global Cosmetics Market

The world skin care market advanced by 5.5% to US$75.8 billion in 2008 (vs growth of 7% in 2007). Although skin care has enjoyed the highest 5-year average growth rate (after sun care), its 2008 growth rate lagged deodorants (7.6%), baby care (6.7%), sun care (6.6%) and men's grooming products (6%). Skin care, the largest CT category (23% of total retail value), still grew faster than the US$333 billion CT market, which rose by 5% in 2008. The key driver behind skin care growth was nourishers/antiagers, which were up 10% in 2008 (2007: +10.3%) and defied the trend for trading down in skin care. Asia continues to account for a massive 39% of world retail sales (followed by Western Europe, 28%), aided by premium skin care, but the highest growth rates are in Latin America and eastern Europe. Skin care growth is expected to hold up well in 2009, with anti-ageing and nourishing products in the facial care segment seen as primary drivers (along with firming & anti-cellulite body care products). Higher demand from ageing baby boomers and new technological advances will drive value growth while non-essentials (toners) will likely suffer.
90 80 70 60 US$ billion 50 6 40 4 30
Global Skin Care Sales by Region 2007-2013
16 14 12 10 8 % y-o-y change 26
2
0 -2 -4 2007 2008 2009 2010 2011 2012 2013
20
10 0
Asia Pacific Latin America
Australasia Middle East/Africa
Eastern Europe North America
Western Europe
EE % change NA % change
AP % change
LA % change WE % change
AU % change
MEA % change
Category Review
Skin Care: Anti-agers Surpass Other Category Performance

Anti-ageing products continue to become increasingly specialised and segmented by age group, gender, combination products, as well as targeting different parts of the body eye, neck, face, chest, the whole body. L'Oral for example has developed different anti-ageing products for each generation of women, and its website advises on which product to choose for their age group. Nourishers/anti-agers will be the growth stars of skin care as consumers clearly prioritise age prevention. To succeed, manufacturers will need to bring to bare technological advances and innovative marketing to tap into consumer interest in scientifically-proven age prevention methods, together with holistic approaches to beauty that stress inner health and wellbeing and the use of natural ingredients. Turning masstige items into affordable luxuries in a tough economic climate characterized recent new products by Beisdorf and Procter and Gamble. Age-defying cosmeceuticals with high-tech formulations at affordable prices were: 1) Beiersdorf's Nivea Expert Lift, which comes in a novel and more mature purple colour packaging, is formulated with Bioxilift ingredients, shown to increase the connective activity of collagen; and 2) Procter & Gambles Olay Regenerist promises 'dramatic results without drastic measures'.
12 % y-o-y value growth 10 8 6 4 2 0 2004 2005
Skin care
Skin Care Growth by Category 2004-2013
2006
2007
2008
2009
2010
2011
Body care
2012
Hand care
2013
Facial care
Nourishers/anti-agers
27
Category Review
Skin Care: Merger Between "Inner Beauty" and Science

Some scepticism remains over the efficacy of both cosmeceuticals and nutricosmetics, however supplements alongside topical products (such as Nivea GoodBye Cellulite) are gaining appeal. Ferrosan's orally taken Imedeen supplement that is patented with biomarine complex to optimise skin health, has clearly succeeded in Western Europe. Q10 is both popular as a supplement and contained in skin care products. Natural ingredients of sea kelp and red ginseng for example are being added to some premium cosmetic brands. Given tighter consumer purses, it is likely the threshold for success of cosmeceuticals will be raised, and only products that deliver the promised benefits will succeed. Cosmeceuticals contain biologically active ingredients such as retinoids and hydroxy acids, or have trans-dermal properties that for example infuse collagen into the skin, or use nanotechnology. Cosmetic-savvy women that recognise these scientific properties have driven demand, despite some uncertainty as to their benefits, but they are increasingly sophisticated and broadly speaking all consumers are more discerning and informed. Top Five Co-enzyme Q10 Countries
30% 25% CAGR 2008-2013 20% 15% 10% 5% 0% -5% -10% 0 100 200 300 400 500 Size 2008 (US$ million) Bubble size shows country share of the global CoQ10 sales in 2008 28 South Korea, 2% Japan, 34% Russia, 2% Norway, 2% USA, 53%
Category Review
Depilatories Dominated by Razors and Blades

Depilatories, the smallest category in the CT sector, grew by 5% to US$3.8 billion in 2008 (Western Europe 39%, North America 33%). Women's razors and blades is the biggest market, constituting 53% of sector sales. The strongest growth impulse was seen in women's razors & blades, where there was buoyant demand growth across all regions (especially Middle East and Africa), followed by hair removers/bleaches, where growth was firmly propelled by Latin America and Eastern Europe, which showed very strong growth across all product segments. In Latin America, growth was driven by Brazil, which expanded by 13%. Extensive advertising campaigns and improved product positioning on shelves stimulated hair removers sales. Hair removers /bleaches posted robust value growth of 24% in 2008. Procter & Gamble remains market leader with 48% market share, though this slipped 100 bp, while Church & Dwight strengthened its #2 position after gaining 220 bp to 17.5% after investing in hair removers products. Latin America is expected to show the strongest regional growth pace in 2009-13, driven by Brazil, and especially in the hair removers/bleaches category. Depilatories by Category and Region 2008
100%
Western Europe
90%
80%
70% 60% 50% 40% 30% 20% 10% 0%
North America Middle East and Africa Latin America Eastern Europe Australasia Asia Pacific
29
Category Review
Depilatories: Buoyant Growth in Russia

In Russia, sales grew 16% in value terms in 2008 (48% of Eastern Europe sales), with pre-shave growing fastest (21%). Key drivers are a vastly (supermarkets, pharmacies), growing advertising under-developed market, expanding retail infrastructure and consumer education on the benefits of using depilatories, and rising popularity of electrical epilators. Russian growth rates will likely diminish and Procter & Gamble's 47% market share feel pressure -- going forward given a challenging economy, new competitors entering the market and a growing number of clinics and salons offering laser treatment. Note that the bulk of annual sales occur during 3-4 months of the year.
45
World Eastern Europe Russia
Russia Depilatories by Category 2004-2008

45
35
% growth 25 15 5 -5 2004 2005 2006 2007 2008
Depilatories Razors and blades
Pre-shave Hair removers/bleaches
Depilatories Performance 2004-2009

35 % growth 25 15 5 -5 2004 2005 2006 2007 2008 2009 30
Category Review
Hair Care Hit Hardest After Premium Cosmetics

Hair care (the third largest CT category) grew by 3.6% in 2008 (5% in 2007), marking the lowest growth rate in the CT sector after premium cosmetics (2%). Sales growth was held back by a 1.6% fall in North America and just 1% growth in Western Europe (together represent 44% of world hair care market), which was sufficient to overshadow strong growth in Eastern Europe (8.8%) and Latin America (7.8%). In North America, all product categories (except perms & relaxants, colourants) saw declines, particularly the dominant salon hair care segment, that takes 26% of hair care spend. Home colourants should thus receive a boost from the recession. The BRIC hair care market continued to perform strongly, with India up 11% to US$1.3 bn in 2008 (drivers: styling agents, salon hair care, colourants), followed by China (+10%) and Russia (+9%). Brazil grew a modest 3% to US$6.8 bn (vs 12% in 2007), hurt by a fall in colourants.
Leading Hair Care Markets 2007-2013

70 14 12 10 % y-o-y change 50 US$ billion 40 30 20 10 0 2007 2008 2009 2010 2011 2012 2013 31 8 6 4 2 0 -2 -4
Western Europe North America Latin America Asia Pacific AP % change LA % change NA % change WE % change
60
Category Review
Further Innovation to Sustain Growth Levels

Hair care sales are expected to cool further in 2009 driven by discounting, promotions and weak demand in the US as consumers trade down from premium-priced salon hair care products to cheaper brands and private label products. Better insulated segments include naturally positioned hair care products, while added benefits such as antiageing, doctor brands or UV protection may help maintain average unit prices. US Hair Care Market by Value (Real Prices) 2007-2013
4 2 0 -2 -4 -6 -8 -10 2007
Shampoo Perms and relaxants
% y-o-y change
2008
2009
2-in-1 products Colourants
2010
2011
Conditioners Salon hair care
2012
2013
Styling agents US hair care market
32
Category Review
Oral Hygiene: Multinationals Well Placed in Growth Markets

Oral hygiene grew by 4 % to US$34 billion in 2008 (vs 5.5% in 2007), consistently growing slightly slower than the cosmetics and toiletries market over the past five years. Toothpaste rose by 4% to US$17 billion, now representing a massive 51% of the oral hygiene market. The most dynamic segment with the fastest growth for a third consecutive year was mouthwashes/dental rinses, expanding by 7% to US$3.5 billion (vs 10.5% in 2007) and growing across all regions (low world consumption rates of such products and growing professional recommendations for increased oral hygiene continues to unlock new growth potential, especially in Latin America and Europe). In contrast, despite a bounce in 2007, tooth whiteners fell by 3% (competition from whitening toothpaste) while mouth fresheners fell by 4 %, marking a fifth year of market decline. Manual toothbrush sales accounted for 69% of segment sales and expanded by 4% whereas power toothbrushes grew by 5.3%. Overall, the US$9.3 billion toothbrush market grew by 4.6% in 2008, and there was positive growth across all regions. Western Europe kept its market share leadership with sales up by 3.5% to US$2.6 billion, followed by Asia Pacific where sales came to US$2.2 billion (+3.9% in 2008). Oral hygiene is amongst the most commoditised segments of the CT market. Segmentation, consumer education and rapid product development are supporting the global oral care market in the short term, but price pressure, mass market imitators and a lack of room for innovation are making market development ever more exhausting for producers. The key to sustained growth will be consumer education. This could drive consumption of floss and mouthwashes, for example, but private label and new entrants will present stiff competition. In toothpaste, there is still significant room for further development of natural ingredients and organics.
Oral Care by Category 2003/2013

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2003 2013 33
Mouthwashes/ dental rinses Toothpaste Mouth fresheners Denture care Toothbrushes Tooth whiteners Dental floss
Category Review
Colour Cosmetics: Strong Growth Dynamics in India and China

Colour cosmetics, worth US$43.5 billion, slowed their growth to 4.4% in 2008 (vs. 5.8% in 2007). A growth thrust from Latin America (10.9%) and Eastern Europe (10.1%) was offset by weak sales of just 1.1% in North America (lip products, facial make-up) and 2.7% in Asia (mainly facial make-up). Emerging markets mostly maintained their rapid pace of expansion, substantially better than developed regions. Latin America saw double-digit growth in all sub-sectors except nail products (-2.8%). China (+12%) and India (+29% from low base) saw the highest growth amongst BRIC countries. Brazil remained the largest BRIC market with a value of US$2.2 bn, however saw lower though respectable growth of 9.4% in 2008. The long-held 'lipstick effect' theory is not holding up quite as well as in past recessions, with both high-end and mass products being affected. Colour cosmetics will grow below the overall CT market; Asia Pacific (mainly China) and West Europe will produce the bulk of absolute growth and Latin America will come in a close third value creation. Global Colour Cosmetics by Region 2007-2013
50 45 40 8 35 30 US$ billion 25 20 15 0 10 5 0 2007 2008 2009 2010 2011 2012 2013
Asia Pacific Latin America North America AP % change LA % change NA % change
12 10
6 4 2
-2 -4
Eastern Europe Middle East and Africa Western Europe EE % change MEA % change WE % change
% y-o-y change 34
Category Review
Colour Cosmetics: Product Innovation Critical

Weaker economic growth, rising cost of living and lower household income will lead consumers to trade down and make fewer purchases (lipsticks, eye-shadows, blushers), especially in mature western markets, despite colour cosmetics tending to be small-ticket items. Producers are responding with smaller packaging and compact versions that effectively raise unit prices, and with 'better value' deals, but pressure on sales will persist in 2009. To woo consumers manufacturers are adding extra features, such as anti-ageing benefits (Cover Girl/OlaySimply Ageless) and sun care SPF. The trend towards natural products is creating dynamic 'price-resilient' demand for mineral make-up (ie. L'Oral's Bare Naturale, Almay's Pure Blends).
Geographic expansion into emerging markets together with novel products and designs are imperative. Battery-operated mascara is one such example, while colour palettes and textures suited to skin tones in emerging markets is as yet untapped.
Growth Rates of Global Colour Cosmetics Sales 2004-2008
8 7 6 5 4 3 2 1 0 2004 2005
Facial make-up
% y-o-y growth
2006
Eye make-up Lip products
2007
Nail products
2008
35
Category Review
Fragrances: Latin America Marks the Growth Pace

Fragrances grew by 5.5% to US$38.9 billion in 2008, or 13% of the global CT market. All regions, except Middle East Africa saw a deceleration in sales from 6.9% growth in 2007. The sector's overall performance mainly reflected a lower 2.4% expansion in Western Europe (largest fragrance market, 36% of world sales) and a sharp 4.5% fall in North America. Both regions saw a slowdown in both premium and mass. In the US, the decline occurred in all product categories, and the largest fall was in mass men's fragrances (-8.9%).
World Fragrances Market 2007-2013

44 43 42 41 40 39 38 37 36 35 34 33 2007 2008 2009 2010 2011 2012 2013
World fragrance market Annual growth rate
Latin America was the growth engine, strong across categories, especially women's (premium +17.6%, mass +16.7%). Brazilian sales rose by 14.9% to US$5.3 billion (60% of Latin America); the strongest growth was in Venezuela (35.5%) and Argentina (27.0%).
Sector growth rates will cool as the narrowing margin of disposable income from the past economic growth phase will weigh on volume sales, especially in the western world. Producer response will be on smaller packaging (Este Lauder's 'Beautiful'), limited editions, and a continuation of 'masstige' such as celebrity fragrances. These require no advertising budgets and cost less to manufacture. Mid-ranging fragrances will see more price pressure. Exclusive perfumes (Roja Dove's Enslaved at 350/100ml, Le Exclusif) will maintain a limited consumer base.
8 7 6 5 4 3 2 1 0
Premium and Mass Fragrances by Region

North America Australasia Western Europe Asia Pacific Eastern Europe Middle East and Africa Latin America -10% -5% 0% 5% 10% 15% 20%
Premium fragrances
Mass fragrances
% y-o-y growth 36
US$ billion
Category Review
Bath & Shower Products: Emerging Regions Steer Growth

In 2008, the global bath & shower products market grew by 5% as consumers were more willing to trade up for basic hygiene products. Bar soap is the single most valuable product, with sales of US$11.8 billion (41% of sector value), followed by body wash/shower gel (32%.) Bar soap grew by 7% and was the fastest growing category given rising disposable income in emerging markets and despite falling sales in Western Europe (fifth year in a row). Liquid soap was second fastest and rose by 6% (11% of bath & shower sales), aided by bubble gel in individual capsules and gel in sachets. Asia is the largest market in value terms with a 27% share (US$7.7 bn). The highest growth was in shower gel and liquid soap. Latin America and Eastern Europe grew double-digit and faster than the global average. Latin American middle and high-income consumers traded up to more sophisticated products, causing a sharp growth rate of 14% in 2008. Shower gel is seeing strong growth as the category is still very small. A trend to shower more often and with more value-added features (eg. moisturising, antibacterial properties) are the two main factors that buoyed sales of bar soap. Bath & shower sales are to grow on average 1.5% over 2009-13. Firmly rising growth rates in China/India stand in sharp contrast to mature Japan, and Asia could further expand its share of global bath & shower spend to 28% by 2013.
14 12 10 8 6 4 2 0
Global Bath & Shower Sales by Category
8 6 4 2 0 -2 -4
US$ billion
2008
2003-08 CAGR %
2008-13 CAGR %
Sector Growth: Mature vs Dynamic
MATURE Bath additives Talcum powder North America Western Europe
DYNAMIC Bar soap Liquid soap Body wash/ shower gel Latin America Eastern Europe
% CAGR 37
Category Review
Men's Grooming Category Still in Its Infancy

Men's grooming was one of the most dynamic CT sectors in 2008, growing by 6% to US$26 billion in value terms. Men's toiletries grew by 7% based on solid growth in all products, especially very strong growth in skin care across all regions. Meanwhile, men's shaving products grew by 5.4% as consumers traded up from disposable razors to system razors (Gillette Mach 3, 4-5-blade). Western Europe (WE) rose by 4.4% and is the largest contributor to sales of men's grooming products being the most mature regional market at 32% of global value. WE maintains stronger growth dynamics than the US, and forecasts suggest WE will grow substantially faster than the US in 2009-13. Latin America showed tremendous growth, rising by 11.9% in 2008, aided by changing attitudes towards appearance and a rise in disposable income. Sector growth potential is large (skin/hair care, bath & shower) given: low penetration of men's product lines, niche products not yet mainstream (male 'make-up': YSL's Touche Eclat for Men), rising product sophistication (higher value-added anti-agers & moisturisers) and growing adoption of daily personal care routines (male product lines start to mimic those of the more lucrative women's market). Near-term, cash-strapped male consumers are likely to trade down from premium to mass brand/uni-sex, with price a large influence when choosing personal care products.
Men's Grooming Products Market 2007-2013

20 15 US$ billion 10 4 5 0 2007 2008 2009 2010 2011 2012 2013
Men's shaving Men's shaving % change Men's toiletries Men's toiletries % change
10 % y-o-y change 38 8 6
2
0
The most important product distribution outlet for men's grooming lines is grocery stores via which 53% of all male-specific CT globally are sold. World brand leaders are Procter & Gamble 36.1% (Gillette Mach 3, Fusion, Series, Sensor), Unilever 10.0% (Axe/Lynx, Rexona), Energizer 5.5% (SchickWilkinson sword) and Beiersdorf 4.8% (Nivea for Men). P&G is clear leader in men's grooming given its 'Gillette' superbrand, capturing well over a third of the world market. Unusually high brand loyalty in men's grooming (unlike the women's market) strengthens the value of these market share figures.
Category Review
Deodorants Fastest Growing in 2008

The global deodorants market grew by 7.6% in value terms in 2008, despite the economic slowdown. Much of this industry-beating growth was due, in large part, to strong growth in sprays and roll-ons in Latin America (Brazil +18%, Argentina +28%) and Middle East/Africa (South Africa, UAE/Saudi Arabia). Latin Americans' liking of scents makes the region the world's second largest for deodorants after Western Europe, which grew by 2.7% aided by manufacturers' valueadding efforts (enhanced efficacy, 24h/48h protection, Old Spice Red Zone's anti-bacterial properties). Globally, the share of premium vs mass products remained almost unchanged at 3%. Sprays sales rose by 9%, driven by consumers in emerging markets trading up from pumps to sprays (growth engine Latin America up a massive 35%), and the gaining popularity of sprays vs pumps and new products with natural qualities (Natura): aloe, cucumber, green tea appeal to consumers looking for more natural, gentle and moisturizing products. Many consumers with sensitive skin search for gentle products without added fragrances or irritants, especially given frequent use of deodorants. Growth in Western Europe was a more moderate 4%.
US$ billion
Unilever is undisputed global market leader with 31% share (brands: Rexona, Axe/Lynx, Dove), and is the #1 player in Western Europe and Latin America (combined 62% of world market); the #2 player is Procter & Gamble with 10% market share. New product launches ('hair-minimising' formula for Dove: 24h anti-perspirant, skin care benefits, slower rate of underarm hair growth) could boost sales for the group, though its response to price hikes by competitors to offset higher production costs could challenge market share.
Global Deodorants by Category

8
Market Size - US$bn 2008-13 % CAGR
4 3 2 % CAGR 39 1 0 -1 -2 -3 -4
7 6 5 4 3 2 1
0
Sprays Roll-ons Sticks Pumps Creams Wipes (+9.2%) (+9.5%) (+5.0%) (+4.7%) (+0.0%) (+0.1%) Note: Brackets indicate % y-o-y growth for 2008
-5
Category Review
Sun Care Maintains Growth Dynamics

Sun care was a dynamic segment and rose by 6.6% in 2008, as every year driven by growth in increasingly commonplace sun protection products (cancer prevention, premature skin-ageing), which now account for as much as 83% of the sun care category. Both Eastern Europe and North America showed continuity in their recent years' pace of growth. Premium products represented 21% of total sun care sales in 2008, slightly above the previous year. The need to respond to the dangers of unprotected exposure to the sun is the main demand driver, unlike other cosmetic and toiletries categories, and has partly come at the expense of tanning. Ingredient innovation has been important in the sun care market and products with 'higher factor' sun protection are increasingly popular. Growth is anticipated to stay positive in coming years, and is likely to outgrow the rest of the cosmetics & toiletries market. Concern that nanotech may penetrate sun-damaged skin has so far been insufficient to meaningfully dent demand. In some countries, usage of sun protection products has partly been driven by public health campaigns (eg. Australia's 'Slip-Slop-Slap' campaign). Global Sun Care 2007-2013
% y-o-y change 10 5 0 -5 2007 2008 2009
Aftersun (US$581mn)
2010
2011
2012
2013
Sun protection (US$6.9bn)
Self-tanning (US$710mn)
Total sun care (US$7.8bn)
Note: Brackets indicate size of category in 2008 40
Category Review
Sun Care: Leaders Differ Across Regions

North American sun protection sales grew by 10.5% as consumers sought protection against UV exposure and improved skin care (rather than bronzing). A hefty 70.2% slice of the sun protection market is held by Energizer (Banana Boat), Schering (Coppertone), and Johnson & Johnson (Neutrogena). In Eastern Europe, sun protection sales rose 12.2%, boosted by demand in Russia and Ukraine (albeit from small base). Regional brand leaders are Beiersdorf's Nivea Sun (12.7% market share) and L'Oral's Ambre Solaire (7.8% share). Asia represented 20% of total sun protection. The trend for a pale complexion remains intact, especially in Japan where market growth was driven by products as Kanebo Cosmetics' Allie Whitening Protector or Nivea Sun Protect Whitening Gel. China remains a comparatively small market as a minority of consumers use sun care given cost and limited awareness. Sun protection sales rose by 16% in 2008 on the back of skin-whitening sun protection products (eg. Dior Snow Sublissime UV) and mass sun protection products (eg. Herborist Sunblock Emulsion). Sun Care Market by Region
5
2008 Sales (US$bn) 2003-08 CAGR % 2008-13 CAGR %
22 18 % CAGR 41 14 10
4
US$ billion 3 2 1 0 Asia Pacific Australasia Eastern Europe Latin America Middle East and Africa North America Western Europe
6 2 -2
Category Review
Baby Care: Small but Robust

The baby care market rose by 6.7% in 2008 to US$6.7 bn or 2% of global CT spend. Sales withstood economic pressures comparatively well as parents were generally unwilling to sacrifice product quality for their children (despite media cover on potentially dangerous chemicals in baby products). Demand growth also benefited from increased purchases of baby care products for adult consumption (female consumers trade down to cheaper baby body care, such as baby lotion). Premium products represented 5.6% of sector sales. The move towards natural and environmentally friendly products showed resilience in this category. Baby toiletries remain the largest product type, with sales of US$2.2 billion (38% of sector value), followed by baby skin care with 31%. Baby toiletries and baby hair care were the two fastest growing products in 2008, rising by 7.3%/6.8% respectively. Growing competition, especially from local companies in emerging markets, will increasingly place pressure on Johnson & Johnson's dominant market share. This is the case across all BRIC markets, and strong growth projected for China suggest increasingly fierce competition from Tianjin Yumeijing, Henkel and Pigeon Corp going forward.
US$ million
Baby Care by Category 2008

Baby sun care 9% Baby skin care 31% Baby toiletries 38%
Baby hair care 22%
Baby Care Market by Region

1,600 1,200 800 400 0 14 12 10 8 6 4 2 0
2008 Sales (US$mn)
2003-08 CAGR %
2008-13 CAGR %
% CAGR 42
Global Snapshot
43
Channel Analysis
Winners and Losers by Channel Type

Department stores are losing relevance in a highly-pressured luxury market. The channel's value share of global CT sales fell by 0.4 percentage points in 2008, as grocery retailers and non-store retailing (internet and direct selling), made gains. The market share of department stores is down from 12% in 2002. Even emerging markets favour new retail formats (share in Eastern Europe down from 10% in 2002 to 5% in 2008). Specialists are benefitting from the booming emerging markets. They are filling the gap left by department stores in decline and fueling the penetration of niche brands. Este Lauder launched Clinique and Este Lauder as stand-alone outlets in India; department stores offer little to differentiate premium and mass. Direct sellers are benefiting from the recession. Total direct sales amounted to US$36.4 billion in 2008, around half of which came from Eastern Europe and Latin America. Door-to-door selling is diminishing in importance in developed markets (albeit still posting reasonable growth), as the role of internet, interactive technologies, blogs become more important and personal advice can be replicated through the internet and TV more easily. Pharmacies/drugstores benefit from product differentiation and "pharma" brands. Drugstores gained share of total cosmetics and toiletries sales in 2008 in the US, for example, as retailers such as CVS and Walgreens upgraded their beauty departments and added more exclusive and private label lines. Share of CT Purchases: Outlets Gaining Over 2003-2008 Period
Supermarkets 28% Discounters 2% Beauty Specialists 13% Internet Retailing 2% Direct Sellers 11%
Share of CT Purchases: Outlets Losing Over 2003-2008 Period

Department Stores10% Mass Merchandisers 3% Small Grocers 5% Pharmacies 6% Home Shopping 1%
44
Channel Analysis
Intensive Retail Expansion in Russia

Price and convenience continued to place supermarkets in the lead of CT retailing, and the format gained share across most regions, except in Latin America and Australasia, where supermarkets nevertheless distribute the highest shares of regional CT sales in the world (39% and 44%, respectively). Geographic expansion continued with intensive focus on Russia where Auchan and Carrefour made commitments to expand their networks in 2009, and Wal-Mart looked set to take a controlling stake in local hypermarket Lenta. As the Eastern European economic landscape continues its transformation, the falls in small grocery retailers and department stores have been dramatic, with consumers being attracted to the ease of supermarkets and the better product differentiation and service of beauty retailers (perfumeries). The latter are the 3rd most important channel in this region, where fashion and appearance are taking increasing importance and growth of the channel has been exceptional. LVMH was seen taking a 50% stake in Ile de Beaute in Russia in 2008, indicative of the company's commitment to this fast developing market. Beauty retailers also made great inroads in Western Europe, and Middle East Africa. However, focussing on small speciality retailers as opposed to department stores has also become a focus in Japan. Shiseido has released its first major brand for speciality shops in 10 years. Share of Regional Market
40 % value share
30
20 10 0
World
Asia Pacific
Eastern Europe
Latin America
Middle East Africa
North America Western Europe
Supermarkets & Discounters Beauty Specialists
Department Stores & Mass Merchandisers Non-store Retailers
Drugstores & Pharmacies Others
45
Channel Analysis
Internet Retailing Benefits from 'Cocooning'

Worldwide, there is a trend towards the home from the networked office facilitating home working at one end of the scale to a fortress existence at the other. Many Americans are "hunkering down" and "nesting" at home that translates to more time spent online, while CT manufacturers are creating increasingly sophisticated online interfaces with consumers that together, support increased CT spend via the internet channel. Internet retailing has grown sharply in Eastern and Western Europe, where usage has caught up with Asia Pacific levels that have slowed in recent years. In developing markets there is an increased supply of newly unemployed that are keen to take up direct selling activities to supplement family income. Direct sellers' mass and masstige offerings incorporate the latest scientific developments at affordable prices with personal service and direct-to-the-home.
15
Frugal
Green
Non-store Retail 2003/2008

2003 2008
% value share
Cocooning
Online
10 5 0 Internet Homeshopping Direct Selling
Consumer behavioural shifts in cold economic climate support the growth of non-store retail
46
Channel Analysis
Private Label Set to Grow in Emerging Markets

Though private label sales grew by 7% in 2008, the segment's presence remains marginal with a 2.1% share of global sales that is flat to 2003. Across regions, the relative success of private label is impacted by cultural factors (mistrust in the Middle East for example, or strong price/quality link in Japan), disposable income levels (in Eastern Europe private label fills the gap between high-end and low-priced products), and reach/strength of the supermarket /hypermarket channel (very strong in Europe that drives global growth). Emerging markets where penetration is low hold promise, and generally can target basic necessity toiletries. Retailers are promoting 'captive' brands (not associated with the retailer) that claim a higher margin. Walgreen's natural BioInfusions line recorded solid gains in the US market. In products where consumers prioritise image and efficacy over price, such as skin care, private label has mostly failed with some exceptions (UK's Boots No7 Protect and Perfect Beauty, Aldi's Siana anti-wrinkle cream). Supermarket retailers are successfully adapting their strategies to a recessionary world and increasingly sophisticated global consumer becoming more brand-oriented in their approach, segmenting with premium/economy ranges, and with categories such as kids, healthy eating, organic, fairtrade, free from, ethnic etc. They are tapping into the natural trend, with all majors branching into natural cosmetics, Auchan being the largest to roll out its certified organic cosmetic and toiletry line in November 2008. Since mid-June 2008 private label focus has shifted firmly to discount lines.
Regional Comparison of Private Label Penetration and Growth in Sales

5 % value share 4 3 2
Regional share of CT sales % CAGR 2003-08
40 30 20 10 % CAGR 47
1
0 World Asia Pacific Australasia Eastern Europe Latin America Middle East Africa North America Western Europe
0
-10
Global Snapshot
48
Competitive Environment
Brazil Aids Solid Sales Gains for Natura and Avon

Manufacturers that are able to capture additional CT spend in large and fast growing markets, such as Brazil and China, are those making the greatest advances in global market share levels.
L'Oral performed well thanks to increasing coverage of the emerging markets and being positioned in some of the fastest growing segments, such as anti-agers, men's skin care and sun care. L'Oral is well-placed in China's skin care sector, that will be contributing the most to global CT growth. Its boost in share was also helped by the acquisition of Yves Saint Laurent.
Strong performance in Brazil's colour cosmetics sector helped Avon increase overall global CT market share. Colour cosmetics in Brazil is predicted to grow at a faster rate than global cosmetics and global colour cosmetics markets, even if it is one of the slower growing areas in Brazil. To maintain share gains in the long-term, Avon needs to reverse market share losses in China's skin care sector, and in other sectors predicted to grow fast such as Brazil fragrances and Brazil skin care. Brazilian company Natura has expanded throughout Latin America, with a strong "latin" ethos and products that highlight the South American identity such as the 2008 launches of fragrances named Amor America Paramela and Amor America Palo Santo. It has developed strong branding as an environmentally friendly producer, and its packaging has reflected this successfully. It is the leading CT player in Brazil, thanks to top positions in baby care, fragrances and skin care, and holds 2nd largest share in other sectors.
Hypermarcas of Brazil, formerly in household care and food packaging, entered the cosmetics and toiletries market via acquisitions in the hair care and colour cosmetics sectors (h Cosmticos' company; the Aquamarine, Juvena and Bozzano's brands from Revlon; and Niasi, all in 2008).
Market Share Gains 2008

L'Oral Global market share Basis point change Nominal sales growth 10.4 20 11% Avon 3.6 20 14% Natura 1.2 20 28% Amway 0.9 10 15% Oriflame 0.7 10 27% Botica 0.5 10 31% Hypermarcas 0.2 20 454% 49
L'Oral Boosted by Acquisition of YSL Beaut

Commanding market share in premium
The acquisition of YSL Beaut catapulted L'Oral to #1 in West Europe's premium colour cosmetics segment raising market share to 23.7% from 18.3%, overtaking Este Lauder. West (and East) Europe will drive premium cosmetics growth. YSL also boosted L'Oral's global share of premium CT spend to 14%, from 12.8%, on the heels of rival Este Lauder's 15.3%.
Long-term benefits in emerging markets

Beyond the current recession, the rising middle class of BRIC countries and frontier markets means demand for premium cosmetics will increase in these emerging regions over the long term. L'Oral can capture this new spend with the YSL brand using its existing network.
Premium cosmetics segment volatile

Around 66% of Yves Saint Laurent's CT portfolio consists of colour cosmetics, that is currently one of the slowest growing categories within premium, posting growth of 1% in 2008. Additionally, current trends favour mass cosmetics (+6% 2008/07) over premium cosmetics
Weak share in Asia Pacific (AP)

AP will be amongst the leading markets for premium cosmetics over 2008-13, and YSL's AP presence is currently limited. With a share of 4.8%, L'Oral is the fifth leading CT player in AP and could utilise its position to leverage the expansion of YSL, particularly in colour cosmetics where L'Oral ranks third.
Strengths Weaknesses
Opportunities Threats
West Europe's high growth categories
WE accounts for 65% of YSL's portfolio. Premium cosmetics' 2nd highest predicted absolute growth is in WE. YSL can help L'Oral capture growth via online sales, by tapping into men's grooming or with new products to compete with the likes of Lancme's Turbo Lash mascara.
Further grow the YSL brand in MEA

Middle East Africa continues to offer good prospects for the long term. Premium colour cosmetics are predicted to achieve the second highest growth rate in MEA over 200813. YSL has a good presence in this region and is the third leading brand in premium colour cosmetics.
Negative CAGRs in North America

The growth forecast for North America's CT market is a negative 1.5% CAGR over the 2008-13 period, while the region's premium cosmetics segment is forecast to decline by an even greater -7.2% (colour cosmetics -7.8%). Around 16% of the YSL brand is based in North America.
YSL integration needs to be effective

L'Oral faced difficulty with its acquisition of Chinese CT brand Mininurse, where it subsequently lost market share. YSL's integration should be aided by both companies being West European and culturally similar, and by L'Oral's now greater experience integrating. 50
Regional Expansion to Increase Growth

Procter & Gambles performance in 2008 was not encouraging, with the firm losing share in the global cosmetics and toiletries market. This was partly due to the divestment of Noxzema, but it also lost share in two leading BRIC markets: China and Brazil. L'Oral's boost in market share was facilitated by its acquisition of Yves Saint Laurent, but it has been focusing on markets with strong growth potential including China skin care. It has performed well in most of the high growth markets. Unilever and Colgate have been focusing on mass toiletries such as bath & shower, deodorant and oral hygiene. These firms have strong brands which enjoy high degree of loyalty, but unless these firms expand in high growth areas such as skin and hair care they may face stagnation in the long run. Avon's share in the global cosmetics and toiletries market increased 20 basis points in 2008. This was partly driven by Avon's growth in colour cosmetics in Brazil, but this market is predicted to grow below that of the cosmetics and toiletries in Brazil. Avon lost share in some of the high growth markets such as China skin care. Este Lauder lost share mainly due to strong competition from masstige brands in the anti-ageing category and heavy reliance on North America. Beiersdorf increased its market share at the global cosmetics and toiletries level mainly driven by men's grooming and hair care. Beiersdorf however lost share in China's hair care, a high growth market, despite the acquisition of C-Bons in 2007. Shiseido and Kao, both Japanese companies, have managed to retain their shares. While Shiseido is moving in the right direction by expanding in the skin care category in China, Kao is too Japan focused.
51
Market Share Movement by Major Player

Top 10 Players Performance
Company name Y-o-y share movement 2008 2004 Ranking 2 1 3 5 7 6 8 10 9 12 2005 Ranking 1 2 3 4 6 5 7 9 8 12 2006 Ranking 1 2 3 4 6 5 7 8 9 10 2007 Ranking 1 2 3 4 6 5 7 8 9 10 2008 2008 % Ranking value share 1 2 3 4 5 6 7 8 9 10 12.6 10.4 7.1 3.9 3.6 3.4 3.3 2.8 2.5 2.3 52
Procter & Gamble Co, The L'Oral Groupe Unilever Group Colgate-Palmolive Co Avon Products Inc Este Lauder Cos Inc Beiersdorf AG Johnson & Johnson Inc Shiseido Co Ltd Kao Corp
Leading Companies in High Growth Markets

Strengths Procter & Gamble
Number 1. China skin and hair care. Gained share in China hair care. Gained market share in China skin care and Brazil hair care
Weakness
Lost share in China's skin care and Brazil hair care.
Opportunities
Threat
L'Oral in China skin care and direct sellers in Brazil
Recommendation
L'Oral
P&G should focus on Should focus on China skin care China skin care through new product launches. L'Oral has been on Lost market share Hair care in China Shiseido in China's right track focusing on in Brazil skin care and skin care in Brazil skin care. China's skin care market. L'Oral in Brazil hair care and Procter & Gamble in China hair care Unilever is focused on limited categories and should expand to fast growing skin care Beiersdorf is rightly increasing its market share in China, but focus on product development in hair care China.
Unilever
Unilever operates Market penetration Skin care in China in limited Chart/image area in emerging markets and Brazil categories.
Beiersdorf
Increased market Skin care China and share in skin care Lost market share Hair Care China and China, but remains a in hair care China Brazil small player Skin care and hair care Brazil, although it has Asian orientation Mass fragrances Brazil
Bawang in hair care China
Shiseido
Increasing market share in China skin and hair care
Limited regional presence
Although, Brazil offers L'Oral in skin care opportunity, Shiseido China is better off focusing on China skin care Natura, Botica and Mass fragrance Brazil Avon in Brazil offers good growth mass fragrances opportunity for Coty. 53
Coty
Amongst the leading Limited presence company in global in Brazil mass mass fragrances fragrance, category
Direct Sellers' Success Not Uniform

The performance of direct sellers during 2008 was helped by the global economic downturn in countries where direct sellers already hold strong footholds, such as Russia and Brazil, however product strategies played the key role in the success of individual manufacturers. Performance across regions varied sharply. Direct sellers enjoyed healthy share gains in faster growing CT markets, ie. Latin America and Eastern Europe; they continued to lose strength in Asia Pacific and Australasia, and held their ground in remaining world regions. In Eastern Europe, Oriflame was again the clear winner, raising its market share from 5.7% in 2007, to 6.3% in 2008. While Amway also made progress gaining 0.2 percent points, Avon continued a four-year long declining trend in market share. Oriflame has had a string of successful product launches (see Regional Overview - Russia) that have enabled the company to consistently make large market share gains over the past decade.
Brazil - where consumers spend three times as much on personal care as consumers do elsewhere - is a key market for direct sellers, particularly in the fragrances category (18% of CT spend, versus 11% globally). Avon and Natura the top two global mass fragrance manufacturers - are amongst the overall top three in the Brazilian CT market. More importantly, they achieved share gains during 2008, together with local beauty retailer Botica, while the vast majority of leading international manufacturers lost market share.
Market Share of Direct Sellers by Region 1997-2008

30 % value share
25
20 15 10 5 0
1997
1998
1999
2000
2001
2002
2003
2004
Australasia North America
2005
2006
2007
2008
World Latin America
Asia Pacific Middle East and Africa
Eastern Europe Western Europe
54
Global Snapshot
55
Global Prospects
What Does 2009 and Beyond Hold for the Industry?

Euromonitor International expects US and world GDP to decline in 2009 for the first time in 60 years. Despite some commentary in the financial press featuring "green shoots" of recovery in June 2009, growth is not expected to pick up until 2010 and is likely to remain below trend levels for several years. Leading BRIC economies that are expected to recover more quickly than developed countries, will lead regional CT markets out of the downturn. While CT spend will fall an estimated -1.6% in Japan in 2009, the remaining Asia Pacific region's CT market is projected to grow 4.2% in 2009, thanks to China (22% of AP's CT, +6% in 2009) and India (7% of AP's CT, +8% in 2009). Similarly, Brazil that accounts for 55% of Latin American CT spend will grow by 4.5%. Manufacturer strategies to succeed in the economic slowdown should incorporate expansion in the most dynamic/large sectors of major emerging economies such China's skin care and hair care markets, and Brazil's fragrances, skin care and hair care markets. Because the largest sectors (hair care, fragrances, overall skin care excluding anti-agers) will slow markedly or decline (hair care), adding benefits, tapping into popular trends (organics, cosmeceuticals) and investing in advertising and marketing campaigns will also be necessary, particularly in mature markets. Department stores should continue seeing footfall declines, and perfumeries/specialist beauty retailers and supermarkets continue to expand, at a slower pace, still helping to drive CT sector growth. Private label, direct sellers and online retail is poised to perform well in 2009, as consumers look for cheaper alternatives.
Cosmetics and Toiletries Forecast Regional Performance

6 2008-13 CAGR % CT 4 2 0 -2 World Asia Pacific Australasia Eastern Europe Latin America Middle East/Africa North America Western Europe 56 Premium CT
Global Prospects
Skin Care, Fragrances and Hair Care to Lead Industry Growth

Skin care will be the most prospective sector in the next five years. The sector will grow above the cosmetics and toiletries market and contribute the most to cosmetics and toiletries absolute growth. Growth in this category will mostly be driven by China, while anti-agers will contribute 45% of skin care's absolute growth. Fragrances is the next most lucrative sector; it will grow above the market rate, forming the second leading category in terms of absolute growth, 61% of which will come from mass fragrances in Brazil. Hair care, although projected to grow below the cosmetics and toiletries market, is the third leading category in terms of absolute growth that will total US$4 bn in the next five years. This therefore falls within growth opportunity, and shampoo will account for nearly 60% of the growth in this category, while the key markets will be China, Brazil and India.
Firms well placed in markets projected to grow have a head start to benefit from future growth prospects. For example, L'Oral is a top ranking firm in both skin and hair care. However, how well the companies actually perform will depend on how effectively they can diversify regionally.
Cosmetics and Toiletries Forecast Category Performance 2009-2013

3.5 % y-o-y growth, value 3.0 2.5 2.0 1.5 1.0
0.5
0.0 -0.5 2009
Total CT
2010
Hair care Colour cosmetics
2011
2012
Fragrances
2013
Skin care
Men's grooming products
57
Global Prospects
Premium Cosmetics Set to Be Worst Hit by 2013

Forecast Category Performance
Categories Sun care CAGR 2008-13 2.8% Absolute growth (US$ bn) 857
Baby care
Skin care Men's grooming products Fragrances Deodorants COSMETICS AND TOILETRIES Oral hygiene
2.8%
2.4% 2.2% 2.0% 1.9% 1.8% 1.5%
1,145
9,466 3,041 4,103 1,645 30,292 2,625
Colour cosmetics
Bath and shower products Depilatories Hair care Premium cosmetics
1.4%
1.3% 1.3% 1.2% 0.7%
3,151
1,887 247 4,056 2,707
Note: Categories expected to consistently grow above the sector average every single year are marked in green, those below in red . 58
Global Prospects
Brazil, India and China: Antidote to Global Recession

Though BRIC countries will not be shielded from economic slowdown, they will drive CT market growth over the next five years, accounting for a combined US$19 billion out of US$30 billion in absolute value sales growth to be generated globally during the forecast period. The leading markets (US and Japan currently) will contract. By 2013 Brazil's CT market will be worth US$36 bn, and China's US$25 bn, as continued economic growth filters to the population. Brazil's annual spend will average US$178 per person (3x the global average), while China's will be around US$17 or 10% of Brazil's, despite a much larger population. China's economy is highly protected, and roughly a third is controlled by the government. Foreign manufacturers still have to partner with a Chinese company to trade locally. India's CT market will remain small and still focused on basic personal care categories. However, cumulative growth of 45% will mean absolute growth will be the third highest globally. Over the next five years Russia's CT market will see slower growth in real terms. The market will likely exhibit maturity and relative saturation in major beauty categories such as hair care, bath and shower, oral hygiene, and skin care. CT Performance in the BRICs
40 2003 2008 2013
35
30
25 US$ billion
20
15
10
0 China India Russia Brazil 59
Global Prospects
Latin America Set to Overtake North America by 2013

Immaturity in emerging markets supports value growth. Because per capita spend in mature CT markets is high and has a comparatively greater premium component, there is possibly greater scope for curtailing purchases when the economic climate worsens. Furthermore, the eye of the current global economic storm is in North America's US market that takes 88% of the region's CT spend. These factors will underpin an overall contraction of US$1 billion in the North American market over the next five years, despite only a modest slowdown in Canada's 2008-13 CAGR's to 1.7%, from 2.7% during the review period. Their proximity to the US will see Canada and Mexico generating lower average annual growth. Mexico's 2008-13 CAGR is projected to decline from 2.9% in the 2003-08 period to a low 1.6% for 2008-13. The relatively large size of the overall CT markets of Canada and Mexico, will enable the two countries to continue to generate important absolute growth in value sales (Canada US$606 mn, Mexico US$668 mn). In all, Latin America, is poised to generate one third of the global CT market's absolute growth in the next five years, overtaking North America by 2011. South American economies, which suffered a financial crisis in 2001-2002, are many now sound, and will see slower growth due to lower exports and reduced credit access, but should remain resilient (excepting Argentina and Venezuela). Brazil is counted on to be the region's engine, accounting for 55% of CT sales, but generating 71% of absolute sales growth in the forecast period. Countries with 2008-13 CAGR that is positive, equal or higher than the 2003-08 CAGR
Absolute Growth
Countries whose 2008-13 CAGR is negative or worsens markedly vs. the 2003-08 CAGR
Absolute Growth
Peru 8.7% vs. 6.3% Brazil 4.7% vs. 8.4% Chile 3% vs. 3.2% Colombia 2.1% vs. 2.1%
$655 mn $7,457 mn $262 mn $287 mn
USA -0.6% vs. -1.1% Argentina 2.2% vs. 10.9% Venezuela 3.1% vs. 9.0% Uruguay 1.9 vs. 4.2%
-$1,636 mn $331 mn $508 mn $27 mn

60
Global Prospects
Frontier Markets to Watch Out for Next

The BRIC countries were named as the most rapidly developing countries with the greatest economic potential. With these countries continuing to develop fast, it is useful to look at the next tier of emerging economies. Those countries following the BRIC path will typically have high rates of population growth, and rising disposable incomes, creating a growing pool of potential consumers. The frontier markets are far smaller economies than the BRICs and, with smaller populations hold less potential for beauty firms looking for opportunities beyond the maturing developed world. However, economic growth is accelerating in these markets, and amid optimism that more governments will embrace capitalism they have become lures for foreign investors. The frontier markets, being less exposed to swings in the global economy, can also be a way for cosmetics firms to reduce risk. Most importantly, they offer the multinationals new options for global expansion beyond the BRIC economies, should any slow down, such as Russia.
Absolute Growth 2008-2013

China Brazil India Russia UK Spain Thailand Mexico Peru Canada Netherlands Saudi Arabia Venezuela Ukraine Poland 0 1 2 3 4 5 6 7 8 Peru India China United Arab Emirates Vietnam Morocco Belarus Thailand Brazil Saudi Arabia Indonesia Kazakhstan Ukraine Malaysia Venezuela 0 1
CAGR 2008-2013
US$ billion
9 61
Global Prospects
Masstige Beauty Will Continue to Accelerate

Key Issues Future Impact to 2013
As growth in the industry's largest markets of the US and Japan is unlikely to rebound until 2013, focus will remain on the BRICs. However, with Russia's economy being severely hit by the recession and the BRIC's personal care market expected to expand at a much lower pace than seen in the past, company investments need to be more focused and targeted. The most prominent growth potential will be in the rapidly expanding skin care market in Asia (China's premium skin care is set to increase by 11% by 2013), fragrances in Latin America (Brazil is expected to account for over half of the global absolute growth, an additional US$ 2.6 billion in the next five years), and hair care in China, India and Brazil, contributing with a combined extra revenue of US$ 2.9 billion by 2013, nearly a third of global absolute hair care growth. Sun care will continue to align itself with beauty, as many skin care operators venture into this segment with particular focus on anti-ageing benefits. The category's growth dynamics will remain largely unscathed, with sun protection in North America and Asia posting highest revenue gains The only regions to show sustained growth in premium cosmetics in 2009 and most dynamic CAGR for the category by 2013 will be Latin America and the MEA (the latter should contribute with over half of total absolute growth in premium fragrances). As consumers increasingly look for better value, acceleration in masstige beauty (particularly successful in anti-agers) will continue, while companies focus on investing in more sophisticated formulations Consumers will continue to trade up from mass to more specialised, but slightly more expensive brands, as well as trade down from department stores to the upper end of mass to benefit companies, such as P&G and Beiersdorf. While many are opting for lower priced brands, high quality and novelty continue to be a key factor. The most successful brands will be those that offer something unique, but also put extra emphasis on value, while preserving the 'functional' benefits and a luxury status. The price points on certain premium products may need to come down in order to retain the mid-luxury market, as already evidenced by heavy discounting and promotional activity in the luxury arena. The interest in masstige alternatives to replace premium products will depend on the depth and length of the current recesssion. In many emerging markets, the current halt of the premiumization trend is likely to prove temporary as economies rebound.
62
Resilience to recession
The rise of 'masstige/ focus on value
Global Prospects
Demand for Both Natural and Scientific Beauty Set to Thrive

Key Issues Future Impact to 2013
The trend towards high-tech formulations and improved product efficacy will continue to spiral, many consumers will opt for cheaper alternatives to cosmetic surgery procedures and salon beauty treatments. As concerns with health and ageing become increasingly prominent, medical-grade efficacy and a doctor's seal of approval will become a key factor in purchasing decisions. At -home treatments are surging as consumers are tightening their belts. The expected rise in DIY beauty treatments and devices, now spanning across not just luxury and doctor brands, but also more mainstream masstige offerings, will herald the evolution of cosmeceuticals. There is a backlash emerging against product inefficacy and safety, that can be constraining. As the distinction between drugs and cosmetics becomes more ambiguous the formulations of cosmetics will be under closer scrutiny and products are likely to be treated as strictly as pharmaceuticals. The convergence between beauty and food will maintain its momentum. This will present further scope for development for both cosmetic and food/dietary supplement manufacturers. However, beauty foods require strong credibility for success. Ingredient formulations in drinks and foods with beauty enhancing properties must be convincing and marketing should clearly communicate the exact benefits and efficacy of products (particularly in Europe and the US, which are still lagging behind Asia). With footfall in department stores and high-end outlets falling, distribution and pricing strategies of such products may have to be readdressed to ensure returns. Demand for natural/organic beauty products will continue to boom, as consumers become more focused on safety and well-being, as well as more educated about product claims and labelling While a strong industry-wide impact will not be felt in the short term, certain categories, such as baby care, deodorants and mineral make up have shown resilience in demand for natural product lines and look set to remain strong despite the recession. As more retailers tap into this trend and branch out into natural cosmetics distribution through more mainstream outlets is bound to increase, fuelling further demand. However, the lack of a unified global standard for natural cosmetics will continue to be a hindrance to growth and increasing consumer product awareness.
63
The rise of cosmeceuticals
Ingestible beauty
Demand for natural, organic products
Global Snapshot
64
Appendix
Definitions
All values expressed in this report are in US$ terms, using a fixed 2008 exchange rate. All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical data are expressed in current terms; inflationary effects are taken into account. Cosmetics and Toiletries (CT) coverage: Cosmetics Colour cosmetics Fragrances Skin care Toiletries
Baby care
Bath and shower products Deodorants Depilatories Hair care Men's grooming products Oral hygiene Sun care BRIC (Brazil, Russia, India and China) Middle East and Africa (MEA)
65
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Cosmetics & Toiletries-Prospects

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Cosmetics & Toiletries-Prospects

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Cosmetics & Toiletries-Prospects

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Cosmetics & Toiletries-Prospects

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Key Industry Issues

Cosmetics & Toiletries-Prospects

Euromonitor International >

Industry Growth Shielded from Late Arrival of Recession

Cosmetics & Toiletries-Prospects

Euromonitor International >

Categories' Resilience Varied Markedly Across Regions

Global Sales by Category

Sales (2008, US$bn)

Cosmetics & Toiletries-Prospects

Euromonitor International >

Cosmetics & Toiletries-Prospects

Euromonitor International >

Leading Regional Markets in Retreat

Cosmetics & Toiletries-Prospects

Euromonitor International >

Emerging Economies Lead Industry Prospects

Cosmetics & Toiletries-Prospects

Euromonitor International >

Premium Cosmetics: Time to Buckle Up

Premium Cosmetics % Growth by Region 2008

Cosmetics & Toiletries-Prospects

Euromonitor International >

North America and Western Europe Suffer Hardest

Cosmetics & Toiletries-Prospects

Euromonitor International >

US and Japan: Erosion in Share of World Market to Accelerate

Top Five by Market Size 2003/2008/2013

Top 10 % Value Share 2008

Cosmetics & Toiletries-Prospects

Euromonitor International >

A Diverse Environment in Asia Pacific

Per capita CT (US$)

Cosmetics & Toiletries-Prospects

Euromonitor International >

China Sees Highest Absolute Growth Potential

Per capita C&T (US$)

Cosmetics & Toiletries-Prospects

Euromonitor International >

Eastern Europe: Nominal Growth Masking Sharp Deceleration

Eastern Europe CT Market 2008

Eastern Europe Market by Category

5.0 3.0 2.0 1.0 0.0

Cosmetics & Toiletries-Prospects

Euromonitor International >

Russia: Spend on Premium Cosmetics Set to Slow

Bath & shower 8% Oral hygiene 9% Men's grooming 9%

Other 5% Skin care 20%

Colour cosmetics 14%

Hair care 17%

Cosmetics & Toiletries-Prospects

Euromonitor International >

Russia: Direct Sellers Thrive in Recessionary Market

Cosmetics & Toiletries-Prospects

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Japan: Pockets of Growth Overshadowed by General Declines