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Licensing laws could see Russian fragrance prices double

By Louise Prance , 16-Oct-2006

Fragrance prices look set to double in Russia due to a backlash from licensing laws introduced in July regarding the percentage of alcohol contained in fragrances and other household goods.

As of July any firm dealing with products that have an alcohol content of over 1.5 per cent are required to buy a fresh license and conform to new hygiene laws, whilst also using special computer software to monitor the goods.

The law was introduced in order to protect the health of Russians and to protect the drinks industry from illegal imports.

According to the Association of Perfumery, Cosmetics and Household Chemicals Manufacturers, the production and import of cosmetics containing alcohol has dropped 76 per cent in July and August, as an effect of the new law.

It has caused chaos for the manufacturing of beauty products that use significant amounts of alcohol, such as perfumes, aftershave, hair-gels and sprays. It has also affected items such as cleaning liquids.

Cosmetic beauty insiders are warning that the licensing law will further affect the production of fragrances, thus increasing the risk of a shortage of many beauty products, and also inflating the retail price of the products.

Sergei Bolshakov, managing director of the Association of Perfumery, Cosmetics and Household Chemicals Manfacturers, said: 'We expect prices to double by the end of this year'.

He also stated that of the major producers and importers of cosmetics, just 22, less than half of the companies in the industry had obtained the license by September 1.

Many western companies have previously achieved a sales surge by marketing their products in Russia, however, some are now complaining that the new process is too complicated and not worth the time and effort that would be put into adhering to the license.

Proctor and Gamble's (P&G) external communicator in chief in Russia, Konstantin Dubinin, told Reuters News Agency that: 'the business decision at the moment is not to apply for one (an alcohol license)'.

He went on to say that alcohol based goods make up less than 10 per cent of P&G's $1 billion annual sales in Russia.

However, many firms in the Russian cosmetics market are feeling the brunt of the restriction. At the start of the year there were 3,500 firms distributing perfumes and cosmetics around Russia, now there are only 187.

Sergei Mesterchuk, head of the perfume department of Tsum department store in Moscow said that it is out of stock for many niche brand cosmetics, as it does not have a license.

Many larger department stores anticipated the problem, and resolved it by ordering in bulk from cosmetic companies, with the companies stating that they had foreseen the issue of obtaining a license.

The smaller shops, however, are expected to run out of stock sooner rather later, because they do not having the budget or storage space to order in bulk.

There is also a worry that the shortage of genuine perfumes will accelerate the counterfeit industry around the impending holiday period, a vital time for the fragrance industry.

Yelena Aleksakhina, a spokeswoman for the Perfumery and Cosmetics Association, said that budget cosmetic prices would soar by 90 per cent compared to the same holiday period as last year.

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