Cosmeceuticals niche continues to grow, fuelled by marketing

The value of the cosmetics market in the US is set to fall by 1.2 percent in 2009, to reach a value of $60.37bn, but market researcher IBISWorld says that in contrast the cosmeceuticals category should grow by 7.7 percent to reach a value of $3.5bn.

But that’s not the end of it. The growth is set to continue, driven by American’s obsession for youthful looks and wellness, combined with the fact that these products are heavily marketed by manufacturers, resulting in predictions that the category should attain a value of $4bn by 2011.

Obsession with anti-aging and wellness​

“The development of new product categories like cosmeceuticals and dermocosmetics has grown considerably in the last five years, driven by America’s obsession with anti-aging and wellness,”​ said Toon Van Beeck, senior analyst with IBISWorld.

“Companies are taking the opportunity to manufacture more of these high-margin products which typically generate profits greater than the industry average of 10 percent.”​

This explains the reasons that, although remaining a niche category, there is still significant competition on the market, mainly from brands such as Janssen, SkinCeuticals and Dermelect Cosmeceuticals.

Retailing at a premium price​

These companies market products that are typically technologically advanced – relying on biotechnology or technologies that are also used in pharmaceutical products – and then retail these products at a premium.

Often such products are marketed at in excess of $100 for a small pot or tube, a price that the companies say is qualified by the expense of formulating such complex ingredients and technologies, and justified by exemplary results.

Meanwhile, IBISWorld says that consumers are willing to pay the higher price that these products command because they perceive the ingredients to be expensive, uniquely manufactured and intensively researched and developed.

R&D only accounts for 2 percent of costs​

However, the market researcher says that the consumer perception hides some less impressive data, indicating that research and development accounts for approximately 2 percent of the company’s total cost structure.

On the other hand, the cost breakdown shows that selling, general and administrative costs, which largely account for the marketing of these products, actually makes up 21 percent of the total cost structure.

Van Beek believes that the impressive cost margins that this cost structure entails should mean that manufacturers will be working even harder to market cosmeceutical products to US consumers, in turn fueling further growth.