The Russian beauty products market has been experiencing steady growth and has been one of the fastest growing industry sectors in Russia during the last decade. According to industry research firm Staraya Krepost, the current value of the Russian beauty products market is approximately USD 7.8 billion with recent growth of 14 percent; a 53-percent share of the market belongs to imported products. Due to the global economic crisis, however, industry specialists believe the market may have fallen 10 to 20 percent in 2009. Key market segments are: hair care; make-up, bath, anti-aging and anti-blemishing skin care products; and cosmetics for men and children. Spa, pedicure, and manicure products are also fast-growing subsectors in the cosmetics industry.
The last several years have been characterized by a rapidly growing demand for high-quality and individualized cosmetics. Both foreign and local manufacturers created the awareness of different skin and hair types, as well as the advantages of using a full range of skin and hair products. Cosmetics started to be viewed as a means not only to achieve beauty and a general improvement in health. Beauty and spa salons are becoming more and more popular.
Due to the economic downturn, however, while women will continue to spend money to make their skin look better, visits to spas and beauty salons are becoming less regular; thus there is a growing demand for professional products for home use. When the rouble was depreciating, prices on imported cosmetics and toiletries increased 30-40 percent, thereby intensifying demand for mass-market products with a combination of price and quality.
Domestic manufacturers have almost 50 percent of the mass-market and middle-market brands. The biggest manufacturers, like Kalina, Nevskaya Kosmetika, Svoboda, and Faberilic, manufacture both mass-market and higher-end skin care products, which are very close to the quality standards of Western luxury market products.
The competition between foreign and local manufacturers in the mass-market and middle-market segments is intense. Generally, foreign producers outpace local ones with higher rates of new technology commercialization and large marketing and advertising budgets. A number of leading foreign suppliers, for example Procter & Gamble, Schwarzkopf & Henkel, Unilever and Beiersdorf (Nivea brand), have entered the low-end segment and are very successful. Russian consumers traditionally trust foreign brands more than local ones because they guarantee good quality.
Competition in the Russian beauty products market has also intensified in the last few years because the market share of local brands that are sold at a comparatively low price has increased. As a result, the cost of entering and developing the market is now higher. Finding a niche is also becoming more difficult, and success in the market requires large investments in advertising, marketing, and promotion, including participation in cosmetics trade shows.
Russian women spend a significantly higher portion of their disposable incomes on cosmetics than do their counterparts in other countries. According to market research firm COMCON, the average Russian woman is spending 12 percent of her income on cosmetics even during the economic downturn.
The last several years have been marked by profound changes in cosmetics distribution and retailing in Russia. Many foreign companies have opened representative offices in Russia and therefore are able to conclude agreements directly with retailers without the help of distributors. Retailers have become the key players in the market, reducing the role of distributors. According to marketing agency L’Agence de Lux, cosmetics and toiletries distribution segments are: cosmetics retail chains (30 percent); department stores (25 percent); direct sales (20 percent); pharmacies (10 percent); outdoor markets (10 percent); Internet-sales, concept stores (5 percent).
Most U.S. exporters gain marketing entry success by partnering with a Russian distributor or retail chain. Changes in the market structure and constantly growing demand for quality beauty and health products have motivated distributors to shift their business from developing wholesale trade to expanding retail chains. Specialized cosmetics retail chains are showing highest growth rates. These specialized cosmetics and perfumery store chains are rapidly expanding to meet the demand for exclusive, luxury products. Currently, such cosmetics chains as L’Etoile, Yves Rocher, Ile de Beaute, Douglas Rivoli, Articoli, and Sephora represent Russia’s retail business. Some of the cosmetics chains such as L’Etoile, Ile de Beaute, and Yves Rocher have their outlets in all major Russian cities.
The variety of products in cosmetics retail chains has changed too. Middle-market and mass-market brands now complement exclusive products. At the moment, the share of mass-market products in retail chains has grown to 20 percent. The consumer’s attitude towards cosmetics stores has changed significantly as well. Customers now prefer to make purchases of cosmetics in specialized places, where qualified shop assistants are able to help them make selections.
The majority of mass and medium-market products are distributed by a number of import/wholesale firms that work directly with large multi-product retail chains, such as Pyatyorochka, Perekryostok, Sedmoy Continent, Ramstore, Auchan, and Metro.
One more channel for mass-market, middle-market brands, and curative cosmetics are pharmacies, especially pharmacy chains. More consumers trust the medical application of cosmetics. An example of a very successful brand that is sold exclusively in pharmacies is Vichy (L’Oreal). A growing share of cosmetics and toiletries sales is taken by direct sellers, like Amway, Avon, Mary Kay, Oriflame, and Faberlic. Finally, the Internet has recently become a more important distribution channel, and there are many online stores.
Market issues & obstacles
The general import duty on cosmetics and toiletries is 15 percent, plus the 18 percent VAT that applies to all imports. Foreign quality marks (for example, “clinically tested” in another country) or GMP labels (Good Manufacturing Practice) on the product, while useful for marketing, are not a substitute for Russian certification. Therefore, foreign firms must complete a registration/certification process in Russia, regardless of what products they plan to distribute or the reputation of the exporter.
Since the aforementioned registration/certification procedures are time-consuming, experts recommend that foreign exporters and/or their Russian partners begin preparation for obtaining the proper documents before any sales contracts are concluded. If a product does not have appropriate certificates, Russian customs may stop the shipment at the point of entry. Consequently, pre-contract registration/certification is a safer and a significantly cheaper way to import and distribute products in Russia.
Because registration/certification procedures require direct contact between the authorized manufacturer’s representative and experts from the appropriate regulatory bodies and government agencies, it is recommended that U.S. companies work with qualified partners (specialized consultant, distributor, or local representatives) on regulatory matters.
The regulatory procedures tend to change many times, so it is well advised to contact the U.S. Commercial Service for updated information. The regulatory process depends on the type of product: general cosmetics, cosmetics for special uses, alcohol-containing cosmetics, and cosmetics used as pharmaceuticals.
General cosmetics require certification at the Federal Service of Welfare of Population (Rospotrebnadzor) and Federal Service of Standards and Metrology (Gosstandart).
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