Growth in Eastern European fragrance market overshadows the West
with a recent market report pointing out that it now accounts for
40 per cent of all international sales. But a closer look at
individual markets reveals a mixed bag of fortunes, reflecting a
largely stagnant western and a booming eastern one.
According to the Euromonitor report, the region's importance stems from the high proportion of sales accounted for by premium brands, with most consumers preferring to buy a prestigious product with a strong brand heritage. Sales have been less than stellar here however, with mixed results posted across the region, particularly following the introduction of the euro in January 2002 and a perceived increase in retail prices.
Euromonitor's research shows that France is by far the largest market, accounting for $2 billion (€1.62bn) of the region's sales in 2003 , but the year was disappointing for this sector, which is recording its worst results since 1998. Growth is being hampered by sluggish demand for premium fragrances, accounting for the bulk of sales with an 87 per cent share in value terms in 2003. The effects of the uncertain economic climate has led to a slowdown in consumer spending, which fragrance retailers have responded to by offering discounts of up to 20 per cent, which met with only short-term success that failed to impact overall volumes.
Germany too bore witness to excessive promotions and price dumping which all class of fragrance in 2003, although men's fragrance proved more resilient than women's. Increased price consciousness and competition between retailers led to a decline in value sales of over 1 per cent in this market according to Euromonitor, while volume sales stagnated. This situation was bought about by an amendment to German retail laws, which meant that discount is no longer just confined to certain seasons. As a consequence, the average unit price of fragrances has declined since 2002.
Spain and UK fared better, both benefiting from the high number of new product developments in the last few years, especially in small-sized formats such as 30ml and 50ml, a trend that continued in 2003. This was backed up by an increase in advertising expenditure.
Euromonitor has also identified a trend of consumers returning away from US fragrance names such as Calvin Klein and Tommy Hilfiger, back towards European names such as Gucci and YSL. This is particularly prominent in the premium sub category, with European brands such as Joop!, pour homme and Jean Paul Gaultier's Male all making gains.
Eastern Europe has become a source of sustained growth for many cosmetics groups in recent years. Euromonitor's report shows that the region had solid growth for the fourth consecutive year in 2003, with regional sales increasing by 18.3 per cent. Good growth was seen across all markets, driven by the rising trend amongst women to experiment with a 'wardrobe' of fragrances, in line with increasing wealth and spending power. Improvements to product quality also boosted sales, with buyers expressing interest in more expensive, 'upper-mass' brands.
French company LVMH remained the leader in fragrances in Eastern Europe in 2003, with a value share of 11.2 per cent. Growth was supported by the success of Dior Addict, launched in 2002, and the continuing strong performance of the best-selling J'Adore brand. Avon was the second largest player with a 9.8 per cent share of value sales in 2003, benefiting from its broad portfolio of competitively priced products, distributed through a growing network of highly influential sales representatives.
Russia is the largest national market for fragrances, accounting for some 47 per cent of total value sales in 2003. Premium women's fragrances remained the largest subsector in the Russian market, despite the fact that monthly salaries are just a fraction of those in the West. For many Russians, selecting a premium fragrance is an aspirational purchase, which allows the injection of an element of luxury into an otherwise modest lifestyle.
Fragrance sales also proved to be dynamic in Ukraine, underpinned by rising levels of disposable income, and numerous new product launches, in both the mass and premium segments. Direct-sellers, such as Avon and Orflame are also increasingly influential in this market, offering advice on brand choice as well as discounts on products.
In Poland, sales of fragrances also continued to see positive growth in 2003, albeit at a slower rate than in previous years. Despite the gloomy economic climate, and very limited disposable incomes, Polish women remained loyal to their favourite brands.
Euromonitor expects Eastern Europe to feature amongst the fastest growing regions over the next five years, with sales of mass brands in particular benefiting from changes to the retail distribution structure, in particular, and thanks to the intensified marketing activities of direct sales companies such as Avon, Natura and Yves Rocher.
Western Europe, on the other hand, is expected to witness more modest value growth, with usage close to saturation, growth will stem from new product launches, particularly those aimed at younger, 20-something men and women. Moreover, the wider availability of premium fragrances through cheaper outlets, such as supermarkets and the internet, will continue to draw women away from mass fragrances towards premium products, thereby driving value growth.