Beauty brands need to adapt in China

28 July 2011

BEIJING: Personal care and beauty brands need to adapt their approach in China due to the differing requirements of local shoppers and the rise of domestic challengers.

New analysis from Euromonitor International, the research firm, revealed China is now the world's fourth largest beauty market, behind the US, Japan and Brazil. Overall, category sales hit nearly $24bn across China in 2010, measured against approximately $6bn in 2000.

But per capita spending in China stood at a modest $18 last year, thus considerably lagging the equivalent of $192 posted by Brazil.

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"The development of China's beauty and personal care industry is at a very low level, and the market is far from saturation," said Serena Jian, a beauty and personal care research analyst at Euromonitor International.

One particularly attractive trend for manufacturers is that household disposable income levels in China have doubled in only five years.

More broadly, the number of middle class consumers boasting a disposable income of between $5,000 and $15,000 reached 153m in 2010. This was roughly three times the amount recorded five years previously, and provides an increasingly viable target audience for perfume, make-up and other similar products.

"Middle class consumers are usually young as compared with those in the most developed markets, where the highest earners tend to be middle-aged," added Jian.

"The wealthiest middle class consumers in China are aged between 25 and 44 years old, rather than 45 to 54, as in the US for example."

This is because members of the youthful demographic have been able to obtain stronger qualifications and in-depth training than their older counterparts.

Jian added: "This group of consumers in China expect a better shopping experience and higher product quality as well. They are often more brand conscious and less price-sensitive."

Euromonitor found that nine of the ten leading firms in the Chinese health and beauty sector are foreign, aided by superior marketing skills and a nuanced understanding of supply chain management.

The exception is Shanghai Jahwa, the owner of Maxam, a skincare line primarily aimed at women over the age of 30 years old.

While Shanghai Jahwa took less than 2% of the market in value terms last year, it has enjoyed noteworthy success with Herborist.

This skincare and haircare range mixes traditional Chinese medicines with more modern biotechnology, and logged a compound annual growth rate (CAGR) of 40% from 2005 to 2010.

Innoherb, made by the Shanghai Innoherb Company, also registered a CAGR of 60% in the same period.

"Despite the dominance of international companies and brands in China … some local players have increased their value shares in recent years by tapping into the up-coming natural and herbal positioned products," said Jian.

Another strategy pursued by several indigenous operators is championing brands linked with China's past.

Shanghai Jahwa, for example, has reintroduced the high-end Shanghai Vive brand, dating back to 1898.

"We did not invent anything new. We only updated an outdated theme," said Demos Chiang, founder of agency DEM, which coordinated the redesign of Shanghai Vive.

Elsewhere, Daichunlin claims to be the oldest beauty brand in China, with a history spanning almost four centuries, and often used by members of the royal family.

"Made using traditional Chinese techniques, the products are sold at a much cheaper price than imported ones, with fairly good results," Mu Hongjun, manager of Daichunlin, said.

Data sourced from Euromonitor International. CRI English, CNN; additional content by Warc staff