The super-growth of the last few years is starting to slow, but the Russian cosmetics and toiletries market still shows plenty of potential. Simon Pitman reports on the latest market report and considers where the strongest growth still lies.
In 2004, cosmetics and toiletries continued to maintain a dynamic development, but did show the first signs of slowing down across most cosmetics and toiletries categories with the exception of depilatories, baby care, men's grooming products and bath and shower products, the Euromonitor report finds.
Between 1999 and 2004, the biggest growth sector was direct sales of cosmetics and toiletries, which expanded by 520 per cent - a figure that is expected to sustain significant growth in the near future, particularly off the back of skincare and cosmetic products. The category now accounts for 18.7 per cent of the market, making it the second biggest retail category, behind department stores.
A stabilising economic situation made Russia friendlier for foreign investments and a few companies launched local production. Nevertheless, there still are bureaucratic obstacles and not all attempts to establish local production proved successful.
Many foreign companies entered Russian cosmetics and toiletries during the review period and rushed to launch new products and establish relationships with newly formed specialist chains, the report says. On the back of this, advertising became more active and aggressive due to increasing advertising activity from the local companies. Consequently both local and foreign manufacturers increased advertising budgets.
Increasing consumer spending power underpinned faster value growth, while cheap or dubious-quality goods started to disappear. The increasing penetration of specialist outlets enabled steady growth for premium products.
Throughout 2004, cosmetics and toiletries saw rather uneven development in current value terms. Across cosmetics and toiletries, a trend towards more expensive products took place, albeit to varying degrees and there was a rash of niche development, with the men's grooming category particularly bearing evidence of this.
New products also enjoyed rapid growth. The increasing number of modern hair dressing salons and the strong development of specialist outlets boosted salon hair care product growth.
Towards the end of the review period, distribution experienced impressive improvements. Specialist chains mushroomed countrywide and expanded to the regions, providing excellent opportunities for premium and imported cosmetics and toiletries to penetrate. Supermarkets/hypermarkets increased in number and more shelf space became available for mass-market cosmetics and toiletries.
Outdoor markets continue losing importance, however, while new forms of distribution via pharmacies/drugstores and the internet increased in popularity and larger outlets such as supermarkets and hypermarkets become more developed outside of the Moscow and St Petersburg metropolitan areas.
The potential size of cosmetics and toiletries sales in Russia is believed to be US$15-18 billion, Euromonitor reports. It has huge potential to grow in the next 10-15 years. However, this figure is said to be reaching a saturation point, with many key product areas now reaching a clear maturity.
Looking to the future characteristics of the market, the report says that consumers are expected to continue the trend seen in 2004 of switching from economy goods to upper mass-market and premium goods. Manufacturers that adjust to consumer tastes and demands will have the best prospects.
Overall the competitive environment is expected to become more intense and consolidation will increase. This means that foreign and local manufacturers will continue competing, as a few local companies already have a strong presence, improved budgets and a good management approach. Local companies also have the advantage of being more clued in to what the market wants.
As is often the case with a maturing market, the future appears to hold plenty of opportunity for niche cosmetic and toiletries categories, particularly those in the premium and luxury category as well as men's grooming. But with the market now well established, the battle is on between those already doing business in Russia.