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market in China, addressing the following aspects: the market size and
VI. Supply of cosmetics 7
structure, market entry considerations and the existing market players.
Finally, a market analysis by product sector will be provided to give
VII. Market entry considerations and more specific information.
expansion strategies 8
1
INDUSTRY SERIES July 2005 Issue 1
Despite the huge advances witnessed over the past two decades, China’s cosmetics market is still at a very low level of
development and is far from saturation. First of all, with a population of 1.3 billion, China has the largest number of
potential cosmetics consumers in the world. Besides, the current per capita annual spending on cosmetics is well below
the average of developed countries (US$35-70). The potential of China’s cosmetics market is yet to be fully unleashed.
Along the rapid economic growth, living conditions will continue to improve and spending on cosmetics is likely to
increase exponentially. There is plenty of room for future development and the sector as a whole shows enormous
business opportunities.
The entry of foreign cosmetics enterprises also helped boost the market development. Facing the intense competition
with the foreign players, domestic cosmetics enterprises began to upgrade their production technology, management
skills, product quality, and to expand their scale of production.
In a competitive market like China, where a vast variety of products catering to different consumers’ needs are available,
there is a pressing need for enterprises to put more efforts in brand building so as to distinguish their products from the
others. Cosmetics enterprises now devote a lot of resources in advertising and research and development to shape
their brand images and to provide customized products for their target consumers. A survey released by CTR Market
Research shows that cosmetics and toiletries sector ranked first in advertising spending in China in 2004 with US$4.8
billion plunked down, an increase of 34%. Olay, a famous brand of Procter & Gamble (P & G), spent US$565.8 million
on advertising, a 160% increase over 2003. The promotion and advertising activities for cosmetics take various forms,
such as placing advertisements in press, Internet, high-traffic roads, buildings, metro stations and buses; organizing on-
site displays and demonstration shows; and employing celebrities as spokesmen to increase brand reputation. Enterprises
are also actively utilizing the comprehensive coverage of CCTV to improve their reach across the country, especially in
second- and third-tier cities and the rural area. In November 2004, CCTV auctioned its prime time advertisement slots
for a record sum of 5.3 billion yuan (US$634 million). P & G became the new bid champion spending more than 385
million yuan (US$46.5 million) on the auction.
Exhibit 4: GDP, urban and rural income and total retail sales (both absolute amounts and annual
growth rates), 1980-2004
Mainland people are now better-educated, better-paid and they attach more attention to fashion and their personal
image. They not only focus on improving basic living conditions, but are also keen to enhance their overall quality of life.
Their increasing awareness of health, hygiene and appearance has made cosmetics one of the consumption hotspots.
In fact, the pursuit of beauty and health is no longer confined to young women only. Cosmetic products are gaining
popularity among men, children and the elder people. The cosmetics market is getting bigger and bigger embracing
consumers from all ages and from all walks of life.
It is expected that, in the coming future, significant improvements will be made in respect of farmers’ income and
distribution efficiency, which will encourage rural consumption and unleash the huge potential of the vast rural market.
2 The operation modes of these stores may be different from those in the urban areas to cater to the specific needs of rural residents.
The NBS predicted that by 2020, middle class would increase from the current 5% of total households to 45%. They will
expand exponentially in major cities such as Beijing, Shanghai, Guangzhou and Shenzhen, and will become an influential
group in the society. This rising middle class is becoming one of the most active consumer groups for cosmetics in the
next 10-20 years.
2. Men
Men’s cosmetics market is growing in China with market growth rate forecasted to surge to around 6% or much higher
by 2008. To get a share of this newly emerging market, many cosmetics enterprises have been introducing men’s
product lines, such as JC of Aupres, Glf of Shanghai Jahwa, Nivea men, Biore Men, etc. Men’s cosmetic products are,
presently, far more diversified and are no longer limited to shaving tools. Other products including cleansing products,
moisturizers, essences, hair treatment products and fragrance etc. are now available.
However, compared with the market for women, men’s market is relatively small and the growth rate is much slower.
Currently, men’s cosmetics are only popular among the more affluent and fashion-conscious young men in big cities,
while most of the men on the Mainland are still reluctant and do not feel the need to use cosmetics. More time and
product education are needed for the perception to change and for the market to grow.
The huge potential of the Mainland market has been attracting many multinational cosmetics manufactures to invest in
China and to exploit this new source of profits. However, before joining the World Trade Organization (WTO), China
imposed high tariff rate on imported cosmetics. Foreign exchange control, product standard and quality control
requirements are also barriers to export to the Mainland. As a result, many foreign brands, in cooperation with their
domestic counterparts, set up their manufacturing base on the Mainland to take advantage of the low production costs
and to be free from the trade barriers. Currently, there are around 600-700 foreign-invested cosmetics manufacturers in
China, with total investment exceeding US$1.5 billion. Examples of these enterprises include P & G, Johnson & Johnson,
Avon, Revlon and Amway from the U.S.; Unilever from the U.K.; Henkel and Weina from Germany, L’Oréal from France;
and Shiseido and Kao from Japan.
While the foreign-invested manufacturing enterprises account for the lion’s shares of the premium market, several
domestic manufacturers maintain strong positions in certain products. Numerous small domestic manufacturers produce
regional or generic brands and distribute their products within their own province or neighboring provinces, but their
share of the overall market is very limited. Nearly 90% of the domestic manufacturers are small in scale having annual
sales less than 50 million yuan. Besides, they focus on the lower market segment and offer cosmetics at extremely low
prices. As at 2003 year-end, only around 50 domestic manufacturers realized annual sales of over 100 million yuan. Of
which, only Shanghai Jahwa, Beijing San Lu, Raystar Cosmetics (Shenzhen), C-bons Group, Arche Group and a few
could achieve annual sales exceeding 500 million yuan.
From 2005 onwards, the tariffs are reduced to around 10% on average, which creates a more favorable environment for
foreign enterprises wishing to export to the Mainland. The tariff reduction will push down the retail price of cosmetics but
the impact is not likely to be as significant as expected, given the fact that many foreign brand owners have already set
up manufacturing base in China and imported cosmetic goods only accounted for 1% of the total cosmetics sales in
China.
The upper income group consumers mainly concentrate in the first-tier cities, where purchasing power is relatively
strong. They demand high quality cosmetic products and prefer premium-imported cosmetics from the U.S., Europe and
Japan, such as Estée Lauder, Christian Dior, Chanel, Clinique, SK II, Lancôme and Shiseido. Purchasers of cosmetics
in this segment are mainly affluent and appearance-conscious young and middle-aged females with monthly salary
exceeding 3,000 yuan.
Consumers in the middle-income group are usually mid-income city dwellers and residents in second- and third-tier
cities. They tend to purchase well-known domestic brands or high-end mass products, for example Olay, Aupres, L’Oréal,
Relvon, Maybelline and Herborist.
For the less affluent city dwellers or the more affluent rural residents, products with prices ranging from 10 to 300 yuan
are their priority choices. These include brands such as Biore, Clean & Clear, Dabao, Maxam, Yu Mei Jing, Mininurse,
Longliqi and TJOY.
For the vast majority of the Mainland people, premium products remain far beyond reach. Rural residents, who account
for 59% of the total population, spend far less on cosmetics and they tend to opt for low-end anonymous branded
products.
The eastern coastal regions are the wealthiest part of China. People there are comparatively well off and are more
exposed to the outside world. They are more likely and better able to afford cosmetic products to improve personal
hygiene and image. In 2003, the retail sales of cosmetics of enterprises above designated size3 in the eastern region
amounted to 14.3 billion yuan, making up 69.1% of the national total (see Exhibit 5). Shanghai and Beijing ranked first
and second in cosmetics retail sales respectively for 5 consecutive years. Their per capita retail sales of cosmetics in
20034 were far higher than that of the other cities (see Exhibit 6). However, after the rapid growth in the early years, their
sales growth rates have been slowing down in recent years (see Exhibit 7). On the other hand, other eastern cities are
gathering pace and have experienced strong growth in cosmetics sales. In 2003, Fujian, Zhejing, Guangdong and
Shangdong recorded y-o-y cosmetics sales growth of 42.6%, 41.2%, 33.3% and 24.2% respectively, much higher than
the national average of 17.9%.
By comparison, cosmetics sales in the less developed region of the central and western part of China are relatively low.
The central and western regions constituted only 18.7% and 12.2% of the national retail sales of cosmetics of enterprises
above designated size in 2003, respectively (see Exhibit 5). Per capita annual retail sales of cosmetics in certain cities,
such as Jiangxi, Guizhou, Tibet and Gansu, were as low as 2-4 yuan in 2003 (see Exhibit 6). The main factors hindering
their development include low disposable income, limited product awareness and less established distribution network.
However, accompanying the acceleration of the “Go West” policy and the Central government’s policies of boosting the
economic development of the central region, cosmetics markets in these regions are taking off and some cities have
recorded significant growth in cosmetics sales (see Exhibit 7).
Exhibit 5: Cosmetics retail sales of enterprises above designated size by region, 2003
3 Above designated size: with annual sales of over 5 million yuan and an employment of or over 60 at year-end.
4 Due to the constraint of data availability, retail sales of enterprises above designated size has been used as a proxy to calculate the per
capita retail sales of cosmetics.
Exhibit 7: Growth rates of cosmetics retail sales of enterprises above designated size, 2000-
2003
On the other hand, the developed cities along the coastal areas are currently packed with both multinational and domestic
players and show signs of growing market saturation. The second- and third-tier cities, and the inland cities, by comparison,
are relatively untapped and show great development potential.
Therefore, some foreign players, apart from consolidating their position in the high-end segments, are striving to extend
their reach to the mid- and low-end segments and to the less developed cities. However, the complexity of China’s
distribution system, the relatively high-pricing of foreign products, and the lack of local knowledge and network all make
it hard for foreign players to penetrate into the mass market.
In this respect, acquiring well-known domestic brands with heritage to take over their existing distribution network,
established reputation and local network is regarded as a fast and effective way for multinational players to break into
the mass market. Some multinational players have already put forward their acquisition plan. One recent case in place
is the acquisition of Mininurse and Yue-Sai, two well-known mass brands in China, by L’Oréal in the late 2003 and the
early 2004 respectively. Both Mininurse and Yue-Sai possessed extensive sales network: Yue-Sai has 800 cosmetics
counters in 250 cities; Mininurse has over 280,000 sales points across the country. So far, L’Oréal has built up its sales
networks in most large Mainland cities, but not in the less developed ones. This strategic move enables L’Oréal to
extend its reach to many second- and third-tier cities and penetrate deeper into China’s vast southern and central
market in addition to the highly competitive eastern coastal areas. It will also provide a far wider and deeper distribution
coverage for all product lines of L’Oréal.
4. Localization strategies
There exists significant cultural, language and institutional differences between foreign countries and China. For foreign
cosmetics enterprises to win market share in China, localization is a must. Actually, many foreign cosmetics players
have been making increasing efforts to localize their products and operations.
As mentioned previously, R & D centres and comprehensive marketing teams have been set up by foreign enterprises
to develop products that cater to Mainland consumers’ skin types, preferences and living habits. It is reported that, to
deepen its understanding of Mainland consumers, P & G made contact with more than 3 million local consumers every
year for up-to-date market information and feedback.
Localization of employees is another major steps taken by many foreign cosmetics enterprises. For example, Unilever
recruited and trained over 90% of its managers locally and is working to minimize the number of expatriates in the
company; P & G has been recruiting from campus in China for 16 years and more Chinese managers have taken up
important positions replacing expatriates.
Apart from that, many foreign players have localized their raw material sourcing and manufacturing to reduce production
costs and time. Many of them have set up factories in China and they procure a significant amount of raw materials
locally. For instance, for its domestically sold products, Unilever sources 90% of the raw materials used from the Mainland.
Another example is P & G (China), which purchases 80% of the raw materials from the local market every year.
Other localization strategies are also widely adopted by the foreign cosmetics enterprises, such as localizing marketing
mix, developing relationship with local government, actively participating in local charity work and customizing the
operation system.
Sources of products
Foreign cosmetic products sold on the Mainland can be basically classified into three types: imported, self-manufactured
by foreign brand owners and produced by local OEM factories.
The imported goods are mostly premium products of famous international brand owners. They are usually sold at much
higher prices. The production and the formula of such products are strictly controlled and protected by the brand owners.
On the other hand, many big cosmetics enterprises that wish to have long-term businesses in China, have established
production base on the Mainland to supply part of their domestically sold products. While a significant amount of raw
materials used are sourced locally to reduce production cost, the most important and special ones remain imported from
overseas.
A number of foreign cosmetics enterprises choose to outsource the production process to the local OEM factories.
Some big enterprises let theses factories produce some of their mass or more developed product lines, so that they can
concentrate their efforts in developing and producing new or higher-valued items. The smaller foreign brand owners,
who do not have production base on the Mainland, are also actively cooperating with these factories.
2. Domestic players
Domestic players playing major roles in mass market and gathering pace to develop brands
As the income level of the majority of Mainland consumers are still quite low, domestic products which are relatively
cheap are highly welcome in the mass market, especially in second- and third-tier cities.
The majority of the domestic cosmetics enterprises are small in scale and are not as well-operated as their foreign
counterparts. Compared with foreign cosmetics rivals, the domestic players lack competitive advantages and are markedly
overshadowed in such aspects as scale, management, talent, technology and brands. A report released recently by
Sinomonitor International reveals that Chinese brands are losing ground to foreign rivals in the domestic cosmetics
market. The report ranked the top competitive brands in 27 consumer product sectors for the year 2004. Comparing the
ranking lists for 2003 and 2004, the report for 2004 saw several domestic brands on the outs. This report reveals two
prominent features: foreign products enjoy much greater brand loyalty than their domestic rivals; and consumption
patterns are moving upscale.
Though domestic players show strength in local knowledge and network, lower labor and management costs, and
higher flexibility, they are losing competitive edge amid the severe competition with the foreign counterparts. Therefore,
in recent years, domestic cosmetics enterprises have been striving to improve their production efficiencies and product
standard by developing technology, streamlining the supply chain and intensifying their efforts in brand building as well
as in research and development. Some new domestic brands are now prevalent in the market, including Dabao, Yu Mei
Jing, Chinfié, Skek, Arche etc.
Beauty counters of various famous brands have been opened in numerous department stores across the country. For
example, Aupres of Shiseido Liyuan Cosmetics Co Ltd has already opened over 230 cosmetics counters since 1991.
Maybelline of L’Oréal China also has over 500 cosmetics counters in the country.
In general, department stores in China can be divided into three classes – the high-, mid- and low-end – based on the
products they sold, store environment and management. The top cosmetics brands (such as Estée Lauder, Christian
Dior, Clinique, Lancôme, Chanel, Orlane, Shiseido and SK II) are usually distributed in high-end department stores - the
popular shopping venue of affluent consumers. It is not easy to set up a beauty counter in these stores as they impose
strict entrance requirements in the aspects of market standing and sales record of the brands. Sources reveal that the
sales of such beauty counter in the high-end department stores such as Beijing Lufthansa Shopping Centre can exceed
10 million yuan per year.
In fact, most of the specialty stores operating on the Mainland are owned by the former direct selling companies. The
PRC government banned all direct selling operations in 1998, which forced all the direct selling companies to adjust
their business models. These companies, including Avon and Amway, then set to establish their own specialty stores.
Avon has achieved great success with over 5,500 specialty stores and 1,000 cosmetics counters in 74 Chinese cities at
present. Its total sales reached 2.4 billion yuan in 2003, up by 24% y-o-y. Amway, on the other hand, adopted the
“salesmen plus stores” operation model to fit for the Chinese market in 1998. In six years’ time, Amway has set up over
110 specialty stores on the Mainland employing more than 70,000 salesmen. Its cosmetics sales in China accounted for
1/5 of its global sales, hitting 10 billion yuan in 2003 with 66% y-o-y growth rate.
Specialty stores are not only favored by the former direct selling companies, but also by premium brands. For instance,
Shiseido opened its first specialty stores in September 2003, offering 233 products from eight Shiseido brands. Sources
reveal that Shiseido is going to open 5,000 more by 2008.
Recently, some chained professional stores positioning themselves at the mid- to high-end segments are emerging in
China. They are larger in scale and they put more emphasize in shaping store and brand images. Sa Sa, a Hong Kong
cosmetics enterprise operating chained professional stores opened its first store in Shanghai in March 2005 and plans
to open 3-5 more in half a year’s time with a total investment of around HK$30 million. The new store in Shanghai is Sa
Sa’s biggest store in Asia, which offers products of over 100 brands - 70% foreign and 30% local brands. Most of the
products are house or salon labels like Swiss Program or mass brands like Up2U (by Avon), Neutrogena, Pond’s and
Color Zone. Sa Sa is still in talks with local agents to get more popular brands to the store. Another company, Shanghai
Jahwa, joining hands with Sephora, is also in the process of setting up professional stores under the name of
“sifulanyijiahua” ( ). It targets on high-end products with Chinese characteristics.
So far, few well-known brands offer online sales services. DHC of Japan has recently entered the Mainland market and
uses online and telephone ordering as its main distribution channels.
As average disposable income of the Mainland residents are still comparatively low, daily use products such as hair
care and skin care are the largest contributors to the cosmetics sales.
1. Hair care
(1) Growth expected to be modest with market saturation in urban cities
According to Euromonitor, sales of hair care products in 2003 reached 12.4 billion yuan, increasing by 47% from 1998.
Robust growth was recorded in the early years when people became more appearance- and hygiene-conscious and
washed their hair more frequently. However, in recent years, the market has started to get saturated in urban areas. The
annual growth rate slowed down from 10.5% in 2000 to 7.4% in 2003. Product penetration rate in cities is already very
high. Competition is intense due to the wide variety of brands that are available. Given the present market saturation,
the sector growth is expected to be modest.
Among the sales of hair care products, shampoos and conditioners are the dominant items, while styling agents and
colorants still constitute minor proportion. Mass products play a major role in the sector while premium hair care products
comprise a negligible proportion in the total sales.
Price cutting
Many players have resorted to price cutting to secure market share. The retail price of Rejoice of P & G, for instance, has
been reduced by 20-30%. In the late 2003, when P & G re-launched Rejoice, it set the price at only 9.9 yuan for the
200ml pack-sized product as a major selling point.
Looking at the sales of shampoos and conditioners, products of P & G, Unilever and C-Bons Group are most popular.
P & G, in particular, is the big winner, with its brand Rejoice, Pantene Pro-V, and Head & Shoulders being the top three
sellers (see Exhibit 10 & 12).
While foreign players play a dominant role in the sales of shampoos and conditioners, the market for other hair care
products including colorants, hair masks and styling agents presents an opposite picture. This market is highly fragmented
and so far, foreign cosmetics enterprises fail to capture a significant share (see Exhibit 11).
Exhibit 10:Brand performance of shampoos & conditioners: share of total sales and market
coverage ratio, 2004
* Share of total sales (%): Sales volume of the brand/ total sales volume
(sales volume refers to the total quantity sold of the product category by the surveyed retailers)
# National market coverage ratio (%): Since China is not a single market but a highly fragmented market composing of
many localized market, CNCIC has compiled this ratio to measure the market coverage of a particular brand in the
national market. For example, a brand with a low market coverage ratio tends to be a regional brand instead of a
national one.
Exhibit 11: Brand performance of other hair care products (colorants, hair mask & styling agents):
share of total sales and market coverage ratio, 2004
Exhibit 12: Most frequently used brands for shampoos (Top 5) in major cities, 2004
(% of respondents)
City Beijing Shanghai Guangzhou Shenzhen Chengdu Chongqing Wuhan Xi’an Shenyang Nanjing
Sample size 6,015 6,991 3,022 3,808 2,017 2,437 3,150 2,084 2,819 2,433
1 Rejoice Rejoice Rejoice Rejoice Rejoice Rejoice Head & Rejoice Rejoice Rejoice
Shoulders
34.6 25.7 47.4 38.3 36.3 33.2 26.8 23.2 24.8 32
2 Head & Head & Pantene Head & Head & Head & Rejoice Head & Head & Head &
Shoulders Shoulders Shoulders Shoulders Shoulders Shoulders Shoulders Shoulders
13.9 17.2 11.6 22.3 16.6 20.3 19.6 20.5 22.1 21.9
3 Pantene Pantene Head & Pantene Pantene Pantene Pantene Pantene Pantene Pantene
Shoulders
11.1 10.6 10.8 10.7 16.3 8 13.1 11.9 10.7 9.9
4 Lux Lux Vidal Vidal Hazeline Lux Slek Hazeline Hazeline Hazeline
Sassoon Sassoon
6.1 9.1 4.8 5.5 4.5 5.2 7.9 8.7 6.1 5.2
5 Hazeline Pantene Hazeline Slek Lux Triatop Hazeline Lux Triatop Lux
6.1 7.3 3 2.6 4 4.6 5.8 5.8 5.9 4.6
Source: IMI Consumer Behaviours & Life Styles Yearbook 2004-2005
Albeit the rapid growth of sales of colorants, the growth rate is not as great as expected since most young people prefer
to have their hair dyed in hair salons, and students are not allowed to have colored hair.
2. Skin care
(1) Maintaining strong growth
Increasing appearance consciousness, backed by surging disposable incomes, has led to the strong growth in the sales
of skin care products. Euromonitor estimated China’s total retail sales of skin care products in 2003 to be 14.2 billion
yuan, almost doubled the 1998 figure. The annual growth rate maintained to be around 13% over the period from 1998
to 2003.
Facial moisturizers take the lion’s share, making up almost 71% of the total sales. According to IMI Consumer Behaviours
& Life Style Yearbook, in most major cities, over 40% of the respondents used facial moisturizers once or twice a day
(see Exhibit 13). Moisturizer is particularly popular in North and Northeast China, such as Beijing, Shanghai and Shenyang,
where the weather is very dry and the chilly winters are usually longer then elsewhere in China.
Many famous global brands have already entered the Mainland market and established their market presence. Among
all, Olay, one of P & G’s brands, ranked first in the total retail sales of skin care products (see Exhibit 14). According to
IMI’s survey, for facial moisturizers, Olay is the most frequently used brand in Shanghai, Guangzhou, Shenzhen, as well
as Chengdu in 2003 (see Exhibit 15). Olay, with a low-end brand image in the past, has been marketed heavily with a
new brand-positioning recently. The advertising expenditure of Olay increased by 160% y-o-y in 2004. Intensive advertising
campaigns and new store image have been redesigned to enhance Olay’s identity in the hearts of Mainland consumers.
Olay’s strategy is, on the one hand, shaping an up-market image and extending its reach to the market’s upper segments,
while on the other hand boosting the sales of its mass products with the upgraded brand image. Apart from opening
beauty counters offering higher-priced products and professional services to tap the mid- to high-end market, Olay is
going to distribute its mass products in over 4,000 small to medium-sized supermarkets in more than 100 Mainland
cities.
Daboa, owned by Beijing San Lu Factory, on the other hand, is the most popular skin care brand among all domestic
players with yearly sales volume hitting 20 million units. IMI’s survey shows that in Beijing, Wuhan, Xi’an, Shenyang and
Nanjing, Daboa was the most frequently used facial moisturizers among the respondents in 2004 (see Exhibit 15).
Exhibit 14: Skin care brands: share of total sales and market coverage ratio, 2004
Share of total National market
Brand Company name sales (%) coverage ratio (%)
Olay ( ) Procter & Gamble (Guangzhou) Ltd 32.51 10.46
Aupres ( ) Shiseido Liyuan Cosmetics Co Ltd 14.11 4.96
L’Oréal ( ) L’Oréal China 7.52 5.26
Dabao ( ) Beijing San Lu Factory 5.33 5.02
Caisy ( ) 5.02 0.76
Longliqi ( ) Jiangsu Longliqi Group Co Ltd 3.79 1.81
Yue-Sai ( ) Yue-Sai Kan-Coty Cosmetics Ltd 2.73 6.60
Mininurse ( ) Raystar Cosmetics (Shenzhen) Co Ltd 2.36 3.80
TJOY ( ) 1.87 2.80
Avon ( ) Avon (China) Co Ltd 0.89 3.21
Others 23.87 55.32
Total 100.00 100.00
Source: China National Commercial Information Centre (CNCIC)
Exhibit 15:Most frequently used brands for facial moisturizers (Top 5) in major cities, 2004
(% of consuming respondents)
City Beijing Shanghai Guangzhou Shenzhen Chengdu Chongqing Wuhan Xi’an Shenyang Nanjing
Sample Size 6,013 6,987 3,021 3,810 2,019 2,437 3,151 2,081 2,822 2,435
1 Dabao Olay Olay Olay Olay Olay Dabao Dabao Dabao Dabao
35.7 15.7 26.4 25.4 17 17.2 24 23.3 23.2 18.4
2 Olay Dabao Mininurse Dabao Dabao Dabao Olay Olay Olay Olay
11.1 13.5 8.3 11.9 16.7 11.8 15.5 10 10 13.8
3 Mininurse Pond’s Johnson & Mininurse Mininurse Yu Mei Jing Mininurse Mininurse Mininurse Yu Mei Jing
Johnson
5.7 8.6 8 7.4 9 9.1 8.7 8.9 6.5 8
4 Yu Mei Jing Mininurse Caisy Caisy Baby Avon Avon Maxam You Yi Balei
Cream
5.4 7.4 7.7 6.3 7.7 7.2 4.5 5.2 6.2 7.4
5 Aupres Vaseline Avon TJOY TJOY Baby Cream Maxam Clean & Longliqi Mininurse
Clear
5 5.4 7.1 4.7 4.5 6.9 4.2 5.1 5.7 4.5
Source: IMI Consumer Behaviors & Life Styles Yearbook 2004-2005
As the mid-aged consumers are more affluent now, they are willing to pay high prices for anti-ageing products to stay
young looking. They look for products that combine cosmetics with vitamins, herbs, and sometimes pharmaceuticals.
New technologies, such as biochemical technology, have led to the advancement of the whole cosmetics sector. They
allowed for the creation of multi-function products, which perform more than their basic roles. Vitamins A and C, and
other new ingredients are widely used in production to provide special functions such as UV protection. Multi-function
products are well received by the consumers because they place strong emphasis on value for money in skin care
product purchases.
Being more health-conscious and more aware of the side effects that synthetic products may bring, Mainland consumers
favor skin care products made by natural ingredients, which are believed to have less detrimental effects. Natural
ingredients such as herbal essences and fruit extracts are popular ingredients used in skin care production.
3. Color cosmetics
(1) Moderate growth at present but huge potential expected in the long run
Compared with hair care and skin care products, color cosmetics is less prevalent on the Mainland. According to
Euromonitor, the total retail sales of color cosmetics in 2003 was about 3.8 billion yuan, up by 9.57% y-o-y. Though,
color cosmetics sector has recorded considerable sales growth in the previous years demonstrated by the 60% increase
in sales over the period from 1998 to 2003, China’s per capita expenditure on color cosmetics remains very low compared
with the developed countries.
The main factors driving the growth in this sector were rising living standards, increased product awareness and changing
habits of young women. Official statistics showed that young women between 18 and 30 years old were most active in
using color cosmetics. In recent years, more young women on the Mainland are joining the workforce and need to wear
make-up. Becoming more financially independent, these women are expected to spend more on color cosmetics.
While working women are the traditional main consumers of color cosmetics, young women aged around 20 have
gradually become an important consumer group. Heavily influenced by the fashions from Hong Kong, Japan and Korea,
many young women, especially those living in the southern region, have become more appearance-conscious and
begun to use make-up such as lipsticks, nail varnishes and foundations. Many brands have already launched lower
priced product lines to cater for this less financially independent group, for example, Up2U from Avon and Za from
Shiseido.
Nonetheless, the majority of young women reside in rural areas. Most of them are not working in office and are less
exposed to Western culture. They are still not used to wearing heavy make-up yet. In daily life, they use color cosmetic
products no more than lipsticks. Therefore, it is anticipated that the growth of the color cosmetics sector, led by the
urban market, will tend to be moderate in the coming few years.
Looking at the other side of the coin, huge market potential exists in the long run. It is only a matter of time for its market
potential to be fully unleashed. China’s color cosmetics market is still far from mature due to its short history. Many
consumers have not yet exposed themselves to use color cosmetic products to date. With rising income and growing
public awareness of how to use these products through education and advertising, there should be an increasing
number of consumers using color cosmetics.
L’Oréal China is the biggest player in color cosmetics sector (see Exhibit 18). One of its brands, Maybelline, has achieved
overwhelming success and has become the master brand of cosmetics in China. Exhibit 19 shows that Maybelline,
accounting for significant market share, was the most frequently used brands in all major cities. Maybelline’s success is
largely attributable to its extensive distribution network, impressive brand image, massive advertising, reasonable pricing
and wide range of product offerings. Maybelline’s lipsticks can be found not only in department stores but also in
supermarkets, enabling it to attain high market penetration.
Yue-Sai, targeting at the mass market, is also a very popular brand in this sector. This brand, originally belonged to Yue-Sai
Kan-Coty Cosmetics Ltd, was taken over by L’Oréal in early 2004 as a strategic step to enhance its distribution network.
Exhibit 18:Color cosmetics brands: share of total sales and market coverage ratio, 2004
Exhibit 19: Most frequently used brands for lipsticks (Top 5) in major cities, 2004
(% of consuming respondents)
City Beijing Shanghai Guangzhou Shenzhen Chengdu Chongqing Wuhan Xi’an Shenyang Nanjing
Sample Size 2,809 3,285 1,501 1,892 955 1,153 1,510 987 1,383 1,110
1 Maybelline Maybelline Maybelline Maybelline Maybelline Maybelline Maybelline Maybelline Maybelline Maybelline
37.9 23.8 36.7 33.2 40.6 42.6 41.9 49 30.4 23.1
2 Avon Yue-Sai Avon Mentholatum Yue-Sai Avon Avon Avon Avon TJOY
7.5 7.6 17.4 9 5.6 9.2 11.1 8.8 6.3 9.7
3 Yue-Sai Mentholatum Amway Caisy Lan gui ren Mentholatum Caisy Yue-Sai TJOY Cheng
Aritistry Ming Ming
7.2 6.8 7 7.3 4 5.5 4.4 6.7 4.6 9
4 Aupres Red Earth Olay Avon Avon L’Oréal Kose L’Oréal Dabao Mentholatum
5.2 6.5 6.1 6.1 3.5 3.9 4.3 4.9 3.7 8.5
5 L’Oréal L’Oréal L’Oréal Yue-Sai Elegbacae Aupres Amway Kose Kiss Me De Bon
Aritistry
4.9 5.4 5.7 5.1 3.3 3.8 4.1 2.9 3.6 4.4
Source: IMI Consumer Behaviors & Life Styles Yearbook 2004-2005
Besides, a number of measures have been carried out to combat the production and sales of counterfeit and substandard
products. Modest success has been achieved up to now and the PRC government is expected to take further steps to
improve the situation.
Products made of natural extracts will also be on great demand. As a result of press reports on a rising number of
harmful cosmetics combined with the sudden outbreak of mad cow disease, Mainland consumers have been more alert
to the safety of cosmetic products. Hence, they are paying more attention to health-friendly, safe and effective cosmetics.
Those products processed from natural and green ingredients containing no preservatives, and no or least harmful
chemicals are getting more popular in China. Since Chinese consumers tend to believe in traditional Chinese herbal
medicine, cosmetics using natural herbs appear to be appealing to many users. Experts predict that in the next 5 to 10
years, Chinese herbal medicines may play a bigger role if researchers can solve such problems as purification techniques
and conduct more scientific analyses on the nature and quantity of the effective elements of Chinese herbal medicine.
China National Commercial Information Centre, formerly The Li & Fung Group is a Hong Kong-based multinational
under the Ministry of Internal Trade of PRC, is a reputable company consisting of three distinct core businesses:
national statistics centre in commercial area. Authorized export trading, distribution and retailing. Founded in
by the State, CNCIC is responsible for collecting, Guangzhou in 1906, Li & Fung Group, with an annual
compiling, analyzing and releasing market data; and turnover exceeding US$7 billion, operates in some 40
producing magazines, reports and numerous countries and regions and employs over 13,000 people
publications. One of the important functions of CNCIC worldwide. Its core competency is Supply Chain
is to provide support for the government officials and Management (SCM).
bodies in formulating macro-control policies in the
commercial area. Li & Fung Research Centre (“the Centre”) researches
and publishes reports on wide-ranging topics: Chinese
CNCIC possesses a powerful database and data tracking economy, consumer market, retail sector, trade-related
system. Over 300 large-scale retail enterprises report issues, and FMCG industries etc. Apart from providing
their sales data and other detailed information to CNCIC consultancy services for the Group and its clients, the
every month. Apart from that, CNCIC also has special Centre also participates in formulating business strategies
access to more than 5,000 commercial enterprises’ in the Mainland market.
yearly statistical and financial data.
The Centre also helps to establish Li & Fung’s thought-
With a wealth of market data, comprehensive coverage leadership in SCM and has been promoting the application
and well-developed information system, CNCIC is of SCM. In 2003, the Centre published the book “The
known for excellence in providing information-based Orchestrator of Global Supply Chain Management”,
solutions for enterprises, such as formulating strategic which is regarded as a very useful reference among
expansion plan and conducting marketing research on businessmen and academics on the Mainland, Taiwan
the Mainland. and Hong Kong.
* Special thanks to China Association of Fragrance Flavour and Cosmetic Industries, China Cosmetics Review, and
Beijing Lufthansa Shopping Centre for their valuable inputs.
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