Cosmetics Market

An Expert's View about Medical, Health and Cosmetics Products in China

Last updated: 24 Feb 2011

China’s cosmetics market, the second largest in Asia Pacific after Japan and the third largest in the world, is a potential goldmine for foreign companies.

Page 1 Sector briefing Cosmetics Market in South China Of the nearly 4000 cosmetic manufacturers in Why South China? China, over 1,600 producers are located in Guangdong. China?s cosmetics market, the second largest in Asia Pacific after Japan and the third largest in the world, is a potential goldmine for foreign companies. Besides Beijing and Shanghai, Guangdong is another good option for UK companies to develop cosmetics business in China. Guangdong accounted for 9% of total sales of cosmetic products in China, following Shanghai (12%) and Beijing (11%). Guangdong is a good option Find general information on Chinese market for UK companies to develop conditions on UKTI?s website. The Doing foreign cosmetics business in Business Guide for China gives an overview of China. Guangdong accounted China?s economy, business culture, potential for 9% of total sales of opportuni cosmetic products in China. ties and an introduction to other relevant issue. Produced by Jessie Zhang, Trade Officer of UK Trade & Investment, Guangzhou in July 2010 UK Trade & Investment Sector briefing: Cosmetics opportunities in South China Page 2 Opportunities China Cosmetics Market China?s cosmetics market, the second largest in Asia Pacific after Japan and the third largest in the world, is a potential goldmine for UK companies. For the past few years, retail sales of cosmetics in the country have registered impressive double-digit growth. In 2007 the wholesale and retail sales of cosmetics was £4.61 billion, an increase of 26.3% on the previous year. In 2008, it jumped to £5.63 billion, up 22.2%. Market projections show Aupres (Shiseido), L?Oreal and Lancome cosmetics growing by 13% annually to reach (L?Oreal), Shiseido, Yue-Sai, Tjoy, Pond?s sales of £9.45 billion by 2010. (Unilever), etc. Key to the growth is a rise in the up-take of anti-ageing or nourishing facial International giants, such as Proctor & Gamble, care products. Also, we notice that skin care L?Oreal and Estee Lauder, have been faring players are launching new products with well in this emerging market. Currently, the various added functionalities, such as cosmetics market is one of the consumer goods whitening, sunscreen, oil-control, anti-freckle sectors in China, in which foreign players and anti-wrinkle effects. receive significant recognition. HAIR CARE is the most saturated sub-sector, with slower growth in the recent years. This South China Cosmetics Market sub-sector has been fully dominated by the big foreign brands, such as Head & Shoulders, Besides Beijing and Shanghai, Guangdong is Rejoice and Pantene Pro-V (P&G), Hazeline and another good option to develop cosmetics Lux (Unilever). The local brands are working business in China. Guangdong accounted for hard to follow the foreign competitors, for 9% of total sales of cosmetic products in China, example, Bawang (Bawang International) and following Shanghai (12%) and Beijing (11%). Slek (C-Bons Group). It is not suggested that Of the nearly 4000 cosmetic manufacturers in UK companies access this sub-sector at present. China, over 1,600 producers are located in Guangdong. Guangdong has the most mature COLOUR COSMETIC sub-sector could become industry supply chain and the best an important growth driver for China?s infrastructure compared to other provinces, cosmetics sector in the coming years. The city- and offers the most comprehensive business based working woman is the targeted environment for the beauty and cosmetics consumer. Lip products account for over half of industry. the retail sales share in colour cosmetic. However, the markets for nail products and facial make-up are expanding at a considerable growth rate. It is noticed that more women CHARACTERISTICS OF MARKET demand value-added attributes such as smoothing formulation and anti-ageing for their Market Structure colour cosmetics. The most popular brands include Maybelline, L?Oreal and Yue-Sai In the following briefing, we will focus on the (L?Oreal), Christian Dior, Aupres (Shiseido), key cosmetic sub-sectors (hair care products, Mary Kay, etc. skin care products, and colour cosmetics as well as fragrances). Following are the emerging sub-sectors, which offer opportunities for UK companies. SKIN CARE is the most valuable cosmetic and toiletries sector in China, accounting for NATURAL & PHARMACEUTICAL COSMETIC 32.17% of all cosmetics sales, equal to £2.35 sub-sector is a popular and growing market. billion. It is expected that its sales volume will It?s widely expected that this sub sector will reach £3.59-£3.79 billion in 2010. However, develop with an annual growth rate of 10%- this sub-sector is seeing increasingly fierce 20%. More and more Chinese consumers competition. The top brands are Olay (P&G), UK Trade & Investment Sector briefing: Cosmetics Market in South China Page 3 accept the concept of returning to natural or distribution costs and the problem of fake pharmaceutical products, holding the belief products have remained the major concerns of that perfect cosmetics should be pure, safe and foreign brands. Also, consumers there are still effective. The use of traditional Chinese highly price-sensitive despite increasing medicines in cosmetics is gaining attention. incomes and show vast difference in tastes. Many brands have had huge success with such products. Also, over 170 pharmaceutical The high-end overseas brands mainly attract companies have been involved in this sector; middle class consumers with high income in the most famous local brand is Herborist of tier-1 cities. This customer group accounts for Shanghai Jahwa Group and Longliqi from nearly 20% of the citizens there. The premier Suzhou. local brands target the mid-age customers of low-middle level income as well as the elderly MEN?S COSMETIC market is considered as located in the cities, who account for about one of the emerging cosmetic sub-sectors. The 60% of the population. The low-end local value of the men?s skin-care and cosmetics brands focus on the rural residents and lower market reached a record £737k in 2008 and earning customers in cities. should surge to £1.32 million in 2010. Low market penetration and rapid sales growth are Mainland women, especially the high earners, driving the men's skin-care sector. L'Oreal, are now driving cosmetics sales. Being more Vichy, Dior, Shiseido and other companies all financially independent, their demand for entered the men's skin-care market after fierce cosmetics will be greater than ever. They are competition in women's product lines pared now increasingly appearance and image profit margins. Market specialists point out that conscious. young men, aged between 18 and 25, including students and white-collar workers, are still the Consumers? emphasis on product safety is major customers and main drivers of growth in increasing visibly. Chinese consumers are the market. However, the most noteworthy worried about the potential damaging effects of characteristic is that more time and product cosmetic products. The safety of cosmetic education will be needed for the perceptions to products is a major selling point in the Chinese change and for the market to grow. market. The Market for BABIES & CHILDREN COSMETICS, with a rapid growth, offers a METHODS OF DOING BUSINESS huge business opportunity to UK companies. Under the one child policy, Chinese parents are Business Models: willing to spend as much as they can on baby and child care products. Some parents There are two different channels for British complain that their children have to use adult manufacturers to enter the China cosmetics cosmetic products which are not good for their market. The first one is to set up a cosmetics health. At present the major brands are factory and representative office in China. Johnson & Johnson, Yu Mei Jin, Haiermian, Nuk, However, manufacturers have to bear high Mentholatum etc. costs and risks and the required process for setting up the business in China is very complicated. Another way for foreign Characteristics of Target Customers manufacturers to enter the market is to import existing products directly into China and work Recently, more and more brands are eyeing with local distributors. However, all imported the potential of lower-tier cities (like Xiamen, cosmetic products must be approved by the Fujian, Changsha, Naning, Haikou, etc) in Chinese government. A required process for China. It is worthwhile for British companies to product permits is needed. access these markets. Firstly, notable improvements in the income of residents will encourage consumption and unleash the huge Channels: potential in these regions. Secondly, the competition there is not so fierce as that in No matter which business models you choose, tier-1 cities (Guangzhou and Shenzhen). the sales channels should be taken into Currently, the markets are dominated by the low and middle local brands. However, higher UK Trade & Investment Sector briefing: Cosmetics Market in South China Page 4 consideration when deciding to access the 2. Supermarkets and hypermarkets: Chinese market. These retail formats target primarily the mass consumer segments for lower-priced cosmetic Beauty Salons products (for example, hair care products and basic skin care products). The brand According to representatives are Pond?s, TJOY, Biore, Clean the survey of & Clear. Nevertheless, supermarkets and Kline & hypermarkets request an entry cost and Company, Inc, companies have to take the management fee beauty salons into account as well. fully dominate Chinese 3. Pharmacy chains: cosmetics channels, especially in wholesale. In 2004, Purchasing cosmetic products from pharmacy there were 1.5 million beauty salons scattered stores is a new experience for Chinese in cities and towns of China. Mainland beauty consumers. However, this network has salons offer a wide array of services including attracted an increasing number of customers beauty treatment, body shape-up, make-up, who want to have multi-functional, medicated image design, body slimming and weight loss, or natural cosmetic products with advice from and eyelash extension as well as hair removal. professionals. This channel is predicted to Normally cosmetic products are recommended achieve sales revenue of £4.53 billion with a to customers by beauty salons where 10-20% rise in 2010. Vichy is the most customers do not fully understand the formula successful brand fully taking advantage of the and effects of products. Beauty salons demand pharmacy chains. It has set up beauty a high quantity of cosmetic products. counters in more than 1000 large pharmacy chain stores in 69 cities. Following is an outline the available types of retail format applying to cosmetic product sales. 4. Speciality stores: 1. Department Stores: Speciality chains are expected to grab a bigger Department stores are the key retail channel piece of the business. The professional services for up-market branded cosmetic products in and the full range of goods provided by the China. Chinese consumers believe that this stores appeal to many Mainland consumers. network provides reliable, genuine and safe There are two sub-types of Speciality Stores: products. Beauty counters of various famous Own-brand Speciality and Cross-brands brands have been opened in numerous Professional Stores. department stores across the country. The typical example is L?Oreal China, which has To achieve higher sales performance with over 500 cosmetic counters in the country. The better operations, some brands have opened top cosmetic brands (such as Christian Dior, speciality stores via direct management or Chanel, SK II) are usually located in high-end franchises. Shiseido, Japan?s largest cosmetic department stores ? the popular shopping manufacturer, announced that it would have venue of affluent consumers. In South China, nearly 5,000 stores in China by 2010, mainly in the famous department stores are La Perle inland regions. (www.laperle-global.com) and Friendship (www.cgzfs.com) in Guangzhou, Mix City Currently, most of the cross-brand professional (www.crcsz.com) and Seibu stores are standalone stores and are small in (www.seibu.com.cn) in Shenzhen. scale in regional cities. These stores offer a wide variety of products, from anonymous However, the competition for counter space in branded products to some famous foreign department stores is fierce. Only large brands. overseas brands can afford the rental, entry fees as well as marketing and management In the meanwhile, some professional store costs. It?s hard for the new-comers, less high- chains have explored the opportunities. They profile players, and domestic brands to are larger in scale and they put more emphasis participate in this market. in shaping store and brand images. The most UK Trade & Investment Sector briefing: Cosmetics Market in South China Page 5 active participators are Watsons, SaSa and Sephora. Watsons boast a 1,000 professional It should be noted, all foreign cosmetic product store network in China already. SaSa is going manufacturers must obtain approval from the to open 100 stores across China by 2011. government before their products access the Sephora (LVMH) expects to have a 100-outlet Chinese market. This process includes safety network by 2010. and health quality testing and application for a hygiene permit. Normally, we suggest that 5. Direct Selling: British companies employ a local company to apply on their behalf, as they understand the Direct selling in China is currently prohibited. regulations better. It?s not recommended for British SMEs to access this channel due to the complicated The whole import workflow is outlined: process. All direct selling permit applicants BEFORE ACCESSING CHINA must be qualified with: (1) an investment of at least £6.4 million in China; (2) a manufacturing facility in China producing the products to be 1 Present Inspection Certificate issued by origin sold in China through direct selling; and (3) a country security deposit of between £1.6 and £2.24 million to protect its customers and the (Only when the country is listed as an government from improper activities. Only a infected area, for example countries few multinational enterprises are approved, for affected by BSE etc) instance, Avon, Amway, Mary Kay, etc. 2 Apply for safety and health quality test 6. Online Sales: (The tests are completed by the government organisations authorised by State Food and A growing number of Chinese netizens are Drug Administration. They are China CDC, accustomed to online shopping due to its Shanghai CDC and Guangdong CDC. This apparent price advantage and convenience. takes 2-6 months and cost many vary based Currently, around one in four netizens in China on the types and complexity of the products.) select online shopping. It is expected that the benefits of online shopping among Internet users will exceed 40% by 2010. 3 Declare to SFDA and obtain Hygiene Permit for Imported cosmetic A lot of C2C Cosmetic shops are available. The This may take 6-12 months. Foreign top 3 platforms are Taobao, Ebay China and companies are not allowed to apply for this Dangdang. The business model of B2C online permit directly. The following materials and shops is a logical step for British SMEs in terms documents must be submitted: (1) Samples; of exploring broader opportunities in the (2) Formula; (3) Flow chart of production Chinese market. Simply register with the process; (4) Quality standard; (5) Exporter?s platform supplier and you will be exposed to local sales permit; (6) Quarantine Certificate the demand from Chinese consumers directly. from exporter?s government agency; (7) You can choose to manage your store user?s guide and usage warning. operations and currency transfer by yourself or to outsource this to the platform supplier. 4 Obtain approval of a Chinese label from the China Commodity Inspection Bureau 7. Cosmeceutical stores: The necessary materials are inclusive of (1) Application Form; (2) Formula; (3) Certificate The cosmeceutical store is a totally new of product efficacy; (4) Quality standard; (5) concept for Mainland consumers even though Exporter?s local sales & production permits; it?s very popular in the western market. So far, (6) 6 Chinese label samples. only a few brands have been involved in this network. Cosmed from Taiwan is one of the 5 Obtain Commodity Inspection & pioneers in this field. They have 10 stores in Quarantine Certificate and declare to Shenzhen, two in Guangzhou and two in customs Zhuhai. MARKET ENTRY BEFORE SELLING TO CUSTOMERS Regulations: 1 Complete the random product test UK Trade & Investment Sector briefing: Cosmetics Market in South China Page 6 2 Obtain Test Certificate UK Trade & Investment will pay attention to 3 Apply for CIQ marks based on the the further developments and keep British number of obtained test certificates companies informed. Here are the key government departments involved in the approvals above: Intellectual Property Rights State Food and Drug Administration Guangdong has become the national and even Add: A-38 Beilishi Road, Xicheng District, the world?s production base of cosmetic fakes. Beijing 100810 Tel: +86 10 6831 5572 It?s crucial for UK companies to register their www.sfda.gov.cn brands with the Chinese government, in case of future counterfeiting conflicts. Concerns over China Centre for Diseases Control (China losing brand value with regard to fake products CDC) are warranted and should be considered when Institute for Environmental Health and Related formulating a Chinese market strategy. Product Safety Add: 27, Nanwei Road, Beijing 100050 Before entering the Chinese market, it is Tel: +86 10 6302 2960 strongly suggested that you consult the local www.chinacdc.net.cn Trade Officers or the UK Intellectual Property Office for advice. Guangdong Centre for Diseases Control (Guangdong CDC) Public Health Research Institute Add: 176 Xinggang Road West, Guangzhou 510300, P.R.China Tel: +86 20 8419 7952 www.cdcp.org.cn Shanghai Centre for Diseases Control (Shanghai CDC) Environmental Health Section Add: 1380 Zhongshan Road West, Shanghai 200336 Tel: +86 21 6275 8710X213 www.scdc.sh.cn Tariffs: In accordance with China?s commitment to WTO, the Chinese government has reduced the tax rate for imported cosmetic products. Here is the list of tariffs in 2008: Category % Category % Fragrances 10 Colour Cosmetic 10 Lip Cosmetic Products 10 Skin Care 6.5 Products Eye Products 10 Shampoo 6.5 Nail Products 10 Others 10 At the end of 2009, representatives from China Association of Fragrance Flavour and Cosmetic Industries mentioned that the MOFCOM (Ministry of Commerce) was considering zero tariffs for imported cosmetic products in 2010. However, this news has not been confirmed. UK Trade & Investment Sector briefing: Cosmetics Market in South China Page 7 If you have any questions on the opportunities UKTI contacts above, contact the UKTI China COSMETICS contacts named in this report. Business Ms. Jessie Zhang opportunities aimed specifically at UK (South China Market) companies are added daily to UKTI?s website. Trade & Investment Officer These leads are sourced by our staff overseas British Consulate-General Guangzhou in British Embassies, High Commissions and Tel: (0086 20) 8314 3021 Consulates, across all sectors and in over 100 Email: jessie.zhang@fco.gov.uk markets. You can be alerted to China/Cosmetics Local Associations opportunities on a regular basis by registering ? China Association of Fragrance on the UKTI website. More on UKTI?s business Flavour and Cosmetic Industries opportunities service Website: www.caffci.org ? Guangdong Beauty & Cosmetic Major events and activities Association Contact: Jean Lai/Tel: +86-20-86259281 ? Email: gdba@21cn.net / Guangzhou International Beauty Expo Website: http://www.gzbeautyexpo.com jeanlai@gzbeautyexpo.com When: September 2010 / March 2011 Website: www.gzbeautyexpo.com Where: Pazhou Complex, Guangzhou ? Xiamen Beauty Association ? Website: www.beauty.xmnn.cn Cosmoprof Asia Website: www.cosmoprof-asia.com When: Nov 10-12, 2010 ? Hunan Beauty Association Where: HK convention And Exhibition Website: http://www.hnmrmf.com Center ? China Beauty Expo Website: http://www.chinabeautyexpo.com When: 18 ? 20 MAY 2011 Where: Shanghai New International Expo Centre (SNIEC), Shanghai, China ? PCHi ? Exhibition for Personal Care & Homecare Ingredients 2010 Website: www .pchi-china.com When: 22-24 Feb 2011 Where: Shenzhen Convention & Exhibition Center UKTI?s Tradeshow Access Programme (TAP) provides grant support for eligible Small & Medium Sized Enterprises (SME's) to attend trade shows overseas. Find out more about UKTI support for attendance at overseas events. Find full details of all China COSMETICS events on the UKTI website. New export events are added daily to the site and you can register to be alerted to them on a daily, weekly or monthly basis. UK Trade & Investment Sector briefing: Cosmetics Market in South China Page 8 References: Next steps - How UKTI can help ? Industry Series (Li & Fung Research Centre) British companies wishing to develop their business in the Chinese market are advised to ? Chinese Cosmetic Market (HKTDC) undertake as much market research and planning as possible in the UK. UKTI?s team in ? The Gold Rush for China (Euromonitor China, with its wide local knowledge and International) experience, can provide a range of services to British-based companies wishing to grow their ? Kline & Company, Inc. business in the Chinese market. This can include: ? Provision of market information ? Validated lists of agents/distributors ? Key market players or potential customers in the Chinese market ? Establishment of interest of such contacts in working with you ? Arranging appointments ? Organise seminars or other events for you to meet contacts and promote your company in the Chinese market This work is available via our Overseas Market Introduction Service (OMIS) a chargeable service which assists British-based companies wishing to enter or expand their business in overseas markets. To find out more about commissioning this work, or accessing other UKTI services and specialist advice, please visit the UKTI website to find contact details for your local UKTI office. Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation & Skills, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published 2010 by UK Trade & Investment. Crown Copyright © UK Trade & Investment Sector briefing: Cosmetics Market in South China
Posted: 24 February 2011, last updated 24 February 2011

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